form20f.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
Form 20-F
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007

 
Commission File Number: 1-33168
 
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V.
(Exact name of registrant as specified in its charter)
 
Central North Airport Group
 
United Mexican States
(Translation of registrant’s name into English)
 
(Jurisdiction of incorporation or organization)
 
Aeropuerto Internacional de Monterrey
Zona de Carga
Carretera Miguel Alemán, Km. 24 s/n
66600 Apodaca, Nuevo León, Mexico
(Address of principal executive offices)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
   
Name of each exchange
Title of each class:
 
on which registered
   
American Depositary Shares each representing 8 Series B shares
 
The NASDAQ Stock Market LLC  
     
Series B shares
 
The NASDAQ Stock Market LLC*
 

 
 
*
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
N/A
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 
 
Title of each class:
 
Number of Shares
Series B Shares
 
341,200,000

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes £ No T
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.
Yes £ No T
 
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP o
 
IFRS o
 
Other þ
 
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 o Item 18 þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes o No þ
 


 
 

 
 
TABLE OF CONTENTS
 
        Page 
         
ITEM 1.
   
1
       
 
ITEM 2.
   
1
       
 
ITEM 3.
   
1
       
 
     
1
       
 
     
4
       
 
     
5
       
 
     
23
       
 
ITEM 4.
   
23
       
 
     
23
       
 
     
29
       
 
     
60
       
 
     
79
       
 
     
80
       
 
ITEM 4A.
   
80
       
 
ITEM 5.
   
80
       
 
ITEM 6.
   
104
       
 
ITEM 7.
   
119
       
 
     
119
       
 
     
122
       
 
ITEM 8.
   
124
       
 
     
124
       
 
     
126
       
 
ITEM 9.
   
129
       
 
     
129
       
 
     
129
       
 
ITEM 10.
   
130
       
 
     
130
       
 
     
146
       
 
     
147
       
 
     
147
       
 
     
150
       
 
ITEM 11.
   
150
 
i

 
TABLE OF CONTENTS
(continued)
 
        Page 
         
ITEM 12.
   
151
         
ITEM 13.
   
152
         
ITEM 14.
   
152
         
ITEM 15.
   
152
         
ITEM 16.
   
154
         
ITEM 16A.
   
154
         
ITEM 16B.
   
154
         
ITEM 16C.
   
155
         
ITEM 16D.
   
155
         
ITEM 16E.
   
155
         
ITEM 17.
   
157
         
ITEM 18.
   
158
         
ITEM 19.
   
159


PART I
 
Identity of Directors, Senior Management and Advisers
 
Not applicable.
 
Offer Statistics and Expected Timetable
 
Not applicable.
 
Item 3.
Key Information
 
SELECTED FINANCIAL DATA
 
We publish our financial statements in Mexican pesos.  Pursuant to Mexican Financial Reporting Standards accepted in Mexico (Normas de Información Financiera), or Mexican FRS, financial data for all periods in the financial statements included in Items 3, 5 and 8 and, unless otherwise indicated, throughout this Form 20-F have been restated in constant pesos as of December 31, 2007.
 
This Form 20-F contains translations of certain peso amounts into U.S. dollars at specified rates solely for the convenience of the reader.  These translations should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated.  Unless otherwise indicated, U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps. 10.92 to U.S.$1.00, the exchange rate for pesos on December 31, 2007, as published by Banco de Mexico, the Mexican Central Bank.  On May 30, 2008 the Federal Reserve Bank of New York’s noon buying rate for Mexican pesos was Ps. 10.33 to U.S.$1.00.
 
The following tables present a summary of our audited consolidated financial information and that of our subsidiaries for each of the periods indicated.  This information should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes thereto.  Our consolidated financial statements are prepared in accordance with Mexican FRS, which differs in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP.  Information under U.S. GAAP is also provided in this summary financial data.  Mexican FRS varies in certain significant respects from U.S. GAAP. Information relating to the nature and effect of such differences is presented in Note 21 to the consolidated financial statements.
 
Mexican FRS provides for the recognition of certain effects of inflation by restating non-monetary assets and non-monetary liabilities using the Mexican National Consumer Price Index, or NCPI, restating the components of stockholders’ equity using the NCPI and recording gains or losses in purchasing power from holding monetary liabilities or assets.  Mexican FRS requires the restatement of all financial statements to constant Mexican pesos as of the date of the most recent balance sheet presented.  Our audited financial statements and all other financial information contained herein are accordingly presented in constant pesos with purchasing power as of December 31, 2007 unless otherwise noted.
 
Effective January 1, 2008, we adopted several accounting changes pursuant to Mexican FRS and their interpretations (INIFs). In particular as per NIF B-10, “Effects of Inflation”, the effects of inflation will no longer be recognized in financial statements, effective January 1, 2008, in a non-inflationary environment. From such date on, the recording of inflation effects will only be required in an environment where cumulative inflation over the three preceding years is equal too or greater than 26%. As a result of this change, we expect our financial statements in 2008 and subsequent periods to be expressed in nominal pesos.
 

References in this annual report on Form 20-F to “dollars,” “U.S. dollars” or “U.S.$” are to the lawful currency of the United States of America.  References in this annual report on Form 20-F to “pesos” or “Ps.” are to the lawful currency of Mexico.  We publish our financial statements in pesos.
 
This annual report on Form 20-F contains references to “workload units,” which are units measuring an airport’s passenger traffic volume and cargo volume.  A workload unit currently is equivalent to one terminal passenger or 100 kilograms (220 pounds) of cargo.
 
The summary financial and other information set forth below reflects our financial condition, results of operations and certain operating data since the year ended December 31, 2003.

   
Year ended December 31,
 
   
2003
   
2004
   
2005
   
2006
   
2007
 
   
(in thousands of constant Mexican pesos as of December 31, 2007)
   
(thousands of dollars) (1)
 
                                     
Statement of Income data:
                                   
Mexican FRS:
                                   
Revenues:
                                   
Aeronautical services(2)
    1,006,085       1,083,709       1,192,249       1,370,968       1,549,827       141,926  
Non-aeronautical services(3)
    198,246       250,719       287,628       316,343       347,526       31,825  
Total revenues
    1,204,331       1,334,428       1,479,877       1,687,311       1,897,353       173,751  
Operating costs:
                                               
Costs of services
    341,134       358,555       389,037       397,465       420,777       38,533  
General and administrative expenses
    255,559       242,066       244,707       237,475       256,730       23,510  
Technical assistance fee(4)
    39,533       40,215       40,016       49,541       57,416       5,258  
Concession tax(5)
    59,128       64,882       72,643       84,635       98,307       9,002  
Depreciation and amortization:
                                               
Depreciation(6)
    183,225       198,076       209,093       262,530       263,569       24,136  
Amortization(7)
    17,772       17,771       18,712       29,566       72,633       6,652  
Total depreciation and amortization
    200,997       215,847       227,805       292,096       336,202       30,788  
Total operating costs
    896,351       921,565       974,208       1,061,212       1,169,432       107,091  
Income from operations
    307,980       412,863       505,669       626,099       727,921       66,659  
Other income (expenses) net
    2,790       4,607       3,853       (30,679 )     (7,584 )     (695 )
Net comprehensive financing income (expense)
    25,909       (15,343 )     29,613       70,328       96,218       8,811  
Income before income taxes
    336,680       402,129       539,135       665,748       816,555       74,776  
Income tax expense(15)
    145,471       93,858       158,029       196,511       785,363       71,920  
Consolidated net income
    191,208       308,269       381,106       469,237       31,192       2,856  
Basic and diluted earnings per share(8)
    0.4878       0.7864       0.9722       1.1874       0.0781       0.0072  
Basic and diluted earnings per ADS(8)
    3.9023       6.2911       7.7778       9.3848       0.6248       0.0572  
                                                 
U.S. GAAP:
                                               
Revenues
            1,334,429       1,479,878       1,687,311       1,897,353       173,750  
Income from operations
            486,374       600,249       697,879       811,103,       74,277  
Consolidated net income
            184,107       445,812       548,798       (118,318 )     (10,835 )
Basic (loss) earnings per share(8)
            0.4732       1.1459       1.4014       (0.2961 )     (0.0271 )
Diluted (loss) earnings per share(9)
            0.4696       1.1372       1.3909       (0.2961 )     (0.0271 )
Basic (loss) earnings per ADS(8)
            3.7860       9.1673       11.2110       (2.3688 )     (0.2169 )
Diluted (loss) earnings per ADS(9)
            3.7569       9.0976       11.1271       (2.3688 )     (0.2169 )
                                                 
Other operating data:
                                               
Total terminal passengers (thousands of passengers)(10)
    8,853       9,739       10,599       11,784       12,705       12,705  
Total air traffic movements (thousands of movements)
    333       346       362       383       424       424  
Total revenues per terminal passenger(11)
    136       137       139       143       149       14  
Other data:
                                               
EBITDA:
                                               
Consolidated net income under Mexican FRS
    191,209       308,270       381,106       469,237       31,192       2,856  
Minus:
                                               
Net comprehensive financing income (expense)
    25,909       (15,343 )     29,613       70,328       96,218       8,811  
Plus:
                                               
Income tax expense
    145,471       93,858       158,029       196,511       785,363       71,920  
Depreciation and amortization
    200,997       215,847       227,805       292,096       336,202       30,788  
EBITDA(12)
    511,768       633,318       737,327       887,516       1,056,539       96,753  

 
   
As of and for the year ended December 31,
 
   
2003
   
2004
   
2005
   
2006
   
2007
 
   
(in thousands of constant Mexican pesos as of December 31, 2007) (1)
   
(thousands of dollars)(2)
 
                                     
Balance sheet data:
                                   
Mexican FRS:
                                   
Cash and cash equivalents
    966,666       1,298,715       1,706,604       1,672,994       1,756,704       160,870  
Total current assets
    1,237,951       1,541,683       2,009,260       2,143,271       2,084,057       190,848  
Airport concessions—net
    817,511       799,743       781,971       764,198       746,426       68,354  
Rights to use airport facilities—net
    4,503,665       4,377,906       4,252,072       4,126,235       4,000,390       366,336  
Total assets
    7,687,610       8,054,256       8,591,575       8,873,950       9,134,388       836,482  
Current liabilities
    130,122       152,587       155,331       184,236       407,096       37,280  
Total liabilities
    529,932       588,307       744,522       891,999       1,660,046       152,019  
Total stockholders’ equity(13)
    7,157,678       7,465,949       7,847,053       7,981,951       7,474,342       684,464  
U.S. GAAP:
                                               
Cash and cash equivalents
            1,298,715       1,706,604       1,672,994       1,756,704       160,870  
Total current assets
            1,561,685       2,009,260       2,143,271       2,084,057       190,848  
Assets under concession (“Rights to use airport facilities” under Mexican FRS)
            997,631       957,456       917,497       877,388       80,347  
Total assets
            4,731,229       5,220,539       5,495,086       5,263,692       482,023  
Current liabilities
            154,429       184,870       203,844       421,398       38,590  
Total liabilities
            204,683       240,789       264,653       680,277       42,787  
Total stockholders’ equity(13)
            4,526,547       4,979,750       5,230,433       4,583,415       62,296  
Dividend per share
                            1.1167       1.1103       0.1017  
Other data:
                                               
Mexican FRS:
                                               
Net resources generated by operating activities
    523,870       610,987       701,405       729,090       1,070,588       98,039  
Net resources used in financing activities
                            (322,465 )     (328,868 )     (30,116 )
Net resources used in investing activities
    (389,151 )     (278,938 )     (293,516 )     (440,235 )     (658,010 )     (60,257 )
Increase in cash and cash equivalents
    134,719       332,049       407,889       (33,610 )     83,710       7,666  
U.S. GAAP:(14)
                                               
