OMAB

Business Context and Reporting Period

Company: Central North Airport Group (Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2009
Accounting Standards: Mexican Financial Reporting Standards (MFRS) with reconciliation to U.S. GAAP.
Operations: The company holds 50-year concessions to operate, maintain, and develop 13 airports in Mexico's central and northern regions. Key airports include Monterrey (45.5% of 2009 revenues), Acapulco, Mazatlán, and Culiacán. The business is heavily regulated by the Ministry of Communications and Transportation regarding aeronautical fees.

Key Financial Metrics (2009)

Note: U.S. Dollar amounts are translated at the period-end rate of Ps. 13.06 to U.S.$1.00. Significant differences between MFRS and U.S. GAAP net income arise from the treatment of concession assets and deferred taxes.

Material Changes vs. Prior Period (2008)

• Revenue Decline: Total revenues decreased 4.6% to Ps. 1,896.3 million, driven by a 5.6% drop in aeronautical revenue and a 0.5% drop in non-aeronautical revenue.
• Traffic Volume: Total terminal passengers fell 18.1% to 11.5 million (from 14.1 million in 2008). International traffic dropped 22.4%, while domestic traffic fell 17.2%.
• Profitability: Operating income decreased 18.6% to Ps. 559.4 million. Net income (MFRS) declined 13.3% to Ps. 469.5 million.
• Cost Management: Despite revenue declines, operating costs increased only 2.7% due to reductions in employee costs and utilities, partially offset by a 12.3% increase in depreciation and amortization.
• Per Passenger Metrics: Non-aeronautical revenue per terminal passenger increased 21.6% to Ps. 32.1, reflecting successful commercial expansion despite lower traffic.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Management Commentary

• Economic Recovery: Management notes signs of improvement in the U.S. and Mexican economies in Q4 2009 but expects international and domestic passenger traffic to remain depressed until economic conditions fully recover.
• Regulatory Renegotiation: Maximum rates and efficiency adjustments for the 2011-2016 period are to be renegotiated with the Ministry of Communications and Transportation in 2010. The outcome is uncertain and could materially impact future profitability.
• Strategic Investments: The company continues to invest in commercial activities, including the Terminal 2 Hotel at Mexico City International Airport (opened August 2009) and land acquisitions for future expansion.

Risks and Contingencies

• Regulatory Risk: Approximately 80.5% of revenues are subject to price regulation. Failure to comply with maximum rates or investment obligations could result in fines or concession termination.
• Security and Crime: High incidences of crime and drug trafficking in northern Mexico (specifically Ciudad Juárez and Monterrey) pose risks to passenger traffic and operations.
• Airline Insolvency: The company faces credit risk from major airline customers. Several carriers (Aviacsa, Alma, Aladia, Avolar) ceased operations in 2008-2009, impacting traffic and creating collection risks.
• Legal Proceedings: Ongoing litigation regarding land ownership at Ciudad Juárez International Airport and property tax claims from various municipalities.
• Health Crises: The H1N1 influenza outbreak in 2009 caused temporary travel reductions, though restrictions were lifted by mid-2009.

Key Facts for Investor Verification

• Concession Asset Valuation: Verify the significant difference between MFRS and U.S. GAAP equity and net income, which stems from the capitalization of concession rights under MFRS versus their exclusion under U.S. GAAP.
• Regulatory Rate Setting: Monitor the 2010 negotiations for the 2011-2016 maximum rates, as this will dictate future revenue ceilings.
• Airline Customer Concentration: Verify the financial stability of top customers (Aeroméxico, Mexicana, VivaAerobus), which collectively accounted for over 50% of aeronautical revenues in 2009.
• Parent Company Debt Covenants: Review the refinancing agreements of the parent company (Aeroinvest), which require the company to distribute available cash as dividends and restrict certain capital expenditures and debt incurrence.
• Non-Aeronautical Growth: Assess the sustainability of the 21.6% increase in non-aeronautical revenue per passenger as a hedge against regulated aeronautical revenue declines.