Net cash provided by operating activities
            606,224       692,739       694,103       1,036,011       94,873  
Net cash used in investing activities
            (278,819 )     (286,083 )     (458,262 )     (657,018 )     (60,166 )
Net cash used in financing activities
            -       -       (322,465 )     (328,868 )     (30,116 )
Effect of inflation accounting
            4,645       1,234       53,014       33,585       3,075  
Increase (decrease) in cash and cash equivalents
            332,049       407,889       (33,610 )     83,710       7,666  

_______________________

(1)
Translated into dollars at the rate of Ps.10.92 per U.S. dollar, the U.S. Federal Reserve noon buying rate for Mexican pesos at December 31, 2007. Per share dollar amounts are expressed in dollars (not thousands of dollars). Operating data is expressed in units indicated.
(2)
Revenues from aeronautical services principally consist of a fee for each departing passenger, aircraft landing fees based on the aircraft’s weight and arrival time, an aircraft parking fee, a fee for the transfer of passengers from the aircraft to the terminal building, a security charge for each departing passenger and other sources of revenues subject to regulation under our maximum rates.
(3)
Revenues from non-aeronautical services consist of sources of revenues not subject to regulation under our maximum rates, and consist of revenues from car parking charges, leasing of commercial space to tenants, advertising, taxis and other ground transportation providers and other miscellaneous sources of revenues.  Pursuant to our concessions and to the Airport Law and the regulations thereunder, parking services are currently excluded from aeronautical services under our maximum rates, although the Ministry of Communications and Transportation could decide to regulate such rates, and such rates may be regulated by other authorities.
(4)
On January 1, 2001, we began paying SETA a technical assistance fee under the technical assistance agreement entered into in connection with SETA’s purchase of its Series BB shares. This fee is described in “Item 7.  Major Shareholders and Related Party Transaction – Related Party Transactions – Arrangements with SETA.”
(5)
Each of our subsidiary concession holders is required to pay a concession tax to the Mexican government under the Mexican Federal Duties Law for the use of public domain assets pursuant to the terms of its concession. The concession tax is currently equal to 5% of each concession holder’s gross annual revenues.
(6)
Reflects depreciation of fixed assets.
(7)
Reflects amortization of airport concessions and rights to use airport facilities.
(8)
For Mexican FRS purposes, based on 392,000,000 weighted average common shares outstanding in 2003 through 2005, 395,173,149 weighted average common shares outstanding in 2006 and 399,611,578 weighted average common shares outstanding in 2007. For U.S. GAAP purposes, based on 389,060,000 weighted average common shares outstanding in 2005, 391,624,384 weighted average common shares outstanding in 2006 and 399,611,578 weighted average common shares outstanding in 2007. Earnings per ADS are based on the ratio of 8 Series B shares per ADS.
(9)
Based on 392,022,615, 394,564,384 and 402,551,578 weighted average common shares and common share equivalents outstanding for the year ended December 31, 2005, 2006 and 2007, respectively. Earnings per ADS is based on the ratio of 8 Series B shares per ADS.
(10)
Includes arriving and departing passengers as well as transfer passengers (passengers who arrive at our airports on one aircraft and depart on a different aircraft). Excludes transit passengers (passengers who arrive at our airports but generally depart without changing aircraft).
(11)
Total revenues for the period divided by terminal passengers for the period. Expressed in pesos (not thousands of pesos).
(12)
EBITDA represents net income minus net comprehensive financing income plus income tax expense and depreciation and amortization. EBITDA should not be considered as an alternative to net income, as an indicator of our operating performance, or as an alternative to cash flow as an indicator of liquidity. Our management believes that EBITDA provides a useful measure of our performance that is widely used by investors to evaluate our performance and compare it with other companies.  In making such comparisons, however, investors should bear in mind that EBITDA is not defined and is not a recognized financial measure under Mexican FRS or U.S. GAAP, and that EBITDA may be calculated differently by different companies.  EBITDA as presented in this table is not equivalent to our operating income (prior to deducting depreciation and amortization and the technical assistance fee), which is used as the basis for calculation of our technical assistance fee.
(13)
Total stockholders’ equity under Mexican FRS reflects the value assigned to our concessions. Under U.S. GAAP, no value has been assigned to our concessions.
(14)
U.S. GAAP cash flow data is expressed in nominal Mexican pesos.
(15)
2007 balances include the effects of the new Mexican Flat Tax.  (Please refer to Income Tax, Item 5. Operating and Financial Review and Prospects) In accordance with Mexican FRS as required by INIF 4, “ Presentation of Employee Statutory Profit-Sharing in the Income Statement”, beginning on January 1, 2007, employee statutory profit-sharing is presented in other expense, net. For comparability purposes, the financial information for the previous years in the table above also reflects statutory employee profit-sharing in other income-net.


EXCHANGE RATES
 
The following table sets forth, for the periods indicated, the high, low, average and period-end, free-market exchange rate expressed in pesos per U.S. dollar.  The average annual rates presented in the following table were calculated using the average of the exchange rates on the last day of each month during the relevant period.  The data provided in this table is based on noon buying rates published by the Federal Reserve Bank of New York for cable transfers in Mexican pesos.  We have not restated the rates in constant currency units.  All amounts are stated in pesos.  We make no representation that the Mexican peso amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all.
 
   
Exchange Rate
 
Year Ended December 31,
 
High
   
Low
   
Period End
   
Average(1)
 
2003
  11.40     10.11     11.24     10.79  
2004
  11.64     10.81     11.15     11.31  
2005
  11.41     10.41     10.63     10.88  
2006
  11.46     10.43     10.80     10.91  
2007
  11.27     10.67     10.92     10.93  
December 2007
  10.92     10.80     10.92     10.85  
2008:
                       
January 2008
  10.97     10.82     10.82     10.91  
February 2008
  10.82     10.67     10.73     10.77  
March 2008
  10.85     10.63     10.63     10.73  
April 2008
  10.60     10.44     10.51     10.51  
May 2008
  10.57     10.31     10.33     10.44  
_______________
(1)
Average of month-end rates or daily rates, as applicable.
Source: 
 Federal Reserve noon buying rate.
 
Except for the period from September through December 1982, during a liquidity crisis, the Mexican Central Bank has consistently made foreign currency available to Mexican private-sector entities (such as us) to meet their foreign currency obligations. Nevertheless, in the event of renewed shortages of foreign currency, there can be no assurance that foreign currency would continue to be available to private-sector companies or that foreign currency needed by us to service foreign currency obligations or to import goods could be purchased in the open market without substantial additional cost.
 
Fluctuations in the exchange rate between the peso and the U.S. dollar will affect the U.S. dollar value of securities traded on the Mexican Stock Exchange, and, as a result, will likely affect the market price of the ADSs.  Such fluctuations will also affect the U.S. dollar conversion by the depositary of any cash dividends paid in pesos.
 
On December 31, 2007, the Federal Reserve noon buying rate was Ps. 10.92 per U.S.$1.00.  On May 30, 2008, the Federal Reserve noon buying rate was Ps. 10.33 per U.S. $1.00.
 
For a discussion of the effects of fluctuations in the exchange rates between the peso and the U.S. dollar, see “Item 10.  Additional Information—Exchange Controls.”
 
 
RISK FACTORS
 
Risks Related to the Regulation of Our Business
 
We provide a public service regulated by the Mexican government and our flexibility in managing our aeronautical activities is limited by the regulatory environment in which we operate.
 
Our aeronautical fees charged to airlines and passengers are regulated, like most airports in other countries.  In 2005, 2006 and 2007, approximately 80.6%, 81.3% and 81.7%, respectively, of our total revenues were earned from regulated services, which are subject to price regulation under our maximum rates.  These regulations may limit our flexibility in operating our aeronautical activities, which could have a material adverse effect on our business, results of operations, prospects and financial condition.  In addition, several of the regulations applicable to our operations that affect our profitability are authorized (as in the case of our master development programs) or established (as in the case of our maximum rates) by the Ministry of Communications and Transportation for five-year terms.  Except under limited circumstances, we generally do not have the ability to unilaterally change our obligations (such as the investment obligations under our master development programs or the obligation under our concessions to provide a public service) or increase our maximum rates applicable under those regulations should the passenger traffic or other assumptions on which the regulations were based change during the applicable term.  In addition, there can be no assurance that this price regulation system will not be amended in a manner that would cause additional sources of our revenues to be regulated.
 
We cannot predict how the regulations governing our business will be applied.
 
Many of the laws, regulations and instruments that regulate our business were adopted or became effective in 1999, and there is only a limited history that would allow us to predict the impact of these legal requirements on our future operations.  In addition, although Mexican law establishes ranges of sanctions that might be imposed should we fail to comply with the terms of one of our concessions, the Mexican Airport Law (Ley de Aeropuertos) and its regulations or other applicable law, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges.  We cannot assure that we will not encounter difficulties in complying with these laws, regulations and instruments.
 
Moreover, when determining our maximum rates for the next five-year period (from 2011 to 2015), the Ministry of Communications and Transportations may be lobbied significantly by different entities (such as, for example, the Mexican Competition Commission and the carriers operating at our airports) to impose rates that reduce our profitability. Therefore, there can be no assurance that the laws and regulations governing our business, including the rate-setting process and the Mexican Airport Law, will not change in the future or be applied or interpreted in a way that could have a material adverse effect on our results of operations.
 
On October 1, 2007, the Chairman of the Mexican Federal Competition Commission (Comisión Federal de Competencia, or the “Competition Commission” or COFECO) released an independent report on the competitiveness of Mexico’s airports relative to each other and to international airports.  The Competition Commission Chairman’s report made the following recommendations as ways to increase efficiency at Mexican airports:
 
 
·
make economic efficiency a basis of tariff regulation for new concessions;
 
 
·
include income from commercial services as one of the factors in determining tariffs for new concessions;
 

 
·
strengthen the independence of the regulatory agency and increase the transparency of airport regulation;
 
 
·
promote greater efficiency in scheduling at airports with heavy volumes of passenger traffic;
 
 
·
promote greater competition between airports;
 
 
·
eliminate Aeropuertos y Servicios Auxiliares’ (“ASA”) role as exclusive fuel service provider;
 
 
·
eliminate barriers to entry for taxi providers at airports; and
 
 
·
be mindful of vertical integration among airports and airlines.
 
The regulations pursuant to which the maximum rates applicable to our aeronautical revenues are established do not guarantee that our consolidated results of operations, or that the results of operations of any airport, will be profitable.
 
The regulations applicable to our aeronautical activities establish an annual maximum rate for each airport, which is the maximum annual amount of revenues per workload unit (which is equal to one terminal passenger or 100 kilograms (220 pounds) of cargo) that we may earn at that airport from services subject to price regulation.  The maximum rates for our airports have been determined by the Ministry of Communications and Transportation for each year through December 31, 2010.  In December 2005, the Ministry of Communications and Transportation determined, based on the terms of our concessions, the maximum rates for our airports from January 1, 2006 through December 31, 2010.  Under the terms of our concessions, there is no guarantee that the results of operations of any airport will be profitable.
 
Our concessions provide that an airport’s maximum rates will be adjusted periodically for inflation (determined by reference to the Mexican producer price index, excluding fuel).  Although we are entitled to request additional adjustments to an airport’s maximum rates under certain circumstances including, among others, required capital investments not foreseen in the master development programs, decreases in capital investments attributable to Mexican economy-related passenger traffic decreases or modifications of the concession tax payable by us to the Mexican government, our concessions provide that such a request will be approved only if the Ministry of Communications and Transportation determines that certain limited events specified in our concessions have occurred.  Therefore, there can be no assurance that any such request would be granted.  If a request to increase an airport’s maximum rates is not granted, our results of operations and financial condition could be adversely affected, and the value of Series B shares and ADSs could decline.
 
If we exceed the maximum rate at any airport at the end of any year, we could be subject to sanctions.
 
Historically, we have set the prices we charge for aeronautical services at each airport in order to come as close as possible to its authorized maximum rate for that airport in any given year.  For example, in 2007, our revenues subject to maximum rate regulation represented approximately 86.3% of the amounts we were entitled to earn under the maximum rates for all of our airports.  There can be no assurance that we will be able to establish prices in the future that allow us to collect substantially all of the revenue we are entitled to earn from services subject to price regulation.
 
The specific prices we charge for aeronautical services are determined based on various factors, including projections of passenger traffic volumes, the Mexican producer price index (excluding fuel) and the value of the peso relative to the U.S. dollar.  These variables are outside of our control.  Our projections could differ from the applicable actual data, and, if these differences occur at the end of any year, they could cause us to exceed the maximum rate at any one or more of ours airports during that year.
 


If we exceed the maximum rate at any airport at the end of any year, the Ministry of Communications and Transportation may assess a fine and may reduce the maximum rate at that airport in the subsequent year.  The imposition of sanctions for violations of certain terms of a concession, including for exceeding an airport’s maximum rate, can result in termination of the concession if the relevant term has been violated and sanctions have been imposed at least three times.  In the event that any one of our concessions is terminated, our other concessions may also be terminated. As of today, no sanctions have been imposed for any reason with respect to any of our concessions.
 
The Mexican government may terminate or reacquire our concessions under various circumstances, some of which are beyond our control.
 
Our concessions are our principal assets, and we would be unable to continue operations without them.  A concession may be revoked by the Mexican government for certain prescribed reasons, including failure to comply with our master development programs, a temporary or permanent halt in our operations, actions affecting the operations of other concession holders in Mexico, failure to pay damages resulting from our operations, exceeding our maximum rates or failure to comply with any other material term of our concessions.  Violations of certain terms of a concession (including violations for exceeding the applicable maximum rate) can result in revocation of a concession only if sanctions have been imposed for violations of the relevant term at least three times.  Violations of other terms of a concession can result in the immediate termination of the concession.  Our concessions may also be terminated upon our bankruptcy or insolvency.  Violations of the Mexican Airport Law or its regulation could result in similar sanctions.  In the event that any one of our concessions is terminated, our other concessions may also be terminated.  For a discussion of events that may lead to a termination of a concession, see “Item 4. Information on the Company—Regulatory Framework—Penalties and Termination and Revocation of Concessions and Concession Assets.”
 
Under applicable Mexican law and the terms of our concessions, our concessions may also be made subject to additional conditions, including under our renewed master development programs, which we may be unable to meet.  Failure to meet these conditions may also result in fines, other sanctions and the termination of the concessions.
 
The Mexican government may also terminate one or more of our concessions at any time through reversion, if, in accordance with applicable Mexican law, it determines that it is in the public interest to do so.  The Mexican government may also assume the operation of any airport in the event of war, public disturbance or a threat to national security.  In addition, in the case of a force majeure event, the Mexican government may require us to implement certain changes in our operations.  In the event of a reversion of the public domain assets that are the subject of our concessions, the Mexican government under Mexican law is required to compensate us for the value of the concessions or added costs based on the results of an audit performed by appraisers or, in the case of a mandated change in our operations, the cost of that change.  Similarly, in the event of an assumption of our operations, other than in the event of war, the government is required to compensate us and any other affected parties for any resulting damages.  There can be no assurance that we would receive compensation equivalent to the value of our investment in or any additional damages related to our concessions and related assets in the event of such action.
 
In the event that any one of our concessions is terminated, whether through revocation or otherwise, our other concessions may also be terminated.  Thus, the loss of any concession would have a material adverse effect on our business and results of operations.
 

The Mexican government could grant new concessions that compete with our airports.
 
The Mexican government could grant additional concessions to operate existing government-managed airports or authorize the construction of new airports, which could compete directly with our airports.
 
In the future, we also may face competition from Aeropuerto del Norte, an airport near Monterrey operated by a third party pursuant to a concession.  Historically, Aeropuerto del Norte has been used solely for general aviation flights.  The state of Nuevo Leon has approached the Ministry of Communications and Transportation to discuss the possibility of amending Aeropuerto del Norte’s concession to allow it to serve commercial aviation flights.  We understand that Aeropuerto del Norte is not capable of accommodating commercial traffic with its current infrastructure.  To date, the Ministry of Communications and Transportation has not amended Aeropuerto del Norte’s concession.  However, there can be no assurance that the Ministry of Communications and Transportation will not authorize such an amendment and that commercial aviation flights will not operate from Aeropuerto del Norte, or that the Mexican government will not issue additional concessions to other airports in the state of Nuevo Leon in the future.
 
Any competition from other such airports could have a material adverse effect on our business and results of operations.  Under certain circumstances, the grant of a concession for a new or existing airport must be made pursuant to a public bidding process.  In the event that a competing concession is offered in a public bidding process, we cannot assure that we would participate in such process, or that we would be successful if we were to participate.  Please see “Item 4. Information on the Company—Regulatory Framework—Grants of New Concessions” below.
 
Risks Related to Our Operations
 
Our revenues are highly dependent on levels of air traffic, which depend on factors beyond our control.
 
Our revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports.  These factors directly determine our revenues from aeronautical services and indirectly determine our revenues from non-aeronautical services.  Passenger and cargo traffic volumes and air traffic movements depend on many factors beyond our control, including economic conditions in Mexico and the United States, the political situation in Mexico and elsewhere in the world, the attractiveness of our airports relative to that of other competing airports, fluctuations in fuel prices (which can have a negative impact on traffic as a result of fuel surcharges or other measures adopted by airlines in response to increased fuel costs) and changes in regulatory policies applicable to the aviation industry.  Any decreases in air traffic to or from our airports as a result of factors such as these could adversely affect our business, results of operations, prospects and financial condition.
 
International events could adversely affect our business
 
·
Terrorist attacks have had a severe impact on the international air travel industry and have adversely affected our business and may continue to do so in the future.
 
As with all airport operators, we are subject to the threat of terrorist attacks.  The terrorist attacks on the United States on September 11, 2001 had a severe adverse impact on the air travel industry, particularly on U.S. carriers and on carriers operating international service to and from the United States.  Airline traffic in the United States fell precipitously after the attacks.  Our terminal passenger volumes declined 5.8% in 2002 as compared to 2001.  In the event of a terrorist attack involving one of our airports directly, airport operations would be disrupted or suspended during the time necessary to conduct rescue operations, investigate the incident and repair or rebuild damaged or destroyed facilities, and our future insurance premiums would likely increase.  In addition, our insurance policies do not cover all losses and liabilities resulting from terrorism.  Any future terrorist attacks, whether or not involving aircraft, will likely adversely affect our business, results of operations, prospects and financial condition.
 

Because a substantial majority of our international flights involve travel to the United States, we may be required to comply with security directives of the U.S. Federal Aviation Authority in addition to the directives of Mexican aviation authorities.  Security measures taken to comply with future security directives or in response to a terrorist attack or threat could reduce passenger capacity at our airports due to increased passenger screening and slower security checkpoints and increase our operating costs, which would have an adverse effect on our results of operations.
 
·
International events could have a negative impact on international air travel.
 
Historically, a substantial majority of our revenues have been derived from aeronautical services, and our principal source of aeronautical services revenues is passenger charges.  Passenger charges are payable for each passenger (other than diplomats, infants, transfer and transit passengers) departing from the airport terminals we operate, collected by the airlines and paid to us.  In 2005, 2006 and 2007, passenger charges represented 56.6%, 59.4% and 61.2%, respectively, of our total revenues.  Events such as the war in Iraq and public health crises such as the Severe Acute Respiratory Syndrome, or SARS, crisis have negatively affected the frequency and pattern of air travel worldwide.  Because our revenues are largely dependent on the level of passenger traffic in our airports, any general increase of hostilities relating to reprisals against terrorist organizations, further conflict in the Middle East, outbreaks of health epidemics such as SARS or other events of general international concern (and any related economic impact of such events) could result in decreased passenger traffic and increased costs to the air travel industry and, as a result, could cause a material adverse effect on our business, results of operations, prospects and financial condition.
 
High incidences of crime in Mexico, and drug trafficking in particular, could adversely affect our business.
 
A recent Travel Alert issued by the U.S. Department of State (Bureau of Consular Affairs) on April 14, 2008 provides information for U.S. citizens on security issues in Mexico. According to such report, violent criminal activity fueled by a war between criminal organizations struggling for control of the lucrative narcotics trade continues along the U.S.-Mexico border. Although attacks are aimed primarily at members of drug trafficking organizations and Mexican police forces, foreign visitors and residents, including U.S. citizens, have been among the victims of homicides and kidnappings in the border region.  Violence by criminal elements affects many parts of the country, both urban and rural, including border areas.  Though there is no evidence that U.S. citizens are specifically targeted, Mexican and foreign bystanders have been injured or killed in some violent attacks, demonstrating the heightened risk in public places. Higher incidences of crime throughout Mexico, and drug trafficking in particular, could have an adverse affect on our business as it may decrease the passenger-traffic directed to Mexico from abroad.
 
Increases in international fuel prices could reduce demand for air travel.
 
International prices of fuel, which represent a significant cost for airlines using our airports, have increased in recent years have reached record highs in the first quarter of 2008 and may be subject to further increases resulting from any future terrorist attacks, a general increase in international hostilities or a reduction in output of fuel, voluntary or otherwise, by oil-producing countries.  Such increases in airlines’ costs have resulted in higher airline ticket prices and may decrease demand for air travel, thereby having an adverse effect on our revenues and results of operations.  High fuel prices are likely to have a material adverse impact the operations of carriers, particularly those using older, less fuel-efficient fleets.
 

Our revenues and profitability may not increase if we fail in our business strategy.
 
Our ability to increase revenue and profitability will depend in part on our business strategy, which consists of increasing passenger and cargo traffic at our airports and increasing revenue from commercial activities.
 
Our ability to increase commercial revenue is, among other factors, significantly dependent upon increasing passenger traffic at our airports.  We cannot assure investors that we will be successful in implementing our strategy of increasing our passenger traffic or revenues from commercial activities.  The passenger traffic volume in our airports depends on factors beyond our control, such as the attractiveness of the commercial, industrial and tourist centers that the airports serve.  Accordingly, there can be no assurance that the passenger traffic volume in our airports will increase.
 
Competition from other tourist destinations could adversely affect our business.
 
The principal factor affecting our results of operations and business is the number of passengers using our airports.  The number of passengers using our airports (particularly our Acapulco, Mazatlán and Zihuatanejo airports) may vary as a result of factors beyond our control, including the level of tourism in Mexico.  In addition, our passenger traffic volume may be adversely affected by the attractiveness, affordability and accessibility of competing tourist destinations in Mexico, such as Cancún, Puerto Vallarta and Los Cabos, or elsewhere, such as Puerto Rico, Florida, Cuba, Jamaica, the Dominican Republic and other Caribbean islands and destinations in Central America.  The attractiveness of the destinations we serve are also likely to be affected by perceptions of travelers as to the safety and political and social stability of Mexico.  There can be no assurance that tourism levels, and therefore the number of passengers using our airports, in the future will match or exceed current levels, which could have a direct and indirect impact on our aeronautical and non-aeronautical revenues.
 
In addition, our tourist destination airports depend substantially on charter airlines serving those destinations.  If charter carriers were to suspend or cancel their operations (either entirely or with respect to one or more of our airports), there could be a material adverse effect on our revenues from tourist destination airports.
 
Our business is highly dependent upon revenues from four of our airports and could be adversely impacted by any condition affecting those airports.
 
In 2007, approximately 67.3% of our revenues were generated from four of our 13 airports.  In particular, the Monterrey International Airport generates the most significant portion of our revenues.  The following table lists the percentage of total revenues generated at our airports:
 
 
Airport
 
For year ended December 31, 2007
 
Monterrey International Airport
 
44.4%
 
Acapulco International Airport
 
7.8
 
Mazatlán International Airport
 
7.5
 
Culiacán International Airport
 
7.6
 
Nine other airports
 
32.7
 
Total
 
100.0%

As a result of the substantial contribution to our revenues from these four airports, any event or condition affecting these principal airports could have a material adverse effect on our business, results of operations, prospects and financial condition.
 
If a change in relations with our labor force should occur, such a change could have an adverse impact on our results of operations.
 
Although we believe we currently maintain good relations with our labor force, if any conflicts with our employees were to arise in the future, including with our unionized employees (which accounted for 58% of our total employees as of December 31, 2007), resulting events such as strikes or other disruptions that could arise with respect to our workforce could have a negative impact on our results of operations.
 
Our operations may be affected by union activities.
 
Our unionized employees (which accounted for 58% of our total employees as of December 31, 2007) are represented by a national union of airport workers that operates throughout Mexico.  To the extent that any unionized airport workers throughout the country successfully negotiate different employment terms than those we offer at our airports, our operations could be adversely affected by union activities, including organized strikes or other work stoppages.  In addition, we could be required to increase our labor expenses to match the terms agreed by the union with other Mexican airport operations.
 
Our operations depend on certain key airline customers and the loss of or suspension of operations of one or more of them could result in a loss of a significant amount of our revenues.
 
Of the total revenues generated at our airports in 2007, Aeroméxico and its affiliates accounted for 25.1%, Mexicana and its affiliates accounted for 14.0% and Aviacsa and its affiliates represented 9.4%.  In recent years, discount carriers, charter carriers, low-cost carriers and other new market entrants have represented a growing proportion of the Mexican commercial airline market.  In 2007, passengers traveling on discount, charter and low-cost carriers, such as VivaAerobus, Interjet, Alma, Volaris, Avolar, and Aladia accounted for approximately 26.6% of our commercial aviation passenger traffic.  Due to increased competition and higher fuel prices, many airlines, especially the low-cost carriers, are operating at break-even levels, experiencing losses from their operations or becoming insolvent. Further increases in fuel prices or other adverse economic developments could cause one or more of our principal carriers to become insolvent, which could have a material adverse effect on us.
 
None of our contracts with our airline customers obligate them to continue providing service to our airports, and we can offer no assurance that, if any of our key customers reduced their use of our airports, competing airlines would add flights to their schedules to replace any flights no longer handled by our principal airline customers.  Through December 2005, Cintra owned Aeroméxico, Mexicana and their respective affiliates, a Mexican holding company controlled by the Mexican government.  In December 2005, Cintra sold its interest in Mexicana and its affiliates to Grupo Posadas, S.A. de C.V.  Subsequent to this sale, Cintra was renamed Consorcio Aeroméxico, S.A. de C.V., or Consorcio Aeroméxico.  In addition, in November 2007, the Mexican Government, through Nacional Financiera, S.N.C., or NAFIN (a Mexican national credit institution and development bank owned and controlled by the Mexican Government), and IPAB (Instituto para la Protección al Ahorro Bancario) sold all of its remaining ownership interest in Aeroméxico and its affiliates to a group of investors lead by Banamex, a subsidiary of Citigroup. As of today these airlines continue to use our airports, however we can offer no assurances that any of these airlines will continue to do so in the future. Our business and results of operations could be adversely affected if we do not continue to generate comparable portions of our revenue from our key customers.
 

Aviacsa has cancelled routes and decreased operations as a result of the high fuel prices.  At the end of 2007, Aviacsa cut back its operations with us by 3.2% and experienced a 2.8% decrease in passenger traffic.  This represents a 3.8% decrease in revenues of about Ps. 6 million. During the first quarter of 2008, Aviacsa has continued to cut back on its flight schedule.
 
In recent years, some airlines have had their operations suspended by regulatory authorities in different countries or have cancelled flights for safety reasons, For example, in the U.S., American Airlines recently cancelled thousands of flights in response to questions raised by the U.S. Federal Aviation Administration about safety concerns on certain aircrafts.  As far as Mexican airlines are concerned, in April 2006, Mexican regulatory authorities suspended the operations of Aerocalifornia, S.A. de C.V. or Aerocalifornia, which accounted for approximately 7.1% of our revenues in 2005, due to safety concerns relating to the carrier’s fleet of aircraft.  Although Aerocalifornia resumed limited operations in August 2006, it accounted for only 2.6% of our revenues in 2006 as a result of such suspension and for 3.6% in 2007.  On March 26, 2007, the Mexican regulatory authorities announced an immediate suspension of Líneas Aéreas Azteca S.A. de C.V. or Azteca, which accounted for approximately 3.6% of our revenues in 2006, due to safety concerns and financial problems.  As a result of such suspension, Azteca accounted for only 0.4% of our revenues in 2007.  As of May 2008, Azteca has not resumed its operations.  We cannot guarantee whether or not Azteca will resume operations at the end of such suspension period or whether the suspension will have a material effect on our results from operations for 2008. Any similar suspension affecting our principal airline customers or leading to cancellation of their routes could have a material adverse effect on our results of operations.
 
Due to increased competition and higher fuel prices, many airlines are operating at break-even levels or experiencing losses from their operations. Further increases in fuel prices or other adverse economic developments could cause one or more of our principal carriers to become insolvent, which could have a material adverse effect on us.
 
Revenues from passenger and other charges are not secured, and we may not be able to collect amounts invoiced in the event of the insolvency of one of our principal airline customers.
 
In recent years, many airlines have reported substantial losses.  Our revenues from passenger and other charges from our principal airline customers are not secured by a bond or any other collateral.  Thus, in the event of the insolvency of any of these airlines, we would not be assured of collecting any amounts invoiced to that airline in respect of passenger charges.
 

The principal domestic airlines operating at our airports have in the past refused to pay certain increases in our specific prices for regulated aeronautical services and could refuse to pay additional increases in the future.
 
From January 2002 to November 2002, several domestic airlines operating at our 13 airports—Aeroméxico, Mexicana, Aeromar and Aeroméxico Connect (formerly Aerolitoral) —refused to pay certain increases in our airport service charges.  As of December 2002, the amount of invoiced fees subject to dispute was Ps.3.7 million.  As part of this dispute, these airlines brought proceedings challenging the privatization of the Mexican airport sector and the methodology for calculating the maximum rate system applicable under the privatization of all of the airport groups in Mexico.
 
Subsequently, we entered into an agreement with the National Air Transportation Board (Cámara Nacional de Aerotransportes) and the Ministry of Communications and Transportation pursuant to which we settled existing disputes with our principal airline customers and established specific prices for regulated aeronautical services applicable to those airlines.  Under the agreement, the National Air Transportation Board agreed to cause our principal airline customers to enter into (a) contracts governing charges for certain aeronautical services and (b) lease contracts for property used by the airlines.  Although our agreement with the National Air Transportation Board expired in December 2005, we continued to charge our principal airline customers in accordance with the terms of the agreement until October 31, 2006, at which time we entered into a new agreement with the National Air Transportation Board that offers incentives, including discounts, for the establishment of new routes and other measures expected to increase passenger traffic volume at our airports.  This agreement will expire in December 2008, and we cannot assure that the agreement will be renewed or that any airlines will continue to adhere to the terms of the agreement after this expiration.
 
Although passenger traffic volume (and therefore overall revenue) may increase, these incentives and discounts could reduce our aeronautical revenues per terminal passenger in the future.  In addition, should any of our principal airline customers refuse to continue to make payment to us, or should they refuse to pay increases in our charges for aeronautical services in future years, our results of operations could be adversely impacted by decreased cash flows from operations.
 
The operations of our airports may be affected by the actions of third parties, which are beyond our control.
 
As is the case with most airports, the operation of our airports is largely dependent on the services of third parties, such as air traffic control authorities and airlines.  We also depend upon the Mexican government or entities of the government for provision of services, such as electricity, supply of fuel to aircraft, air traffic control and immigration and customs services for our international passengers.  We are not responsible for and cannot control the services provided by these parties.  Any disruption in, or adverse consequence resulting from, their services, including a work stoppage or other similar event, may have a material adverse effect on the operation of our airports and on our results of operations.
 
In addition, we depend on third-party providers of certain complementary services such as catering and baggage handling.  For example, Grupo Aeroméxico and Grupo Mexicana together formerly controlled Servicios de Apoyo en Tierra, or SEAT, pursuant to a joint venture.  Consorcio Aeroméxico, which owns Grupo Aeroméxico and until recently owned Grupo Mexicana, sold its remaining ownership interests in SEAT and in Aeroméxico pursuant to a public offering in November of 2007 to a group of investors lead by Banamex, a subsidiary of Citigroup.  SEAT is currently the largest provider of baggage and handling services at our airports.  If SEAT or any of its affiliates or shareholders encounters financial difficulties, SEAT’s ability to provide services at our airports could be negatively affected.  If any service providers, including SEAT, were to halt operations at any of our airports, we would be required to seek a new provider of these services or provide these services ourselves, either of which is likely to result in increased costs and have an adverse impact on our results of operations.
 

Actions by parties purporting to be former owners of land comprising a portion of the Ciudad Juárez International Airport could cause our concession to operate the airport to be terminated.
 
Parties purporting to be former owners of land comprising a portion of the Ciudad Juárez International Airport initiated legal proceedings against the airport to reclaim the land, alleging that it was improperly transferred to the Mexican government.  As an alternative to recovery of this land, the claimants also sought monetary damages of U.S.$120 million.  On May 18, 2005 a Mexican court ordered us to return the disputed land to the plaintiffs. However that decision and three subsequent constitutional claims (juicios de amparo) permitted the case to be reconsidered, and as a result of such constitutional claims, the original claimants must now include the Ministry of Communications and Transportation as a party to the litigation since the Ministry of Communications and Transportation is the grantor of the concession title to the Ciudad Juarez Airport. As of May 2008, the Court has not yet notified the Federal Government the order to appear in the proceeding.  In the event that any subsequent action results in a decision substantially similar to the May 18, 2005 court order or that is otherwise adverse to us, and the Mexican government does not subsequently exercise its power of eminent domain to retake possession of the land for our use, which we believe the terms of our concessions would require, our concession to operate the Ciudad Juárez International Airport would terminate.  In 2007, the Ciudad Juárez International Airport represented 5.8% of our revenue.  Although we believe and have been advised by the Ministry of Communications and Transportation that under the terms of our concessions the termination of our Ciudad Juárez concession would not affect the validity of our remaining airport concessions and that the Mexican federal government would be obligated to indemnify us against any monetary or other damages resulting from the termination of our Ciudad Juárez concession or a definitive resolution of the matter in favor of the plaintiffs, there can be no assurance that we would be so indemnified.
 
We may be liable for property taxes as a result of claims asserted against us by certain municipalities.
 
Administrative law proceedings were asserted against us by the municipalities of Chihuahua, Ciudad Juárez, Reynosa, Tampico, Mazatlán and Zihuatanejo for the payment of property taxes with respect to the real property on which we operate our airports in those cities.  The claims of the municipalities of Chihuahua and Tampico (which amounted to Ps.25.3 million and Ps.1.02 million respectively) were dismissed on April 11, 2008 and May 9, 2008, respectively.  The total amount of the property-tax claims outstanding, as recently updated to reflect additional amounts claimed since the proceedings were first asserted, in each of Reynosa, Zihuatanejo and Ciudad Juarez are Ps.59.5 million, Ps.1.6 million and Ps.1.8 million, respectively, although any of these amounts could increase if the underlying claims are not resolved in our favor.  Moreover, other municipalities where we operate our airports could assert similar claims.  
 
We do not believe that liabilities related to any claims or proceedings against us are likely to have, individually or in the aggregate, a material adverse effect on our consolidated financial condition or results of operations; should a court determine that these taxes must be paid in response to any future proceedings, we believe that only the owner of the land should be responsible for paying these taxes directly, and the obligation to pay these taxes is not otherwise contemplated in the terms of our concessions.  The Mexican government has not acknowledged any obligation to pay such taxes, however, any changes to the Mexican Constitution and other applicable laws could render us liable to municipalities for property taxes in the future.
 
Other Mexican airport operators contesting the assessment of similar property tax claims have been required to post surety bonds in connection with their challenge of those assessments. If we are required to post similar surety bonds in the future, the terms of the surety bonds may restrict our ability to pay dividends or otherwise limit our flexibility.
 

Future changes in applicable laws with respect to property taxes could have an adverse effect on us.
 
Changes to the Mexican Constitution and other laws on property taxes may be enacted in the future that could affect our business and results of operations. We cannot predict the amount of any future property tax liabilities or the criteria that would be used to determine them.  If such changes were to take effect, and any amounts owed were substantial, these tax liabilities could have a materially adverse effect on our financial condition or results of operations.  If we believe that there is a substantial likelihood of an adverse result in a pending case, we will establish reserves to meet such liabilities consistent with Mexican FRS.
 
Natural disasters could adversely affect our business.
 
From time to time, the Northern and Central regions of Mexico experience torrential rains, hurricanes (particularly during the months of July through September) and, depending on the region, earthquakes.  In addition, the Mazatlán, Culiacán and Acapulco International Airports are susceptible to occasional flooding due to torrential rainfall.  Natural disasters may impede operations, damage infrastructure necessary to our operations or adversely affect the destinations served by our airports.  Any of these events could reduce our passenger and cargo traffic volume.  The occurrence of natural disasters in the destinations we serve could adversely affect our business, results of operations, prospects and financial condition.  We have insured the physical facilities at our airports against damage caused by natural disasters, accidents or other similar events, but do not have insurance covering losses due to resulting business interruption.  Moreover, should losses occur, there can be no assurance that losses caused by damages to the physical facilities will not exceed the pre-established limits on any of our insurance policies.
 
Our operations are at greater risk of disruption due to the dependence of several of our airports on a single commercial runway.
 
As is the case with many other domestic and international airports around the world, several of our airports, including the Mazatlán and Zihuatanejo International Airports, have only one commercial aviation runway.  While we seek to keep our runways in good working order and to conduct scheduled maintenance during off peak hours, we cannot assure investors that the operation of our runways will not be disrupted due to required maintenance or repairs.  In addition, our runways may require unscheduled repair or maintenance due to natural disasters, aircraft accidents and other factors that are beyond our control.  The closure of any runway for a significant period of time could have a material adverse effect on our business, results of operations, prospects and financial condition.
 
We are exposed to risk related to construction projects.
 
The building requirements under our master development programs could encounter delays or cause us to exceed our budgeted costs for such projects, which could limit our ability to expand capacity at our airports, increase our operating or capital expenses and could adversely affect our business, results of operations, prospects and financial condition.  Such delays or budgetary overruns also could limit our ability to comply with our master development programs.
 

We are exposed to certain risks inherently associated with the rental of real property.
 
We are exposed to risks generally associated with ownership of properties rented to third parties, such as a decline in rental market demand, occupancy rates or rent levels, non-payment by tenants or a weakening of the real estate market.  Moreover, our real estate assets are located on or adjacent to our airports and serve a particular sector of the rental market, thus exposing us to fluctuations in this specific market.  Any of these risks could adversely affect the profitability of our real estate development activities and, consequently, our business results of operations, prospects and financial position.
 
We are exposed to the risk of non-performance by our subcontractors.
 
We subcontract certain services (including security and surveillance services, ramp handling and baggage handling services and checked baggage services) necessary to conduct our operations.  In the event that our subcontractors fail to perform their obligations under our agreements, we could incur extra costs in providing replacements and could be exposed to liability for operations that we may have to provide directly, which could adversely affect our results of operations.
 
Our ability to expand certain of our airports and to comply with applicable safety guidelines could be limited by difficulties we encounter in acquiring additional land on which to operate our airports.

Certain guidelines established by the International Civil Aviation Organization require the maintenance of a perimeter surrounding the land used for airport operations.  At several of our airports, we do not control portions of the land within the required perimeters.  If portions of such land adjacent to certain of our airports are developed by third parties in a manner that encroaches on the required perimeters, our ability to comply with applicable guidelines of the International Civil Aviation Organization or to expand our airport operations could be adversely affected. Also, the growth of certain cities in the proximity of our airports could limit our ability to expand our airports.
 
Our future profitability and growth will depend upon our ability to expand our airports in the future. Potential limitations on our possibility of expansion, such as the ones described above, could restrict any such expansion and thus have a material adverse effect on the future profitability and growth of our business.
 
We are exposed to risks inherent to the operation of airports.
 
We are obligated to protect the public at our airports and to reduce the risk of accidents at our airports.  As with any company dealing with members of the public, we must implement certain measures for the protection of the public, such as fire safety in public spaces, design and maintenance of car parking facilities and access routes to meet road safety rules.  We are also obligated to take certain measures related to aviation activities, such as maintenance, management and supervision of aviation facilities, rescue and fire-fighting services for aircraft, measurement of runway friction coefficients, flood control at the Acapulco International Airport and measures to control the threat from birds and other wildlife on airport sites.  These obligations may require us to incur additional costs and could increase our exposure to liability to third parties for personal injury or property damage resulting from our operations.
 
Our insurance policies may not provide sufficient coverage against all liabilities.
 
While we seek to insure all reasonable risks, we can offer no assurance that our insurance policies would cover all of our liabilities in the event of an accident, terrorist attack or other incident.  The markets for airport insurance and construction insurance are limited, and a change in coverage policy by the insurance companies involved could reduce our ability to obtain and maintain adequate or cost-effective coverage.  A certain number of our assets cannot, by their nature, be covered by property insurance (notably aircraft movement areas, and certain civil engineering works and infrastructure).  In addition, we do not currently carry business interruption insurance.
 

Changes in Mexican environmental regulations could limit the growth of certain of our airports.
 
Several of our airports, such as the Ciudad Juárez, Tampico and Torreón International Airports, are located in densely populated urban areas, which are subject to more restrictive environmental regulations than less populated areas of Mexico.  Should environmental regulators adopt a more restrictive regulatory framework in any of these areas (such as limitations on noise pollution), our ability to expand these airports to meet growth in demand could be limited, which could adversely affect our results of operations.  Furthermore, compliance with future environmental regulations may require us to incur additional costs in order to bring our airports into compliance, and if we fail to comply with current or future environmental regulations, we may be subject to fines and other sanctions.
 
We are liable under Mexican Law for inspection of passengers and their carry-on luggage.
 
Under Mexican Airport Law (Ley de Aeropuertos) we are currently responsible for inspecting passengers and their carry-on luggage before they board aircraft.  Under Mexican law, we may be liable to third parties for personal injury or property damage resulting from the performance of such inspection.  In addition, we may be required to adopt additional security measures in the future or undertake capital expenditures if security measures for carry-on luggage are required to be enhanced, which could increase our liability or adversely affect our operating results.

We may be subject to potential liability for screening checked baggage.
 
The International Civil Aviation Organization recently established security guidelines requiring checked baggage on all international commercial flights as of January 2006, and all domestic commercial flights as of July 2006, to undergo a comprehensive screening process for the detection of explosives.  We are currently negotiating with our principal airline customers to enter into service agreements pursuant to which we expect to agree to purchase, install and operate new screening equipment and implement other security measures to facilitate our airline customers’ compliance with the new baggage screening guidelines.  Until we agree on the contractual terms with the airlines and the new screening equipment becomes operational, checked baggage will continue to be screened by hand by each airline in order to comply with the new screening guidelines. In some countries, such as the United States of America, the federal government (in the case of the United States, through the Transportation Security Administration) is responsible for screening checked baggage.  Under Mexican law, however, airlines are responsible for screening checked baggage.  Although Mexican law holds airlines liable for screening checked baggage, the purchase, installation and operation of the new equipment could increase our exposure to liability as a result of our involvement in the screening process.  In addition, although we are not currently obligated to screen checked baggage, we could become obligated to do so, and thus subject to potential liability, if Mexican law changes in the future.

Enforcing civil liabilities against us or our directors, officers and controlling persons may be difficult.
 
We are organized under the laws of Mexico, and all of our directors, officers and controlling persons reside in Mexico.  In addition, a substantial portion of our assets and the assets of our directors, officers and controlling persons are located in Mexico.  As a result, it may be difficult for investors to effect service of process on such persons within the United States or elsewhere outside of Mexico or to enforce judgments against us or our directors, officers and controlling persons, including in any action based on civil liabilities under U.S. federal securities laws.  There is doubt as to the enforceability in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts or other courts outside of Mexico, of liabilities based solely on U.S. federal securities laws.
 

Risks Related to Our Stockholders
 
Aeroinvest and SETA control our management, and their interests may differ from those of other stockholders.
 
Aeroinvest, S.A. de C.V. (Aeroinvest) is the beneficial owner of 51.6% of our capital stock.  Aeroinvest directly owns Series B shares representing 39.10% of our outstanding capital stock and Series A shares of SETA representing 74.5% of its capital stock.  SETA in turn owns Series BB shares and Series B shares that collectively represent 16.7% of our capital stock.  Pursuant to our bylaws, SETA (as holder of our Series BB shares) has the right to present to the Board of Directors the name or names of the candidates for appointment as our chief executive officer, to appoint and remove half of our executive officers, which currently include our chief financial officer, our chief operating officer and our commercial director and to elect three members of our Board of Directors.  SETA (as holder of our Series BB shares) also has the right pursuant to our bylaws to veto certain actions requiring approval of our stockholders (including the payment of dividends, the amendment of our bylaws and the amendment of its right to appoint certain members of our senior management).  Additionally, most matters voted on by our Board of Directors require the affirmative vote of the directors appointed by our Series BB shareholders.  In the event of the termination of the Technical Assistance Agreement, the Series BB shares would be converted into Series B shares, resulting in the termination of all of SETA's special rights. If at any time before June 14, 2015 SETA were to hold less than 7.65% of our capital stock in the form of Series BB shares, it would lose its veto rights (but its other special rights would be unaffected).  If at any time after June 14, 2015 SETA were to hold less than 7.65% of our capital stock in the form of Series BB shares, such shares must be converted into Series B shares, which would cause SETA to lose all of its special rights. As long as SETA retains at least 7.65% of our capital stock in the form of Series BB shares, whether before or after June 14, 2015, all of its special rights will remain in place.  Pursuant to our bylaws, the Technical Assistance Agreement, the Participation Agreement and the Bancomext Trust, SETA was required to retain at least 51% of its Series BB shares until June 14, 2007, after which it became entitled to transfer up to one eighth of such 51% during each year thereafter.  The rights and obligations of SETA in our management are explained in “Item 7. Major Shareholders and Related Party Transactions – Major Shareholders.”
 
So long as the technical assistance agreement remains in effect and SETA continues to hold any Series BB shares, SETA also has the obligation to appoint and nominate the same directors and officers that it currently is entitled to appoint under our bylaws. The technical assistance agreement sets forth certain qualifications that members of our management appointed by SETA must have. The technical assistance agreement will remain in effect until June 14, 2015, after which it will be automatically extended for successive five-year periods unless any party thereto elects otherwise.
 
SETA's continuing veto rights as holder of at least 7.65% of our capital stock in the form of Series BB shares, and its right to nominate and appoint certain directors and officers as holder of Series BB shares until June 14, 2015, will continue for so long as it owns at least one Series BB share and the technical assistance agreement remains in effect, could adversely impact our operations and constitute an obstacle for us to bring in a new strategic stockholder and/or operator. Through the right to nominate, appoint and remove certain members of our senior management, SETA directs the actions of our management in areas such as business strategy, financing, distributions, acquisitions and dispositions of assets or businesses.
 
In addition to these special rights of SETA, Aeroinvest is entitled under Mexican law to elect one director to our board for each 10% of our capital stock that it owns. Thus, Aeroinvest's ownership of at least 39.17% of our capital stock entitles it to elect three members of our Board of Directors. SETA and Aeroinvest are each subsidiaries of Empresas ICA.
 

The interests of SETA and Aeroinvest may differ from those of our other stockholders and be contrary to the preferences and expectations of our other stockholders and we can offer no assurance that SETA and Aeroinvest and the officers nominated or appointed by SETA and Aeroinvest would exercise their rights in ways that favor the interests of our other stockholders.
 
If SETA or Aeroinvest, our principal stockholders, should sell or otherwise transfer all or a portion of their remaining interests in us, our operations could be adversely affected.
 
 SETA and Aeroinvest currently exercise a substantial influence over our management, as described above. Our bylaws and certain of the agreements executed in connection with the privatization process provide that SETA was required to retain at least 51% of its Series BB shares until June 14, 2007, after which it became entitled to transfer up to one eighth of such 51% during each year thereafter. SETA, as holder of the Series BB shares, is entitled to present to the Board of Directors the name or names of the candidates for appointment as our chief executive officer and to appoint and remove half of our executive officers, which currently includes our chief financial officer, our chief operating officer and our commercial director, and to elect three of our board members.  Elimination of these rights from our bylaws would require the consent of SETA for so long as it owns Series BB shares representing at least 7.65% of our capital stock. Should SETA fall below this threshold, our management could change significantly and our operations could be adversely affected as a result. In the event of termination of the technical assistance agreement, SETA would cease to have the special rights of the Series BB shares, which may adversely affect and disrupt our operations.
 
In addition, in December 2005, our parent company Aeroinvest entered into certain credit facilities to finance Aeroinvest’s acquisition from the Mexican government of the Series B shares currently representing 35.3% of our capital stock and to finance an additional loan to SETA for SETA’s exercise of the option to acquire 2% of our Series B shares.  These credit facilities were amended and restated to, among other things, increase the amount of the facility and the amount borrowed thereunder in October 2006 and again in April 2007.  Aeroinvest subsequently purchased additional Series B shares representing 3.87% of our capital stock in connection with our initial public offering in November 2006.  Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated to refinance its existing credit facilities in June 2007.  If Aeroinvest were to default on its obligations under the refinancing agreements, Aeroinvest could lose its ability to vote its shares of our capital stock as well as its shares of SETA, and trustee could in certain circumstances foreclose on the Series B shares and is SETA shares held in trust.   The terms of the refinancing documents are described in “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources.” If Aeroinvest were to sell its Series B shares or lose its ability to vote its Series B shares, SETA and Aeroinvest may no longer control us, which could adversely affect our operations and result in a decrease in the price of our Series B shares and ADSs.
 
Our ability to make certain business decisions could be limited if Aeroinvest defaults on certain obligations under its refinancing facility.
 
As mentioned above, Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated to refinance its existing credit facilities in June 2007.  In connection therewith, Aeroinvest has assigned its economic interests (including its right to receive dividends) in its Series B Shares representing 39.32% of our capital stock as well as 74.5% of the Series A shares of SETA.  Under the refinancing agreements, Aeroinvest is required to cause us to comply with numerous covenants, which include certain restrictions on our ability to create liens, incur indebtedness, sell, transfer or encumber assets, engage in merger transactions or otherwise change our business or make investments or capital expenditures outside of the master development plans.  In addition, Aeroinvest is required to cause us to distribute all of our available cash, subject to certain limitations, as quarterly dividends in accordance with our dividend policy, and is required to restrict us from making certain changes to the divided policy.  If we do not distribute a minimum required amount of dividends on each dividend payment date, Aeroinvest will be in default under the refinancing documents.  If Aeroinvest defaults on its obligations under the refinancing documents, we would be further restricted in our ability create liens, incur indebtedness, sell, transfer or encumber assets, engage in merger transactions or otherwise change our business or make investments or capital expenditures outside of the master development plans, which could restrict our flexibility to capitalize on business opportunities or otherwise adversely affect our business and results of operations.  In addition, Aeroinvest could lose its ability to vote its shares of our capital stock as well as its shares of SETA, and trustee could in certain circumstances foreclose on the Series B shares and is SETA shares held in trust.  The terms of the refinancing documents are described in “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources.”
 

Risks Related to Mexico
 
Our business is significantly dependent upon the volume of air passenger traffic in Mexico, and negative economic developments in Mexico will adversely affect our business and results of operations.
 
In 2005, 2006 and 2007, domestic terminal passengers have represented approximately 76.6%, 78.6% and 82.6%, respectively, of the passenger traffic volume in our airports.  In addition, all of our assets are located, and all of our operations are conducted, in Mexico.  Accordingly, our financial conditions and results of operations are substantially dependent on economic conditions prevailing from time to time in Mexico.  As a result, our business, financial condition and results of operations could be adversely affected by the general condition of the Mexican economy, by a devaluation of the peso, by inflation and high interest rates in Mexico, or by political, social and economic developments in Mexico.
 
In the past, Mexico has experienced economic crises, caused by internal and external factors, characterized by exchange rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates.  We cannot assume that such conditions will not return or that such conditions will not have a material adverse effect on our business, financial condition or results of operations.
 
Mexico experienced a period of slow growth from 2001 through 2003, primarily as a result of the downturn in the U.S. economy.  In 2001, Mexico’s GDP declined by 0.2%, while inflation reached 4.4%.  In 2002, GDP grew by 0.8% and inflation reached 5.7%.  In 2003, GDP grew by 1.4% and inflation was 4.0%.  In 2004, GDP grew by 4.2% and inflation increased to 5.2%.  In 2005, GDP grew by approximately 2.8% and inflation decreased to 3.3%.  In 2006, GDP grew by approximately 4.8% and inflation reached 4.1%.  In 2007, GDP grew by approximately 1.8% and inflation declined to 3.8%.
 
Mexico also has, and is expected to continue to have, high real and nominal interest rates.  The annualized interest rates on 28 day Cetes averaged approximately 6.2%, 6.8%, 9.2%, 7.2% and 7.2% for 2003, 2004, 2005, 2006 and 2007, respectively.  To the extent that we incur Peso-denominated debt in the future, it could be at high interest rates.
 
If the Mexican economy falls into a recession, if inflation or interest rates increase significantly or if the Mexican economy is otherwise adversely impacted, our business, financial condition and results of operations could be materially and adversely affected because, among other things, demand for transportation services may decrease.  We cannot assure our investors that similar events may not occur, or that any recurrence of these or similar events will not adversely affect our business, results of operations, prospects and financial condition.
 

Depreciation or fluctuation of the peso relative to the U.S. dollar could adversely affect our results of operations and our financial condition.
 
Following the devaluation of the peso and the economic crisis beginning in 1994, the aggregate passenger traffic volume in our airports in 1995 (then operated by our predecessor) decreased as compared to prior years, reflecting a decrease in Mexican passenger traffic volume.  Any future depreciation of the peso could reduce our domestic passenger traffic volume, which may have a material adverse effect on our results of operations.
 
As of December 31, 2007, we had no significant indebtedness. Although we currently intend to fund the investments required by our business strategy through cash flow from operations, we may incur dollar-denominated debt to finance all or a portion of these investments. A devaluation of the peso would increase the debt service cost of any dollar-denominated indebtedness that we may incur and result in foreign exchange losses.
 
Severe devaluation or depreciation of the peso may also result in the disruption of the international foreign exchange markets and may limit our ability to transfer or to convert pesos into U.S. dollars and other currencies.
 
Changes to Mexican laws, regulations and decrees applicable to us could have a material adverse impact on our results of operations.
 
The Mexican government has in recent years implemented changes to the tax laws applicable to Mexican companies, including us.  The terms of our concessions do not exempt us from any changes to the Mexican tax laws.  Should the Mexican government implement changes to the tax laws that result in our having significantly higher income or asset tax liability, we will be required to pay the higher amounts due pursuant to any such changes, which could have a material adverse impact on our results of operations. For example the issuance of the new “Impuesto Empresarial a Tasa Unica” or “Business Flat Tax”, which was published on October 1, 2007, adversely impacted our results of operations in 2007. See Item 5 “Operating and Financial Review and Prospects – Taxation”. In addition, changes to the Mexican constitution or to any other Mexican laws could also have a material adverse impact on our results of operations.
 
Developments in other countries may affect us.
 
The market value of securities of Mexican companies may be, to varying degrees, affected by economic and market conditions in other countries.  Although economic conditions in these countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers.  In past years, prices of both Mexican debt and equity securities have been adversely affected by the sharp drop in Asian securities markets and the economic crises in Russia, Brazil, Argentina and Venezuela.
 
In addition, in recent years, economic conditions in Mexico have become increasingly correlated to economic conditions in the United States.  Therefore, adverse economic conditions in the United States could have a significant adverse effect on the Mexican economy.  There can be no assurance that the market value of our securities will not be adversely affected by events elsewhere.
 

Delays in the process of obtaining necessary governmental approvals could affect our ability to expand our airports
 
The expansion, development and growth of our airports from time to time may require governmental approvals, administrative proceedings or some other governmental action. Any delay or inability to obtain such approvals or favorable outcomes of such proceedings could have a negative impact on the expansion, development and growth of our airports.
 
Our business could be adversely affected by a downturn in the U.S. economy.
 
In 2007, 17.4% of the terminal passengers served by our airports arrived and departed on international flights, with the United States being the principal international destination and point of origin.  As is the case with other Mexican companies, our business is dependent on the condition of the U.S. economy, and is particularly influenced by trends in the United States relating to leisure travel, consumer spending and international tourism.  Events and conditions negatively affecting the U.S. economy will likely have a material adverse effect on our business, results of operations, prospects and financial condition. For example, the recent U.S. “credit crunch” in connection with the sub-prime mortgages crisis and other liquidity issues has had a negative impact on the U.S. economy. This crisis in the U.S. could lead to a decrease in international travel to and from our destinations and in particular to our tourist destinations served by our Acapulco, Mazatlán and Zihuatanejo airports. We cannot assure that our results from operations would not be significantly affected from such crisis.
 
In addition, we cannot predict what effect any future terrorist attacks or threatened attacks on the United States or any retaliatory measures taken by the United States in response to these events may have on the U.S. economy.  An economic downturn in the United States may negatively affect our results of operations and a prolonged economic crisis in the United States will likely have a material adverse effect on our results of operations.
 
Minority shareholders may be less able to enforce their rights against us, our directors, or our controlling shareholders in Mexico.
 
Under Mexican law, the protections afforded to minority shareholders are different from those afforded to minority shareholders in the United States.  For example, because provisions concerning fiduciary duties of directors have only recently been incorporated into the new Mexican Securities Market Law, it may be difficult for minority shareholders to bring an action against directors for breach of this duty and achieve the same results as in most jurisdictions in the United States.  The grounds for shareholder derivative actions under Mexican law are extremely limited, which effectively bars most of these kinds of suits in Mexico.  Procedures for class action lawsuits do not exist under applicable Mexican law.  Therefore, it may be more difficult for minority shareholders to enforce their rights against us, our directors, or our controlling shareholders than it would be for minority shareholders of a U.S. company.
 
We are subject to different corporate disclosure and accounting standards than U.S. companies.
 
A principal objective of the securities laws of the United States is to promote full and fair disclosure of all material corporate information.  However, there may be less publicly available information about foreign issuers of securities listed in the United States than is regularly published by or about U.S. issuers of listed securities.  While we are required to reconcile our net income and stockholders’ equity to those amounts that would be derived under U.S. GAAP in our annual financial statements, the effects of inflation accounting under Mexican FRS are not eliminated in such reconciliation in our annual financial statements.  For this and other reasons, the presentation of Mexican FRS consolidated financial statements and reported earnings may differ from that of U.S. companies in this and other important respects.  For further information about the differences between Mexican FRS and US GAAP please see Note 21 to our financial statements.
 

FORWARD-LOOKING STATEMENTS
 
This Form 20-F contains forward-looking statements.  We may from time to time make forward-looking statements in our annual and periodic reports to the Securities and Exchange Commission on Forms 20-F and 6-K, in our annual report to shareholders, in offering circulars and prospectuses, in press releases and other written materials and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others.  Examples of such forward-looking statements include:
 
 
·
projections of operating revenues, net income (loss), net income (loss) per share, capital expenditures, dividends, capital structure or other financial items or ratios,
 
 
·
statements of our plans, objectives or goals,
 
 
·
statements about our future economic performance or that of Mexico, and
 
 
·
statements of assumptions underlying such statements.
 
Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
 
Forward-looking statements involve inherent risks and uncertainties.  We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements.  These factors, some of which are discussed above under “Risk Factors,” include material changes in the performance or terms of our concessions, developments in legal proceedings, economic and political conditions and government policies in Mexico or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition.  We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements.
 
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.
 
Information on the Company
 
HISTORY AND DEVELOPMENT OF THE COMPANY
 
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., which we refer to by the acronym OMA, is a corporation (sociedad anonima bursatil de capital variable) organized under the laws of Mexico.  We were incorporated in 1998 as part of the Mexican government’s program for the opening of Mexico’s airports to private investment.  The duration of our corporate existence is indefinite.  We are a holding company and conduct substantially all of our operations through our subsidiaries.  The terms “OMA”, “we” and “our” in this annual report refer to Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. together with its subsidiaries, and to properties and assets that we own or operate, unless otherwise specified.  Our registered office is located at Aeropuerto Internacional de Monterrey, Zona de Carga, Carretera Miguel Alemán, Km. 24 s/n, 66600 Apodaca, Nuevo León, Mexico, telephone +52.81.8625.4300.  Our U.S. agent is Puglisi & Associates.  Our U.S. agent’s address is 850 Library Avenue, Suite 204, Newark, Delaware 19711.
 

Investment by Servicios de Tecnología Aeroportuaria, S.A. de C.V. and its Affiliates
 
In 2000, as part of the first stage of our privatization, the Mexican government sold Series BB shares currently representing 14.7% of our capital stock to Servicios de Tecnología Aeroportuaria, S.A. de C.V., or SETA (formerly Operadora Mexicana de Aeropuertos, S.A. de C.V.), in a public bidding process.  Pursuant to this transaction, SETA paid the Mexican government a total of Ps. 864,055,578 (nominal pesos, excluding interest) (U.S. $76 million based on the exchange rate in effect on the date of SETA’s bid) in exchange for:
 
 
·
all of our Series BB shares, which currently represent 14.7% of our outstanding capital stock;
 
 
·
an option to acquire from the Mexican government shares currently representing 35.3% of our capital stock (which subsequently was assigned to and exercised by Aeroinvest, S.A. de C.V., a principal shareholder of SETA);
 
 
·
an option to subscribe for up to 3% of newly issued Series B shares (1% of which expired unexercised on June 14, 2005 and 2% of which was subscribed for in September 2006); and
 
 
·
the right and obligation to enter into various agreements with us and the Mexican government, including a participation agreement setting forth the rights and obligations of each of the parties involved in the privatization (including SETA), a 15-year technical assistance agreement setting forth SETA’s right and obligation to provide technical assistance to us in exchange for an annual fee, and a shareholders’ agreement under terms established during the public bidding process.  These agreements are described in greater detail under “Item 7. Principal Stockholders and Selling Stockholder” and “Related Party Transactions.”
 
SETA’s current stockholders are:
 
 
·
Aeroinvest, S.A. de C.V., which owns 74.5% of SETA.  Aeroinvest is a wholly owned subsidiary of Empresas ICA, S.A.B. de C.V.  Aeroinvest also directly owns 39.32% of our Series B shares as a result of its exercise of an option to acquire these shares from the Mexican government and its subsequent purchase of additional Series B shares representing 3.9% of our capital stock.  Aeroinvest’s Series B shares were acquired in December 2005 from the Mexican government at an aggregate cost of U.S. $203.3 million (determined based on an initial price per share of U.S. $1.28 plus an annual 5% premium, subject to decreases corresponding to dividends declared and paid by us).  Empresas ICA, the parent of Aeroinvest, is the largest engineering, construction and procurement company in Mexico.  Empresas ICA’s principal lines of business are construction and engineering, housing and infrastructure operations, including the operation of airports (through SETA), toll roads and municipal services.  Empresas ICA is listed on the Mexican Stock Exchange and the New York Stock Exchange.  Through Aeroinvest, Empresas ICA controls a majority of our capital stock.
 
 
·
Aéroports de Paris Management, S.A., which owns 25.5% of SETA.  Aéroports de Paris Management is a wholly owned subsidiary of Aéroports de Paris, S.A., a French company recognized as a leading European airport group.  Aéroports de Paris, S.A. was previously the direct owner of the 25.5% participation in SETA until August 2006 when it transferred its participation in SETA to Aéroports de Paris Management. For more than 40 years, Aéroports de Paris has operated the Charles de Gaulle and Orly airports in France, which processed 86.4 million passengers in 2007.  Aéroports de Paris is listed on the Eurolist Market of Euronext Paris S.A.
 

In December 2005, our parent company Aeroinvest entered into certain credit facilities to finance Aeroinvest’s acquisition from the Mexican government of the Series B shares currently representing 35.3% of our capital stock and to finance an additional loan to SETA for SETA’s exercise of the option to acquire 2% of our Series B shares.  These credit facilities were amended and restated to, among other things, increase the amount of the facility and the amount borrowed thereunder in October 2006 and again in April 2007.  In November 2006 Aeroinvest purchased additional Series B shares representing 0.75% of our capital stock.  Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated to refinance its existing credit facilities in June 2007.  In connection with the Merrill Lynch refinancing, Aeroinvest has assigned its economic interests (including its right to receive dividends) with respect to its Series B shares representing 36.04% of our capital stock as well as 74.5% of the Series A shares of SETA.  During 2007, Aeroinvest purchased additional Series B shares representing 3.14% of our capital stock, and from January 1, 2008 through May 27, 2008, Aeroinvest purchased additional Series B shares representing 0.14% of our capital stock.  Aeroinvest's economic interests with respect to these or any other additional Series B shares purchased by Aeroinvest may become subject to an assignment under the terms of the refinancing documents in certain circumstances, including any issuance of additional notes.  The terms of the refinancing documents are described in “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources.”  In addition, Aeroinvest and SETA have entered into an agreement with Nacional Financiera, S.N.C., or NAFIN, a Mexican national credit institution and development bank owned and controlled by the Mexican Government, pursuant to which Aeroinvest has agreed, if certain conditions to be agreed by the parties are met, on or after December 2010, to either (i) sell the Series B shares it owns representing 35.28% of our capital stock or (ii) deposit such Series B shares in a voting trust.  The terms of this obligation are described more fully under “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources.”
 
Under the technical assistance agreement, SETA provides management and consulting services and transfers industry expertise and technology to us in exchange for a fee, which in 2007 amounted to approximately Ps. 57.4 million.  This agreement is more fully described in “Item 7. Related Party Transactions.”
 
Initial Public Offering
 
On November 29, 2006, a Mexican trust established by NAFIN, or the NAFIN Trust, acting pursuant to the instructions of the Mexican Ministry of Communications and Transportation, sold 48.02% of our outstanding capital stock through a global public offering of shares in the form of American Despositary Shares, or ADSs, and Series B shares, concurrently in the United States and Mexico. The net proceeds from the sale of the shares totaled approximately U.S.$432.2 million and were paid to the Mexican government.
 
Master Development Programs
 
Every five years, we are required to submit to the Ministry of Communications and Transportation for approval a master development program for each of our concessions describing, among other matters, our traffic forecasts for the following 15 years, expansion, modernization and maintenance plans, and detailed investment plan for the following five years.  Each master development program is required to be updated and resubmitted for approval to the Ministry of Communications and Transportation every five years.  Upon such approval, the master development program is binding for the following five years and deemed to constitute part of the relevant concession.  Any major construction, renovation or expansion of an airport generally may only be made pursuant to a concession holder’s master development program and upon approval by the Ministry of Communications and Transportation.  In December 2005, the Ministry of Communications and Transportation approved the master development programs for each of our subsidiary concession holders for the 2006 to 2010 period.  These five-year programs will be in effect from January 1, 2006 until December 31, 2010.
 

The following tables set forth our historical committed investments and capital expenditures for the periods indicated.  Our capital expenditures have historically exceeded our committed investments pursuant to our master development programs, primarily due to capital expenditures intended to complement the minimum amounts required under our master development programs or that are otherwise necessary to accommodate the growth of our business.  In addition, our master development programs include some commitments that are expensed rather than capitalized; thus, not all of our committed investments will constitute capital expenditures.
 
Historical Committed Investments Under Master Development Programs
 
   
Year ended December 31,
 
   
2005
   
2006(1)
   
2007
   
Total
2005-2007
 
   
(thousands of pesos)
 
Acapulco
  10,276     94,845     41,213     146,335  
Ciudad Juárez
  25,001     45,419     33,969     104,389  
Culiacán
  7,595     60,438     13,322     81,354  
Chihuahua
  31,840     69,985     8,544     110,369  
Durango
  7,161     16,800     26,010     49,971  
Mazatlán
  5,152     87,827     25,412     118,390  
Monterrey
  49,759     306,530     242,140     598,429  
Reynosa
  16,716     18,088     17,747     52,551  
San Luis Potosí
  5,784     24,422     11,979     42,184  
Tampico
  2,520     39,231     21,195     62,946  
Torreón
  38,363     17,024     9,547     64,933  
Zacatecas
  3,569     16,417     12,547     32,533  
Zihuatanejo
  43,530     70,872     13,198     127,600  
Total
  239,186     867,898     476,823     1,583,904  
________________
(1)           Amounts listed for 2006 include committed investments relating to the purchase, installation and operation of new baggage screening equipment, which are currently under discussion with the airlines that operate at our airports and the Mexican government.  We expect to undertake these investments upon reaching an agreement with our principal airline customers and the Ministry of Communications and Transportation.
 
The following table sets forth our historical capital expenditures, which reflect our actual expenditures (as compared to its committed investments, which are presented above) by airport for the periods indicated.
 

Historical Capital Expenditures by Airport
 
   
Year ended December 31,
 
   
2005
   
2006
   
2007
 
   
(thousands of pesos)
 
Acapulco
  13,620     28,872     42,917  
Ciudad Juárez
  26,356     21,561     21,421  
Culiacán
  7,227     26,438     12,517  
Chihuahua
  28,131     52,252     16,431  
Durango
  7,736     9,657     53,786  
Mazatlán
  9,097     25,204     22,550  
Monterrey
  64,922     166,483     396,142  
Reynosa
  17,278     10,596     17,130  
San Luis Potosí
  39,948     16,019     15,825  
Tampico
  2,744     26,090     20,845  
Torreón
  39,369     22,073     7,229  
Zacatecas
  3,522     10,315     9,230  
Zihuatanejo
  30,016     22,777     14,900  
Other
  3,550     1,898     7,087  
Total
  293,516     440,235     658,010  

The following table sets forth our historical capital expenditures by type of investment across all of our airports for the periods indicated:
 
   
Year ended December 31,
 
   
2005
   
2006
   
2007
 
   
(thousands of pesos)
 
Terminals
  100,284     172,670     407,928  
Runways and aprons
  134,398     230,585     159,888  
Machinery and equipment
  50,950     26,479     44,310  
Other
  7,884     10,501     45,884  
Total
  293,516     440,235     658,010  

Our capital expenditures from 2005 through 2007 were allocated to the following types of investments at the majority of our airports:
 
 
·
Terminals.  We remodeled many of the terminals at our airports by expanding departure areas (concourses and lounges), baggage claim areas and arrival areas, by improving lighting systems, adding office space, adding taxi and other ground transportation waiting areas, and by increasing handicap services and remodeling restrooms.
 
 
·
Runways, access roads and aircraft parking.  We improved our runways and access roads (including their lighting systems), expanded aircraft parking areas, and made improvements and renovations to the fences on the outlying areas of our properties subject to our concessions.
 
 
·
Machinery and equipment.  We invested in machinery and equipment such as fire extinguishing vehicles, emergency back-up electricity generators, metal detectors and other security-related equipment, ambulances, moving walkways and public information systems.
 
 
·
Utility-related infrastructure.  We installed sewage treatment plants and systems at several of our airports, improved drainage systems, and installed underground electric wiring systems at several of our airports.
 

The following table sets forth our committed investments approved by the Ministry of Communications and Transportation for each airport for 2006 through 2010.  We will be required to comply with the investment obligations under these programs on a year-by-year basis.
 
Committed Investments by Airport
 
   
Year ended December 31,
 
   
2006(1)
   
2007
   
2008
   
2009
   
2010
   
Total
2006-2010
 
   
(thousands of pesos)
 
Acapulco
  94,845     41,213     28,195     13,149     13,332     190,736  
Ciudad Juárez
  45,419     33,969     19,933     17,278     10,820     127,419  
Culiacán
  60,438     13,322     7,524     20,091     2,151     103,524  
Chihuahua
  69,985     8,544     27,251     6,843     9,282     121,905  
Durango
  16,800     26,010     18,034     21,347     8,214     90,405  
Mazatlán
  87,827     25,412     9,078     16,888     1,999     141,204  
Monterrey
  306,530     242,140     232,919     75,059     21,283     877,931  
Reynosa
  18,088     17,747     10,185     8,354     1,559     55,934  
San Luis Potosí
  24,422     11,979     18,351     21,890     2,760     79,402  
Tampico
  39,231     21,195     11,066     13,899     4,003     89,393  
Torreón
  17,024     9,547     27,316     5,586     7,245     66,718  
Zacatecas
  16,417     12,547     4,021     21,738     6,940     61,661  
Zihuatanejo
  70,872     13,198     19,162     24,731     11,594     139,557  
Total
  867,898     476,823     433,035     266,853     101,182     2,145,789  
______________
(1)           Amounts listed for 2006 include committed investments relating to the purchase, installation and operation of new baggage screening equipment, which are currently under discussion with the airlines that operate at our airports and the Mexican government.  We expect to undertake these investments upon reaching an agreement with our principal airline customers and the Ministry of Communications and Transportation. Under Mexican law, however, airlines are responsible for screening checked baggage.  Although Mexican law holds airlines liable for screening checked baggage, the purchase, installation and operation of the new equipment could increase our exposure to liability as a result of our involvement in the screening process.
 
The following table sets forth our committed investments for 2006 through 2010 by type of investment:
 
Committed Investments by Type
 
   
Year ended December 31,
 
   
2006(1)
   
2007
   
2008
   
2009
   
2010
   
Total
2006-2010
 
   
(thousands of pesos)
 
Terminals
  105,982     104,101     209,557     57,017     14,179     490,835  
Runways and aprons
  257,297     219,752     170,512     154,748     62,516     864,826  
Machinery and equipment
  64,590     79,163     43,749     48,983     24,490     260,975  
Baggage screening system – investments
  433,316     60,887     0     0     0     494,203  
Other
  6,711     12,918     9,215     6,103     0     34,948  
Total
  867,896     476,821     433,033     266,851     101,185     2,145,787  
______________
(1)           Amounts listed for 2006 include committed investments relating to the purchase, installation and operation of new baggage screening equipment, which are currently under discussion with the airlines that operate at our airports and the Mexican government.  We expect to undertake these investments upon reaching an agreement with our principal airline customers and the Ministry of Communications and Transportation. Under Mexican law, however, airlines are responsible for screening checked baggage.  Although Mexican law holds airlines liable for screening checked baggage, the purchase, installation and operation of the new equipment could increase our exposure to liability as a result of our involvement in the screening process.


For the year ended December 31, 2007, our capital expenditures totaled Ps.658 million.  Our capital expenditures for 2007 were devoted primarily to our committed investments and secondarily to the construction of a new passenger terminal.
 
We plan to fund our operations and capital expenditures in the short-term and long-term through cash flows from operations and debt.  Our ability to incur debt may be restricted by the Merrill Lynch refinancing entered into by our parent company Aeroinvest.  See “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Returns.
 
BUSINESS OVERVIEW
 
Our Operations
 
Through our subsidiaries, we hold concessions to operate, maintain and develop 13 airports in Mexico, which are concentrated in the country’s central and northern regions.  Each of our concessions has a term of 50 years beginning on November 1, 1998.  The term of each of our concessions may be extended by the Ministry of Communications and Transportation under certain circumstances for up to 50 additional years.  The terms of our concessions also include the right to occupy, use and improve the land appurtenant to our airports, which we do not own and which will revert to the Mexican government upon the termination of our concession.  As operator of the 13 airports under our concessions, we charge fees to airlines, passengers and other users for the use of the airports’ facilities.  We also derive rental and other income from commercial activities conducted at our airports, such as the leasing of space to restaurants and retailers.
 
We operate 13 airports, which serve a major metropolitan area (Monterrey), three tourist destinations (Acapulco, Mazatlán and Zihuatanejo), regional centers (Chihuahua, Culiacán, Durango, San Luis Potosí, Tampico, Torreón and Zacatecas) and border cities (Ciudad Juárez and Reynosa). Our airports are located in nine of the 31 Mexican states, covering a territory of approximately 926,421 square kilometers (approximately 575,667 square miles), with a population of approximately 24 million according to the Mexican National Institute of Statistics, Geography and Computer Science (Instituto Nacional de Estadística, Geografía e Informática) and the Mexican National Population Council. All of our airports are designated as international airports under Mexican law, meaning that they are all equipped to receive international flights and to maintain customs and immigration services managed by the Mexican government, as well as refueling services.
 
According to figures published by the Mexican Bureau of Civil Aviation, our commercial aviation passenger traffic accounted for approximately 21.0% of all arriving and departing commercial aviation passengers in Mexico in 2007.
 
In 2007, we recorded revenues of Ps.1,897.4 million (U.S.$173.8 million) and net income of Ps.31.2 million (U.S.$2.9 million).  In 2007 our airports handled approximately 14.2 million terminal passengers, an increase of 20.3% with respect to the 11.8 million terminal passengers in 2006.
 
Our airports serve several major international routes, including Monterrey-Houston, Monterrey-Dallas, Monterrey-Las Vegas, Monterrey-Atlanta and Monterrey-Chicago.  Our airports also serve several other major international destinations, including Houston, Los Angeles, Dallas and Phoenix.  In addition, our airports serve major resort destinations, such as Acapulco, Mazatlán and Zihuatanejo, which are popular destinations in Mexico frequented by tourists from Mexico, the United States and Canada.  Our airports also serve major domestic routes, including Monterrey-Mexico City, which was the country’s busiest domestic route in 2007, with approximately 2.6 million total passengers (including passengers flying directly to the nearby airport of Toluca, which are counted together with those flying to Mexico City), according to the Mexican Bureau of Civil Aviation. Other major domestic routes served by our airports include Mexico City-Acapulco, Mexico City-Ciudad Juárez and Culiacán-Tijuana, with approximately 618.1 thousand, 375.4 thousand and 316.1 thousand total passengers, respectively, in 2007 according to the Mexican Bureau of Civil Aviation.
 

Monterrey is the third largest city in Mexico in terms of population, with a population of 4.3 million in the greater metropolitan area.  Monterrey ranks among Mexico’s most established urban and commercial centers and is the capital of the state of Nuevo León, Mexico’s ninth largest state in terms of population.  It is home to many of Mexico’s largest companies in a wide variety of industries, as well as several major universities.  Business travelers account for a substantial portion of passengers at the Monterrey International Airport.  The airport is our leading airport in terms of passenger traffic volume, air traffic movements and contribution to revenues, and ranked fourth busiest airport in Mexico based on passenger traffic volume in 2007, according to data published by the Mexican Bureau of Civil Aviation. Our Monterrey International Airport accounted for approximately 44.6% and 46.2% of our terminal passenger traffic in 2006 and 2007, respectively.
 
Three of our airports, Acapulco International Airport, Mazatlán International Airport and Zihuatanejo International Airport, serve popular Mexican tourist destinations.  Of these tourist destinations, Acapulco and Mazatlán are the largest, with Acapulco constituting Mexico’s tenth largest international tourist destination and Mazatlán the eighth largest in terms of visitors in 2007, according to the Mexican National Institute of Immigration.  Acapulco is a principal port of call for cruise ships.  In 2007, the Acapulco International Airport, Mazatlán International Airport and Zihuatanejo International Airport collectively accounted for 18.5% of our aggregate terminal passengers and 20.5% of our total revenues.
 
Mexico was the eighth largest tourist destination in the world in 2007 in terms of international arriving tourists (21.4 million), according to the latest data published by the World Tourism Organization.  Within Latin America and the Caribbean, Mexico ranked first in 2007 in terms of number of foreign visitors and income from tourism, according to the World Tourism Organization.
 
Seven of our airports serve small and mid-sized cities that are important regional centers of economic activity with such diverse economic activities as mining (Durango International Airport and Zacatecas International Airport), maquiladora manufacturing (Chihuahua International Airport and Torreón International Airport), petroleum and chemical production (Tampico International Airport), agriculture and livestock (Culiacán International Airport) and transportation and logistics (San Luis Potosí International Airport).  In 2007, these seven regional airports collectively accounted for 27.6% of our aggregate terminal passengers and 27.9% of our total revenues.
 
The remaining two airports in the group, Ciudad Juárez International Airport and Reynosa International Airport, serve cities situated along the border of Mexico and the United States.  Both Ciudad Juárez and Reynosa are popular entry points to the United States. In 2007, the Ciudad Juárez International Airport and the Reynosa International Airport collectively accounted for 7.7% of our aggregate terminal passengers and 7.3% of our total revenues.
 

The following table provides summary data for each of our 13 airports for the year ended December 31, 2006 and 2007:
 
   
Year ended December 31, 2006
   
Year ended December 31, 2007
 
Airport
 
Terminal
Passengers
   
Revenues
   
Revenues per terminal passenger(1)
   
Terminal
passengers
   
Revenues
   
Revenues per terminal passenger(1)
 
   
Number (in millions)
   
%
   
(millions of pesos)
   
%
   
(pesos)
   
Number (in millions)
   
%
   
(millions of pesos)
   
%
   
(pesos)
 
Metropolitan area:
                                                           
Monterrey International Airport
    5.3       44.6       746.9       43.9 %     140.9       6.6       46.2       847.8       44.4       128.5  
Tourist destinations:
                                                                               
Acapulco International Airport
    1.0       8.4       144.9       8.5 %     144.9       1.1       7.4       148.4       7.8       134.9  
Mazatlán International Airport
    0.8       7.0       128.4       7.5 %     160.4       0.9       6.4       143.4       7.5       159.4  
Zihuatanejo International Airport
    0.7       5.8       94.3       5.5 %     134.7       0.7       4.7       96.2       5.0       137.4  
Total tourist destinations
    2.5       21.2       367.5       21.6 %     147.0       2.6       18.5       388.0       20.3       143.7  
Regional cities:
                                                                               
Chihuahua International Airport
    0.7       5.6       99.6       5.9 %     142.1       0.9       6.0       116.7       6.1       129.7  
Culiacán International Airport
    0.8       7.2       115.2       6.8 %     144.0       1.1       8.0       145.2       7.6       132.0  
Durango International Airport
    0.2       2.0       37.4       2.2 %     187.0       0.3       2.0       38.2       2.0       127.3  
San Luis Potosí International Airport
    0.2       1.9       42.1       2.5 %     210.5       0.3       1.9       46.3       2.4       154.3  
Tampico International Airport
    0.5       4.1       67.3       4.0 %     134.6       0.6       4.1       72.5       3.8       120.8  
Torreón International Airport
    0.4       3.5       59.6       3.5 %     149.0       0.5       3.7       75.0       3.9       149.8  
Zacatecas International Airport
    0.3       2.8       48.8       2.9 %     162.7       0.3       2.0       39.2       2.1       130.7  
Total regional destinations
    3.2       27.1       470.0       27.6 %     146.8       3.9       27.6       533.0       27.9       133.3  
Border cities: