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, 2010

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, México
(Address of principal executive offices)

José Luis Guerrero.
Aeropuerto Internacional de Monterrey
Zona de Carga
Carretera Miguel Aleman, Km. 24 s/n
66600 Apodaca Nuevo Leon, México
+ 52 81 8625 4327
jlguerrero@oma.aero
(Name, Telephone, E-mail and/or facsimile number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 
Title of each class:
Name of each exchange
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
Series BB Shares
58,800,000

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes              No   x
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    x
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.
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes o No þ
 
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
   
3
   
6
   
29
ITEM 4.
 
29
   
29
   
35
   
67
   
87
   
88
ITEM 4A.
 
89
ITEM 5.
 
89
ITEM 6.
 
120
ITEM 7.
 
130
   
130
   
133
ITEM 8.
 
135
   
135
   
139
ITEM 9.
 
142
   
142
   
143
ITEM 10.
 
143
   
160
   
160
   
160
   
163
ITEM 11.
 
164
ITEM 12.
 
164
ITEM 12A.
 
164
 
 
TABLE OF CONTENTS
(continued)
 
ITEM 12B.
 
164
ITEM 12C.
 
164
ITEM 12D.
 
164
ITEM 13.
 
166
ITEM 14.
 
166
ITEM 15.
 
166
ITEM 16.
 
169
ITEM 16A.
 
169
ITEM 16B.
 
169
ITEM 16C.
 
170
ITEM 16D.
 
170
ITEM 16E.
 
170
ITEM 16F.
 
171
ITEM 16G.
 
171
ITEM 17.
 
177
ITEM 18.
 
177
ITEM 19.
 
178

 
PART I
 
Item 1.

Not applicable.

Item 2.

Not applicable.
 
Item 3.

SELECTED FINANCIAL DATA

We publish our financial statements in Mexican pesos.  Pursuant to Mexican Financial Reporting Standards accepted in México, or MFRS, financial data for all periods up through December 31, 2010 in the financial statements included in Items 3, 5 and 8 and, unless otherwise indicated, throughout this Form 20-F are expressed in nominal pesos.

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. 12.38 to U.S.$ 1.00, the noon buying rate for Mexican pesos on December 30, 2010, as published by the Federal Reserve Bank of New York.  On May 20, 2011, the Federal Reserve Bank of New York’s noon buying rate for Mexican pesos was Ps. 11.66 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 MFRS (individually referred to as Normas de Información Financiera or “NIFs”), which differ in certain significant respects from generally accepted accounting principles in the United States, or U.S. GAAP.  A reconciliation to U.S. GAAP to our net income and total stockholders’ equity is also provided in this summary financial data.  Information relating to the nature and effect of the principal differences between MFRS and U.S. GAAP is presented in Note 23 to the consolidated financial statements.
 
In 2010 we adopted INIF 17 “Service Concession Contracts” issued by the Mexican accounting standards board, which is similar in certain respects to IFRIC 12 “Service Concession Agreements” and provides a clarification of the accounting treatment required to comply with accounting Bulletin D-7 “Contracts for construction and fabrication of certain capital goods.” However, certain differences exist that do apply to us and will be reflected in our financial statements presented in accordance with International Financial Reporting Standards. The effects of INIF 17 are reflected in our financial statements as of and for the period ending December 31, 2010.  We have restated the prior period for comparative purposes.

The concession contracts for each of our airport subsidiaries establish that the concessionaire is obligated to carry out construction or improvements to the infrastructure in exchange for the rights over the concession granted by the Federal Government. The Federal Government will receive all the assets at the end of the concession period.  As a result, starting January 1, 2010, the concessionaire should recognize, using the percentage of completion method, the revenues and costs associated with the improvements to the concessioned assets, which we have adopted retroactively for all periods presented. The amount recognized for both construction revenues and construction costs is equal and equivalent to the price we pay to third parties for the execution of projects or the purchase of machinery and equipment, with no profit recognized for the construction or improvement. The resulting change of adopting this new standard does not affect the presentation of our operating income or net income, but does affect calculations of margins based on total revenues.


In accordance with the guidelines set forth in NIF B-10, “Effects of Inflation,” calendar years 2008, 2009 and 2010 are considered noninflationary economic environments because the recognition of inflation effects is only required in an environment where the cumulative inflation over the three preceding years is equal to or greater than 26%.  Therefore, from January 1, 2008, we suspended the recognition of the effects of inflation on our financial statements.  The amounts in the accompanying consolidated financial statements as of and for the years ended December 31, 2010, 2009 and 2008 are 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 México.  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, 2006.

   
Year ended December 31,
 
   
2006
   
2007
   
2008
   
2009
   
2010
 
   
(thousands of Mexican pesos)
   
(thousands of dollars) (1)
 
Statement of Income data:
                                   
MFRS:
                                   
Revenues:
                                   
Aeronautical services(2)
    1,370,968       1,549,827       1,617,195       1,526,965       1,652,626       133,492  
Non-aeronautical services(3)
    316,343       347,526       371,281       354,001       391,974       31,662  
Hotel services
    0       0       0       15,311       99,823       8,063  
Construction services
    355,862       374,675       492,813       640,992       507,026       40,955  
Total revenues
    2,043,173       2,272,028       2,481,289       2,537,269       2,651,449       214,172  
Operating costs:
                                               
Costs of services
    397,465       420,777       507,214       447,568       673,632       54,413  
Construction costs
    355,862       374,675       492,813       640,992       507,026       40,955  
Administrative expenses
    237,475       256,730       269,929       330,969       379,314       30,639  
Technical assistance fee(4)
    49,541       57,416       55,604       51,710       47,567       3,842  
Concession tax(5)
    84,635       98,307       101,642       94,756       103,067       8,325  
Depreciation and amortization:
                                               
Depreciation(6)
    28,257       32,872       39,306       47,979       60,358       4,875  
Amortization(7)
    263,839       303,330       327,413       363,911       409,314       33,063  
Total depreciation and amortization
    292,096       336,202       366,719       411,890       469,672       37,938  
Total operating costs
    1,417,074       1,544,107       1,793,921       1,977,885       2,180,278       176,112  
Income from operations
    626,099       727,921       687,368       559,384       471,171       38,060  
Other (expenses) income, net
    (30,679 )     (7,584 )     104,792       10,051       (3,090 )     (250 )
Net comprehensive financing income (cost)
    70,328       96,218       (11,451 )     (22,126 )     (68,338 )     (5,521 )
Income before income taxes
    665,748       816,555       780,709       547,309       399,743       32,289  
Income tax expense
    196,511       785,363       238,906       77,785       (152,232 )     (12,297 )
Consolidated net income
    469,237       31,192       541,803       469,524       551,975       44,586  
Basic and diluted earnings per share(8)
    1.1874       0.0781       1.3672       1.1889       1.3835       0.1118  
Basic and diluted earnings per ADS(8)
    9.4992       0.6248       10.9376       9.5112       11.0680       0.8940  
                                                 
U.S. GAAP:
                                               
Revenues
    1,687,311       1,897,353       1,988,476       1,896,277       2,144,423       173,217  
Income from operations
    697,879       811,103       804,380       663,929       567,725       45,858  
Consolidated net income
    548,798       (118,318 )     1,013,454       302,380       566,653       45,772  
Basic (loss) earnings per share(8)
    1.4013       (0.2961 )     2.5574       0.7656       1.4203       0.1147  
Diluted (loss) earnings per share(9)
    1.3909       (0.2961 )     2.5386       0.7600       1.4099       0.1139  
Basic (loss) earnings per ADS(8)
    11.2110       (2.3688 )     20.4592       6.1248       11.3264       0.9178  
Diluted (loss) earnings per ADS(9)
    11.1271       (2.3688 )     20.3088       6.0800       11.2792       0.9111  
                                                 
Other operating data:
                                               
Total terminal passengers (thousands of passengers)(10)
    11,784       14,212       14,061       11,518       11,588          
Total air traffic movements (thousands of movements)
    383       424       387       327       345          
Total revenues per terminalpassenger(11)
    143       134       141       165       229          


   
Year ended December 31,
 
   
2006
   
2007
   
2008
   
2009
   
2010
 
   
(thousands of Mexican pesos)
               
(thousands of dollars) (1)
 
Balance Sheet data:
                                   
MFRS:
                                   
Cash and cash equivalents
    1,672,994       1,756,704       257,420       267,734       312,838       25,270  
Total current assets
    2,143,271       2,084,057       926,245       884,405       841,575       67,976  
Land, buildings, machinery and equipment- net….
    163,067       316,947       1,935,641       2,183,613       2,310,848       186,660  
Investments in airport concessions
    6,551,579       6,722876       6,955,015       7,164,874       7,266,560       586,960  
Total assets
    8,873,950       9,134,388       9,859,832       10,276,678       10,453,679       844,399  
Current liabilities
    184,236       407,096       1,145,793       1,037,603       740,792       59,837  
Total liabilities
    891,999       1,660,046       2,330,072       2,601,715       2,608,270       210,683  
Total stockholders’ equity(12) 
    7,981,951       7,474,342       7,529,760       7,674,963       7,845,409       633,716  
U.S. GAAP:
                                               
Cash and cash equivalents
    1,672,994       1,756,704       257,420       267,734       312,838       25,270  
Total current assets
    2,143,271       2,084,057       929,695       910,802       922,921       74,549  
Assets under concession (“Rights to use airport facilities” under MFRS)
    917,497       877,388       837,291       797,545       757,799       61,212  
Total assets
    5,495,086       5,263,692       6,292,200       6,640,657       7,015,749       566,700  
Current liabilities
    203,844       421,398       1,158,298       1,037,603       740,792       59,838  
Total liabilities
    264,653       680,277       1,203,591       1,564,618       1,747,445       141,151  
Total stockholders’ equity
    5,230,433       4,583,415       5,088,609       5,076,039       5,268,304       425,550  
Dividend per share
    1.1167       1.1103       1.0856       1.0000       1.0000          
Other data:
                                               
MFRS:
                                               
Net cash flows from operating activities
                    735,464       448,811       610,683       49,330  
Net cash flows provided by financing activities
                    (352,146 )     158,637       (38,356 )     (3,099 )
Net cash flows generated by (used in) investing activities
                    (1,882,602 )     (597,134 )     (527,223 )     (42,587 )
(Decrease) increase in cash and cash equivalents
                    (1,499,284 )     10,314       45,104       3,644  
Net resources generated by operating activities
    729,090       1,070,588                                  
Net resources used in financing activities
    (322,465 )     (328,868 )                                
Net resources used in investing activities
    (440,235 )     (658,010 )                                
Increase (decrease) in cash and cash equivalents
    (33,610 )     83,710                                  
U.S. GAAP(13):
                                               
Net cash provided by operating activities
    694,103       1,036,011       799,809       431,757       540,783       46,105  
Net cash used in investing activities
    (458,262 )     (657,018 )     (1,948,393 )     (619,227 )     (544,412 )     (43,975 )
Net cash (used in) provided by financing activities
    (322,465 )     (328,868 )     (350,700 )     197,784       48,733       3,936  
Effect of inflation accounting
    53,014       33,585       -       -       -       -  
(Decrease) increase in cash and cash equivalents
    (33,610 )     83,710       (1,499,284 )     10,314       45,104       3,643  
_______________________

(1)
Translated into dollars at the rate of Ps. 12.38 per U.S. dollar, the U.S. Federal Reserve noon buying rate for Mexican pesos at December 30, 2010.  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 represent 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 MFRS purposes, 395,173,149 weighted average common shares outstanding in 2006, 399,611,578 weighted average common shares outstanding in 2007, 396,284,313 weighted average common shares outstanding in 2008, 394,934,855 weighted average common shares in 2009 and 398,967,756 weighted average common shares in 2010.  For U.S. GAAP purposes, based on 391,624,384 weighted average common shares outstanding in 2006, 399,611,578 weighted average common shares outstanding in 2007, 396,284,313 weighted average common shares outstanding in 2008, 394,934,855 weighted average common shares in 2009 and 398,967,756 weighted average common shares in 2010.  Earnings per ADS are based on the ratio of 8 Series B shares per ADS.
(9)
Based on 399,224,413, 397,874,855 and 401,907,756 weighted average common shares and common share equivalents outstanding for the year ended December 31, 2008, 2009 and 2010, respectively.  Earnings per ADS are based on the ratio of 8 Series B shares per ADS.
(10)
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)
Total stockholders’ equity under MFRS reflects the value assigned to our concessions.  Under U.S. GAAP, no value has been assigned to our concessions.
(13)
U.S. GAAP cash flow data is expressed in nominal Mexican pesos.


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.  All amounts are stated in pesos and have not been restated in constant currency units.  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)
 
2006
    11.46       10.43       10.80       10.91  
2007
    11.27       10.67       10.92       10.93  
2008
    13.94       9.92       13.83       11.14  
2009
    15.41       12.63       13.06       13.50  
2010
    13.19       12.16       12.38       12.62  
December 2010                                          
    12.47       12.33       12.38       12.39  
2011:
                               
January 2011                                          
    12.25       12.04       12.15       12.13  
February 2011                                          
    12.18       11.97       12.11       12.06  
March 2011                                          
    12.11       11.92       11.92       12.00  
April 2011                                          
    11.86       11.52       11.71       11.52  

(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 30, 2010, the Federal Reserve noon buying rate was Ps. 12.38 per U.S.$ 1.00.  On May 20, 2011, the Federal Reserve noon buying rate was Ps. 11.66 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 2008, 2009 and 2010 approximately 65.2%, 60.2% and 62.3% 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.  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.

Our maximum rates and annual efficiency adjustments will be renegotiated in 2015.

In 2015, the Ministry of Communications and Transportation will set our maximum rates and annual efficiency adjustments for 2016 through 2020.  For a discussion of the framework for establishing our maximum rates and the application of these rates, see “Item 4. Information on the Company—Regulatory Framework—Revenue Regulation.”  We are unable to predict what our maximum rates or annual efficiency adjustments will be for the period from 2016 to 2020, and we cannot assure you that any changes to our maximum rates or annual efficiency adjustments for this period will not have a material adverse impact on our results of operations.

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 laws, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges.  We cannot assure you that we will not encounter difficulties in complying with these laws, regulations and instruments.

Moreover, when determining our maximum rates for the current five year period (from 2011 to 2015) and in the future, the Ministry of Communications and Transportations may be solicited by different entities (such as, for example, the Mexican Federal Competition Commission (Comisón Federal de Competencia or the “Competition Comission”) and the carriers operating at our airports) to modify our maximum rates, thus reducing 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.


The Transport and Communications Commissions and the Federal Congress have, in the past, filed legislative initiatives to modify the current Mexican Airport Law.  There can be no assurance that the Transport and Communications Commissions or the Federal Congress will file other initiatives in the future that seek to reform the current Mexican Airport Law.  Should the current Mexican Airport law be amended with respect to matters that are related to our operations, such amendment could have a material impact on our results of operations.

Our business is dependent upon international regulations that affect Mexican Airlines

On July 30, 2010, the Federal Aviation Administration (“FAA”) downgraded México’s aviation safety rating from Category 1 to Cateogry 2, as a result of the FAA’s visit to the Mexican Bureau of Civil Aviation between January and July.  The reason for the downgrade was not having enough flight inspectors, and administrative and organizational elements in the Mexican Bureau of Civil Aviation.

The FAA also evaluates the legal framework for civil aviation and issues related to the monitoring, staff training and inspection processes related to regulations issued by the International Civil Aviation Organization (ICAO), an agency of the United Nations Organization (UN).

The consequences of the downgrade from Category 1 to Category 2 were: the suspension of the right to operate code-shared flights, the restriction of Mexican airlines’ ability to increase the frequency of, or add new routes to, the U.S., and that the international routes of Mexicana may not be flown by any Mexican carrier throughout the duration of the Cateogry 2 rating.

México regained its Category 1 safety rating on December 1, 2010; however, we cannot be sure that México will not be downgraded in the future and we cannot be certain of how long this Category 1 rating will be maintained.

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.  In December 2010, the Ministry of Communications and Transportation determined, based on the terms of our concessions, the maximum rates for our airports from January 1, 2011 through December 31, 2015.  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 2010, our revenues subject to maximum rate regulation represented approximately 99.2% 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), the Mexican consumer price index 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.

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 México, 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 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 operations.  The state of Nuevo Leon has requested in the past that the Ministry of Communications and Transportation amend Aeropuerto del Norte’s concession to allow it to serve commercial aviation operations.  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 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 you 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

The global economic and financial crisis adversely affected our business.

The global economic and financial crisis in 2009 led to high volatility and lack of liquidity in the global credit and other financial markets.  Such downturns in the U.S. and global economies led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, decreased market valuations, increased market volatility, high financial risk premiums, and a widespread reduction of business activity generally.  These conditions also limited the availability of credit and increased financial costs for companies around the world, including in México and the United States.

During 2010, the uneven recovery from the financial crisis continued, but began to slow down in mid-2010, foreshadowing weaker global growth in 2011 and 2012.  According to the Mexican Central Bank, despite relative improvement of the global economy in 2010, the expansion method and the policies adopted during the year to facilitate economic activity may impede future growth.  Measures taken by Governments during the early stages of the crisis helped to stabilize the financial markets and start the path to recovery.  However, correcting the structural flaws that led to the crisis will continue to be a long and challenging process.  Future volatility of the credit and capital markets can significantly affect our ability to access credit to finance our future projects, therefore adversely affecting our business.


If the global economy falls into any other recession, our business and results of operations will be adversely affected.  (See also “Risks Related to México – Our business is significantly dependent upon the volume of air passenger traffic in México, and negative economic developments in México will adversely affect our business and results of operations” and “Risks Related to México – Our business could be adversely affected by a downturn in the U.S. economy”).

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 an economic downturn in México, the United States and the world, the political situation in México 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, 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 and from the United States, we may be required to comply with security directives of the FAA 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 2008, 2009 and 2010, passenger charges represented 49.7%, 46.9% and 48.6%, respectively, of our total revenues.  Events such as the war in Iraq and public health crisis such as the Severe Acute Respiratory Syndrome, or SARS, crisis and the Influenza A(H1N1) crisis have negatively affected the frequency and pattern of air travel worldwide.


On April 30, 2009, President Felipe Calderon Hinojosa issued a presidential decree instructing Mexicans to remain in their homes for a period of five days to reduce the spread of the Influenza A(H1N1) virus.  The president also requested that travel should continue to operate subject to special passenger measures, including the use of thermographic cameras to prevent the spread of the A(H1N1) virus.

As a consequence of the presidential decree and public concerns, many people chose to cancel or delay scheduled travel, producing a reduction in passenger traffic and operations during the second quarter of 2009.  Although the World Health Organization recommended that borders remain open and international travel remain unrestricted, these factors affecting passenger traffic continued without change.

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, further outbreaks of health epidemics such as SARS, Influenza A(H1N1) 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 México, including extortion and drug trafficking in particular, could adversely affect our business.

Based upon a security review in Monterrey, the travel alert issued by the U.S. Department of State (Bureau of Consular Affairs) on April 12, 2010 (the “Travel Alert”), was superseded by another Travel Alert issued on September 10, 2010, which lifts the authorized departure of family members of U.S. government personnel from U.S. consulates in the Northern Mexican border cities of Tijuana, Nogales, Ciudad Juárez, Nuevo Laredo, Monterrey and Matamoros.  This alert indicates that the Consulate General in Monterrey declared that no minor dependents of U.S. government employees are permitted to remain in the city and advises U.S. citizens to refrain from unnecessary travel to certain areas.  According to the Travel Alert, while millions of U.S. citizens safely visit México each year, many are victims of violence.  The Travel Alert reported that gunfights involving the Mexican army, police and drug cartels have taken place in many towns and cities across México, but occur mostly in certain cities in northern México, including Ciudad Juárez, Tijuana, Chihuahua City, Nogales, Matamoros, Reynosa, Michoacán, Sinaloa, Durango and Monterrey.

The situation in Ciudad Juárez and surrounding areas is of special concern.  The U.S. Consulate General recommends U.S. citizens to defer non-essential travel to the southeast of Ciudad Juárez and to the northwest quarter of the state of Chihuahua.  In both areas U.S. citizens have been victims of drug-related violence and extortion and both areas are reached easily from the United States through various ports of entry.  While most crime victims are Mexican citizens, the Travel Alert warns that the uncertain security situation of the border region poses serious risks for U.S. citizens as well.


Higher incidences of crime throughout México, including extortion and drug trafficking in particular, could have an adverse affect on our business as it may decrease the international passenger traffic directed to México from abroad.

Increases in international fuel prices could adversely affect our business and results from operations.

International prices of fuel, which represent a significant cost for airlines using our airports, have increased in recent years, reaching record highs in the second quarter of 2008.  Such increases in airlines costs were among the factors leading to cancellations of routes, decreases in frequencies of flights, and in some cases even contributed to filings for bankruptcy by some airlines (such as Alma and Aladia).  For other airlines, such as Avolar and Aerocalifornia, such increased costs may have contributed to the denial of extensions of their concessions by the Mexican regulatory authorities for failure to satisfy security, service, coverage and quality requirement.  Fuel prices in 2010 were slightly higher than prices in 2009.  The social and political crisis affecting the Middle East has caused a surge in oil prices that has forced sharp increases in the price of fuel in the first trimester of 2011. Fuel prices 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, and there can be no assurances that future air business would not be further affected by increased fuel prices.
 
Our revenues and profitability may be adversely affected 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 and the profitability from other non-aeronautical commercial businesses, such as our Terminal 2 NH Hotel and commercial project at the México City International Airport.  We cannot assure you 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.

We may not fully recover our investment for the acquisition of the Terminal 2 NH Hotel.

In October 2008, we acquired 90% of the shares of Consorcio Grupo Hotelero T2, S.A. de C.V., which has the rights to develop and operate a 287-room hotel and approximately 5,000 square meters of commercial space inside the new Terminal 2 of the México City International Airport, under a 20-year contract with the México City International Airport.  The Spanish company NH Hoteles, S.A. de C.V. owns the other 10%.  The Terminal 2 NH Hotel opened in August 2009.  The total amount of our investment in the Terminal 2 NH Hotel as of December 31, 2010 was Ps. 342.2 million.

Part of the value of our investment in Terminal 2 of the México City International Airport reflects the airport’s status as the only one in the proximity of México City.  If a new airport were to be built near México City, the México City International Airport could be closed and we would therefore have no assurance of our ability to continue operating the hotel and the commercial areas or of our ability to recover our investment.  In addition, under certain circumstances, the operating lease agreement with the México City International Airport can be terminated by the México City International Airport with partial or no compensation to us.  Should a new México City airport be constructed or the México City International Airport terminates the operating lease agreement, there could be no assurances as to our ability to fully recover our investment in the Terminal 2 NH Hotel.


As a new business endeavor, the Terminal 2 NH Hotel faces the challenge of maintaining enough market participation as it continues with its operations.  We cannot assure you that the occupancy of the hotel will be sufficient to recover our investment.  As of December 31, 2010, total revenues amounted to Ps. 99.8 million for the year, annual average occupancy increased to 62.0% and the annual average rate per room was Ps. 1,157.5. We cannot assure you that the occupancy rate of the hotel will continue to 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 México.  In addition, our passenger traffic volume may be adversely affected by the attractiveness, affordability and accessibility of competing tourist destinations in México, 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 is also likely to be affected by perceptions of travelers as to the safety and political and social stability of México.  Furthermore, the current global economic crisis affected our international passenger traffic, with particular reference to our tourist destinations airports.  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.

Our business is highly dependent upon revenues from four of our airports and could be adversely impacted by any condition affecting those airports.

In 2010, approximately 65.1%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 including the percentage of total revenues generated by our hotel services:

Airport
 
For year ended December 31, 2010
 
Monterrey International Airport
    41.8 %
Culiacán International Airport
    7.8 %
Mazatlán International Airport
    8.1 %
Acapulco International Airport
    7.4 %
Nine other airports and Terminal 2 NH Hotel
    34.9 %
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.

The adoption of IFRS results in changes to our consolidated financial position and results of operations.

All Mexican issuers (except financial institutions) are required to adopt International Financial Reporting Standards, or IFRS as issued by the International Accounting Standards Board, as their accounting standard, no later than fiscal years beginning on or after January 1, 2012, with early adoption permitted.  We started using IFRS in our financial information as of January 1, 2011.  Our transition period to IFRS begins on January 1, 2010.


The most significant impacts of the adoption of IFRS based on our consolidated financial statements as of December 31, 2010, are the following:

Investment in airport concessions:

 
a)
Effects of inflation – In accordance with IFRS, the effects of inflation are recognized when the inflation accumulated during the last three years approximates to or exceeds 100%. Given that the Mexican environment ceased to be hyperinflationary since 1999, the effects of inflation recorded up to 2007 were cancelled, except for the inflation included in certain items of property, machinery and equipment, for which the deemed cost exception (indexed cost) included in IFRS 1, “First-time Adoption of International Financial Reporting Standards,” was used.

 
b)
Amortization of the Concessioned Asset – In accordance with IFRS, the amortization of the concessioned asset is determined considering the term of the concession, which is 50 years. In accordance with MFRS, the amortization was determined based on the estimated useful life of the various components of the concessioned asset.

 
c)
Maintenance expenses – According to the policy adopted pursuant to IFRS, airport maintenance costs, which are approved in the Master Development Plan, are provisioned and recorded in our results of operations.  In acordance with MFRS, such costs are capitalized as part of the asset as incurred.

Income taxes – Deferred taxes are recognized applying the rate that corresponds to temporary differences that result from comparing the accounting and tax values of assets and liabilities and, if applicable, the tax loss carryforwards and certain tax credits benefits.

Employee benefits – In accordance with IFRS, the provision for employee severance indemnity is recorded only when there is a current obligation or a formal plan has been communicated to employees.

The impacts described above are based on IFRS in effect as of December 31, 2010. If new IFRS are issued and become effective prior to December 31, 2011, they must be applied retrospectively to our opening IFRS consolidated statement of financial position.

As of December 31, 2010, the adoption of IFRS generated a decrease of Ps. 1,945 million in our stockholders’ equity.

If we make any changes to our existing IFRS accounting policies, the estimated impact of IFRS on our consolidated financial position and results of operations could change.

If a change in relations with our labor force should occur, such a change could have an adverse impact on our results of operations.

If any conflicts with our employees were to arise, including with our unionized employees (which accounted for 58.2%of our total employees as of December 31, 2010), 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 58.2% of our total employees as of December 31, 2010) are represented by a national union of airport workers that operates throughout México.  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 operators.

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 aeronautical revenues generated at our airports in 2010, Aeroméxico and its affiliates accounted for 29.6%, Mexicana and its affiliates accounted for 10.5%, VivaAerobus represented 14.1% and Interjet represented 9.7%.  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 2010, passengers traveling on discount, charter and low-cost carriers, such as VivaAerobus, Interjet and Volaris accounted for approximately 36.2% of our commercial aviation passenger traffic.  Avolar, Alma and Aladia ceased operations during the last quarter of 2008 for not satisfying security, service, coverage and quality requirements (in the case of Avolar), or because of bankruptcy (in the case of Alma and Aladia).

Our airports could be affected by the reduction in aeronautical and non-aeronautical revenues resulting from a merger between key airline customers.  As of May 2011, we are not aware of any merger agreements between any key airline customers.

Grupo Mexicana, which comprises Mexicana de Aviación, Click Mexicana, and Mexicana Link, operated at twelve of our thirteen airports.  In July 2010, prior to the bankruptcy filing by Mexicana de Aviación, the three airlines operated 24 routes at our airports, of which 18 were also operated by other airlines.

On August 3, 2010, Mexicana de Aviación announced that it filed for bankruptcy protection (Concurso Mercantil) before the 11th Federal judge in México City and that it also sought bankruptcy protection in the United States.  On August 27, 2010, Grupo Mexicana announced the indefinite suspension of operations of Mexicana de Aviación, Click Mexicana, and Mexicana Link, while noting that it “will continue seeking out ways of securing the company’s long-term financial viability.”  On September 7, 2010, Mexicana Click and Mexicana Link (subsidiaries of Grupo Mexicana) filed for bankruptcy protection before the 11th Federal Court in México.  Click Mexicana and Mexicana Link’s insolvency petitions were accepted in conciliary phase on November 16, 2010.

During the first six months of 2010, Grupo Mexicana generated 16.6% of our total passenger traffic, of which 7.6% was accounted for solely by Mexicana de Aviación.  Grupo Mexicana generated 17.3% of our domestic passenger traffic, including 7.2% from Mexicana de Aviación.  In terms of international traffic, Grupo Mexicana generated 13.1% of traffic, of which Mexicana de Aviación accounted for 9.3%.

Grupo Mexicana generated 12.2% of our revenues during the first six months of 2010, of which Mexicana de Aviación accounted for 5.9%.

In November 2010, we filed a motion (incidente de separaciòn de bienes) against Grupo Mexicana to recover the passenger charges that Grupo Mexicana collected for us.  As of December 31, 2010, the amount owed to us by Grupo Mexicana amounted to Ps. 143.1 million, 93% of which represented passenger charges.  This number increased to 144.2 million as of March 31, 2011. We have reserved 100% of the total amount owed within the allowance for doubtful accounts. There can be no assurance that these amounts will be recovered.


On June 3, 2009, the Ministry of Communications and Transportation, acting through the General Director for Civil Aviation, temporarily suspended the operation of 25 Aviacsa aircraft.  Aviacsa received a judicial injunction that enabled it to continue to operate, and it resumed operations on June 12.  On July 6, 2009 the Ministry of Communications and Transportation suspended Aviacsa’s right to use Mexican airspace, based on non-payment of royalties owed to the Navigation Services for Mexican Airspace.  Aviacsa filed for insolvency protection on October 30, 2009.  Aviacsa accounted for 7.0% of our total passenger traffic during the January-June 2009 period and 96.7% of such passengers were domestic.

In November 2010, the Monterrey airport recovered the spaces leased to Aviacsa after their leases were terminated according to bankruptcy protection procedures.  In January 2011, the Acapulco, Ciudad Juárez and Tampico airports were also able to recover the spaces leased to Aviacsa.

Aviasca owed us a total of Ps. 19.8 million as of December 31, 2010, which increased to Ps. 22.7 million as of March 31, 2011. We have reserved 100% of the total amount owed within the allowance for doubtful accounts.  Aviacsa will repay us in accordance with the court approved agreement among Aviacsa and its creditors.  We cannot assure you that Aviacsa will be able to restart operations in the future.

None of our contracts with our airline customers obligate them to continue providing service from 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.  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.

On August 5, 2008, the Mexican regulatory authorities announced the temporary suspension of Avolar.  This suspension was effective for 2 days.  Avolar resumed its operations on August 8, 2008.  On October 24, 2008, the Mexican regulatory authorities denied Avolar’s extension of its concession due to Avolar’s financial problems.  Avolar was operating in four of our airports during 2008 overall (Acapulco, Culiacán, Durango and Zacatecas).  This airline represented 0.6% of our terminal passengers as of the end of August 2008. Avolar owed us a total of Ps. 4.7 million as of March 31, 2011.  We have reserved 100% of the total amount owed within the allowance for doubtful accounts.

On October 21, 2008, the charter airline Aladia announced the suspension of its operations.  We cannot predict whether Aladia will resume it operations with us in the future.  This airline accounted for 1.4% of our total passenger traffic for the first 10 months of 2008.  The main airports served by Aladia were Monterrey, Chihuahua, Mazatlán and Ciudad Juárez.   Aladia owed us Ps. 0.7 million as of March 31, 2011.  We have reserved 100% of the total amount owed within the allowance for doubtful accounts.

On November 7, 2008, Aerolíneas Mesoamericanas, S.A. de C.V. (Alma de México or Alma) announced the suspension of its operations and filed for bankruptcy.  Alma was operating in nine of our airports:  Chihuahua, Mazatlán, Monterrey, San Luis Potosí, Tampico, Zihuatanejo, Reynosa, Torreón, and Ciudad Juárez.  The airline accounted for 3.5% of total passenger traffic during the first ten months of 2008 and for 3.3% of our total passenger traffic in October 2008. Alma owed us Ps. 21.8 million as of March 31, 2011.  We have reserved 100% of the total amount owed within the allowance for doubtful accounts.

Due to increased competition, higher fuel prices and the general decrease in the demand consequent to the global volatility in the financial and exchange markets and economic crisis, many airlines are operating in adverse conditions.  Further increases in fuel prices or other adverse economic developments could cause one or more of our principal carriers to become insolvent, cancel routes, suspend operations or file for bankruptcy.  All such events could have a material adverse effect on our results from operations.


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.  In a few cases, our revenues from passenger charges and other aeronautical services are secured by a performance bond or other types of guarantees.  The rest of our revenues from passenger and other charges from other airline customers are not secured by a performance bond or any other collateral.  Thus, in the event of the insolvency of any of these airlines, we would not be certain of the collection of any amounts invoiced to that airline in respect of passenger charges.

The main 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 México.

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 December 31, 2008, at which time we entered into a new agreement with the National Air Transportation Board that offered incentives, including discounts, for the establishment of new routes and other measures expected to increase passenger traffic volume at our airports.  Subsequently, we entered into a new agreement covering the period from August 1, 2009 to December 31, 2011.  We continue to charge our principal airline customers in accordance with the terms of this agreement.

Although passenger traffic volume (and therefore overall revenue) may increase, any agreed incentives and/or 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.

Our operations could be adversely affected due to changes in the collection of passenger charges.

The passenger charges are collected by the airlines and then paid to us on the basis of contracts entered into with each airline operating at our airports.  We cannot guarantee that all the airlines will continue collecting the passenger charges for us.  Should one or more airlines stop collecting passenger charges for us, we would have to collect these charges directly ourselves, which would result in higher costs for us.


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, airlines and ground transportation providers.  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 by immigration and customs services for our international passengers.  The disruption or stoppage of taxi or bus services at one or more of our airports could also adversely affect our operations.  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 control Servicios de Apoyo en Tierra, or SEAT, pursuant to a joint venture.  SEAT is the largest provider of baggage and handling services at our airports.  If SEAT or any of its affiliates or shareholders encounters financial difficulties, its 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 could 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 in the amount 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 ruling 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 Juárez Airport.  On August 28, 2009, the Federal Government filed its answer to the claim, in which it requested that the trial be moved to Federal Jurisdiction.  In May 2010, the Court of Appeals granted the Federal Government’s request.  The Plaintiffs filed a constitutional claim against this ruling before the District Court in Chihuahua.  On November 29, 2010, the District Court in Chihuahua confirmed the Court of Appeals ruling granting the Federal Government’s request for removal of the claim to Federal Jurisdiction.  The Plaintiffs later filed an appeal (recurso de revision) before the Federal Circuit Court against the District Court’s ruling.  This petition is still pending.

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, our concession to operate the Ciudad Juárez International Airport would terminate and negatively affect our results of operations.  In 2010, the Ciudad Juárez International Airport represented 5.2% of our revenue.


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 Reynosa, Zihuatanejo, Ciudad Juárez, Tampico and Culiacán, for the payment of property taxes with respect to the real estate on which we operate our airports in those cities.  The claims of the municipalities of Reynosa, Zihuatanejo, Ciudad Juárez, Tampico and Culiacán amounted to Ps. 59.5 million, Ps. 2.8 million, Ps. 1.8, Ps. 1.0 million and Ps. 4.3 million respectively.  The claims of Zihuatanejo, Ciudad Juárez, Tampico and Reynosa were dismissed in January 2009, March 2009, February 2009 and March 2010, respectively.

In November 2009, the municipality of Ciudad Juárez filed a claim against us for Ps. 7.5 million in property taxes.  In June 2010, the municipality of Culiacán filed a claim against us for Ps. 4.3 million in property taxes.  In October 2010, the municipality of Zihuatanejo filed a claim against us for Ps. 4.3 million. In February 2011, the Municipality of Reynosa filed a claim against us for Ps. 117 million.  We have filed administrative appeals to all these claims. Our appeals are still pending.  The total amounts of the outstanding property tax claims, as recently updated to reflect the municipalities’s additional claims, in Reynosa, Ciudad Juárez, Culiacán and Zihuatanejo are Ps. 117 million, Ps. 7.5 million, Ps. 4.3 million and Ps. 4.3 million, respectively.  These amounts could increase if the rulings are not in our favor.  Moreover, other municipalities where we operate could assert similar claims.

The Mexican government has not acknowledged any obligation to pay such taxes, however, and 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.

On June 16, 2010, the Congress of Jalisco filed before the Federal Congress a legislative initiative to amend the Mexican Airport Law to require airports to pay property taxes and obtain various municipal licenses.  The initiative was sent to the Transport and Communications Commission of the Federal Congress to be reviewed and, if the Commission determines that the initiative includes all the elements necessary to amend the law, then the initiative is expected to be submitted to the Federal Congress for its approval.  There can be no assurance that the Transport and Communications Commission, the Federal Congress or the Congress of the states will not file other initiatives that seek to amend the Mexican Airport Law.  An amendment to the Mexican Airport law with respect to matters that are related to our operations could have a material negative impact on our results of operations.

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.

Natural disasters could adversely affect our business.

From time to time, the Northern and Central regions of México experience torrential rains, hurricanes (particularly during the months of July through September) and, depending on the region, earthquakes and volcanic activity.  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.


In July, 2010, operations in Tampico, Reynosa and Monterrey International Airports were adversely impacted by Hurricane Alex, which caused significant complications in and around Monterrey and the border region.  In Nuevo León, Hurricane Alex was considered to be one of the most destructive hurricanes recorded in the history of the state, causing severe damages to bridges, highways, roads and the interruption of water, electricity and natural gas supply.  In accordance with our regulations, our airports remained open.  However, some airlines suspended several flights.  From June 30 to July 5, a total of 117 flights were cancelled at the Monterrey International Airport and 10 flights were cancelled at the Reynosa International Airport.

We have insurance for 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 Culiacán, Mazatlán and Zihuatanejo International Airports, have only one commercial aviation runway.  We cannot assure you 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, which are established as a necessary requirement to our concessions.

Labor laws and recent reforms to the Social Security Act published in the “Diario Oficial de la Federación” on July 9, 2009, requires subcontractors to register their employees at the Instituto Mexicano del Seguro Social and makes anyone hiring the services of subcontractors that have failed to do so, jointly liable for the payment of social security obligations, as well as any applicable penalties.  Therefore, if subcontractors providing services at our airports do not have their employees registered at the Instituto Mexicano del Seguro Social, we could be held jointly liable for the payment of social security obligations that these may have, as well as any applicable penalties.


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 of minimum rent and royalties 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.  The airport is obligated to provide some specific services, like ramp handling services.  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.

On April 13, 2010, an accident involving an Airbus A-300 cargo plane belonging to Aerotransportes de Carga Unión (AeroUnión) occurred at Monterrey International Airport due to weather conditions.  On November 24, 2010, an accident involving a Mexican Air Force plane occurred at Monterrey International Airport due to internal mechanical failures that resulted in several injuries.  Claims relating to these accidents have not been asserted against us.  These incidents lead to increased security measures relating to hazardous materials and the development of an assistance plan for victims.


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 México.  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.

Acapulco and Zihuatanejo International Airports are located in areas that are home to protected species.  These areas are protected and there are restrictions on any construction or development of any infrastructure within these areas, according to the Ministry of Environment and Natural Resources in México.  Mangrove swamps are protected species under norm NOM-059-2001.

The National Waters Commission is able to restrict water use within some of our airports due to the water shortage in the northern side of México.  Monterrey International Airport and Ciudad Juárez  International Airport are affected by these regulations which could limit future infrastructure and operation growth in our airports.

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 any 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 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 purchasing and installing new screening equipment in all of our airports to facilitate our airline customers’ compliance with the new baggage screening guidelines.  Until we agree on the contractual terms for the operation of this equipment 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 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 México, and all of our directors, officers and controlling persons reside in México.  In addition, a substantial portion of our assets and the assets of our directors, officers and controlling persons are located in México.  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 México 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 México, whether in original actions or in actions to enforce judgments of U.S. courts or other courts outside of México, 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 54.4% of our total capital stock.  Aeroinvest directly owns Series B shares representing 41.9% of our total 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.  To date, SETA has not executed its right to transfer its Series BB shares.  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, it 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 them 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 42.0% of our capital stock entitles it to elect four 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 can be contrary to the preferences and expectations of our other stockholders.  We can offer no assurance that SETA and Aeroinvest and the officers nominated or appointed by them 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 provided 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 the 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 currently representing 6.7% 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.  In February, 2011, Aeroinvest repaid Merrill Lynch, Pierce, Fenner & Smith Incorporated the outstanding amounts under these credit facilities.  As of today, Aeroinvest does not have any outstanding credit facilities that would require us to comply with covenants.  Yet, in the future, Aeroinvest could enter into agreements that may require us to comply with certain covenants, which could include 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 our master development plans.


Risks Related to México

Our business is significantly dependent upon the volume of air passenger traffic in México, and negative economic developments in México will adversely affect our business and results of operations.

In 2008, 2009 and 2010 domestic terminal passengers have represented approximately 83.4%, 84.3% and 83.4%, 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 México.  Accordingly, our financial conditions and results of operations are substantially dependent on economic conditions prevailing from time to time in México.  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 México, or by political, social and economic developments in México.

In the past, México 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.

México experienced a period of slow growth from 2001 through 2003, primarily as a result of the downturn in the U.S. economy.  In 2001, México’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%.  In 2008, GDP grew by approximately 1.5% and inflation increased to 6.5%.  In 2009, GDP decreased by 6.1% and inflation was 3.6%.In 2010, GDP increased by 5.5% and inflation was 4.4%.

During 2010, real and nominal interest rates in México decreased 1% compared to 2009.  The annualized interest rates on 28 day Cetes (Certificados de la Tesoreria de la Federación) averaged approximately 7.2%, 7.2% 7.7%, 5.4% and 4.4% for 2006, 2007, 2008, 2009 and 2010, respectively.  To the extent that we incur Peso-denominated debt in the future, it could be at high interest rates.

The Mexican economy underwent an economic crisis that began in 2008 and continued in 2009 as a result of the impact of the global financial crisis, which affected many emerging economies.  The Mexican economy’s link with the U.S. economy remains very important, and therefore, any downside to the economic outlook of the U.S. may hinder any recovery in México.  This crisis adversely impacted our business.


In México, the economic and financial crisis adversely affected domestic traffic in 2009, which decreased substantially as compared to 2008, which itself had been adversely affected by the exit from the market of Aviacsa during that year and significant reductions in capacity by several other carriers.  Furthermore, due to the suspension of operations by Aerocalifornia in July 2008 and the exit from the market of Aladia, Alma, and Avolar in the fourth quarter of 2008, our airports lost terminal passenger traffic, with the main decreases being at the Ciudad Juárez (30.1%), Acapulco (22.9%), Monterrey (21.0%), San Luis Potosí (20.9%) and Tampico (19.2%) airports (in each case, 2009 as compared to 2008).  Generally all of our airports were affected during 2009 by the reductions in volume of passengers, the A(H1N1) virus and the exit from the market of 5 airlines in less than a year. Even though GDP grew by 5.5% in 2010, Mexicana de Aviación, Mexicana Click and Mexicana Link (Grupo Mexicana) ceased operations during the third quarter of 2010.  In July 2010, prior to their suspension, the three airlines operated 24 routes at our airports, 6 of which were not operated by other airlines (Culiacán-Mexicali, Monterrey-Chicago, Monterrey-New York, Monterrey-Puebla, Zacatecas-Chicago and Zacatecas-Oakland).  These suspensions adversely impacted the recovery of air traffic volumes in all of our airports.

Moreover, if inflation or interest rates increase significantly or if the Mexican economy is otherwise further 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 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.  From September 30, 2008 to March 31, 2009, the peso depreciated by approximately 29.4%, from 10.98 pesos per U.S. dollar on September 30, 2008 to 14.21 pesos per U.S. dollar on March 31, 2009.  From September 30, 2009 to March 31, 2010, the peso appreciated by approximately 8.8%, from 13.49 pesos per U.S. dollar on September 30, 2009 to 12.30 pesos per U.S. dollar on March 31, 2010.  From September 30, 2010 to March 31, 2011, the peso appreciated by approximately 5.4%, from 12.60 pesos per U.S. dollar on September 30, 2010 to 11.92 pesos per U.S. dollar on March 31, 2011.  Between March 31, 2010, and September 30, 2010, the peso fluctuated between 12.60 and 11.92 pesos per U.S. dollar.  It began to appreciate, reaching 11.66 pesos per U.S. dollar on May 20, 2011.

A depreciation of the peso affects our business in the following ways: (i) international passengers and international flights pay tariffs denominated in U.S. dollars, while these tariffs are generally collected in Mexican pesos up to 60 days following the date of each flight, thus the depreciation of the Mexican peso had a positive impact on our results from operations which are denominated in Mexican pesos; and (ii) as of December 31, 2010, we had 19.3 million of liabilities denominated in U.S. dollars, causing foreign exchange rate losses.  Any depreciation in the peso may cause additional foreign exchange losses.

Moreover, the depreciation of the peso also affected some of our airline customers having transactions in U.S. dollars, including the purchases or leases of equipment, maintenance and fuel.

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 tax income or Business Flat tax, 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, 2008, 2009 and 2010.  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 México, 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, Venezuela, Portugal, Italy, Greece, Spain and Dubai.

In addition, in recent years, economic conditions in México have become increasingly correlated to economic conditions in the United States.  Therefore, an economic downturn in the United States will significantly adversely impact 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.

During 2008 and 2009, the U.S. economy was affected by a recession, which had a direct impact on our business and results of operations.

In the beginning of 2010, the economy started to recover but began to slow down again in mid-2010.  The economy could suffer further setbacks as serious risks and uncertainty still remain.  The setback of mid-2010 might have an even greater impact going forward to the extent that the global economy falls back into a recession.  In the third and fourth quarters of 2010, according to the U.S. Bureau of Economic Analysis, the U.S. gross domestic product increased at annualized rates of 2.6% and 3.2%, respectively.  Likewise, according to the Mexican National Statistical, Geographic and Information Institute, the Mexican gross domestic product increased at an annualized rate of 4.6% during the fourth quarter of 2010.  The air travel industry, and as a result, our results of operations, are substantially influenced by economic conditions in México and the United States.  In 2010, approximately 80% of the international passengers in our airports arrived or departed on flights originating in or departing to the United States and approximately 14% of our aeronautical revenues in 2010 were derived from passengers charges imposed on departures from or arriving in the United States.  Similarly, in 2010, approximately 83% of our passengers traveled on domestic flights, and 37% of our revenues in 2010 were derived from domestic passenger charges.


Our international traffic in 2010 increased 6.7% compared to 2009, principally as a result of the economic recovery and due to VivaAerobus starting operations to Houston from Monterrey airport and Aeroméxico adding routes to Miami and Houston from Monterrey Airport.  Furthermore, the Chihuahua, Durango, Mazatlán, Monterrey, San Luis Potosí and Tampico airports experienced increased international passenger traffic in comparison to 2009.  The principal international airlines that contributed to these increases are American Eagle, American Airlines, Continental, Frontier and Delta Airlines.  The key international destinations that led to the increased passenger traffic are Houston, Dallas, Phoenix, Las Vegas, Atlanta and Detroit.

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.  The current economic downturn in the United States negatively affected our results of operations and a prolonged economic recession in the United States will likely have a further 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 México.

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 Mexican Securities 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 México.  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 MFRS through December 31, 2007 are not eliminated in such reconciliation in our annual financial statements.  For this and other reasons, the presentation of MFRS 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 MFRS and US GAAP please see Note 23 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 México, 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 México 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.

Item 4.

HISTORY AND DEVELOPMENT OF THE COMPANY

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., which we refer to by the acronym “GACN”, is a corporation (sociedad anonima bursatil de capital variable) organized under the laws of México.  We were incorporated in 1998 as part of the Mexican government’s program for the opening of México’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 “GACN”, “we”, “us” 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, México, 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. (“Aeroinvest”), 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 42.0% 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 6.7% 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 México.  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 83 million passengers in 2009.  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 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 42.0% of our capital stock as well as 74.5% of the Series A shares of SETA.  In February, 2011, Aeroinvest repaid Merrill Lynch, Pierce, Fenner & Smith Incorporated the outstanding amounts under these credit facilities.  As of today, Aeroinvest does not have any outstanding credit facilities that would require us to comply with covenants.  During 2006, 2007 2008 and 2009, Aeroinvest purchased additional Series B shares representing 0.8%, 3.14%, 2.43% and 0.34%, respectively of our capital stock; in 2010 Aeroinvest sold 100,000 Series B shares representing 0.01% of our capital stock, and has not purchased any additional Series B shares since.  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 35.3% 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 2010 amounted to approximately Ps. 47.6 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 México.  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 2010, the Ministry of Communications and Transportation approved the master development programs for each of our subsidiary concession holders for the 2011 to 2015 period.  These five-year programs will be in effect from January 1, 2011 until December 31, 2015.  During 2015, the master development program for the next five-year period will be prepared for each of our concessions.


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 (such as our investments at Terminal 2 at the México City International Airport).  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.  These capital expenditures are updated based on the Producer Price Index.

Historical Committed Investments Under Master Development Programs

   
Year ended December 31,
 
   
2008
   
2009
   
2010
   
Total
2008-2010
 
   
(thousands of pesos)
 
Acapulco
    33,601       15,670       15,888       65,159  
Ciudad Juárez
    23,755       20,591       12,894       57,240  
Culiacán
    8,966       23,942       2,563       35,471  
Chihuahua
    32,474       8,154       11,062       51,690  
Durango
    21,492       25,439       9,788       56,719  
Mazatlán
    10,818       20,125       2,383       33,326  
Monterrey
    277,568       89,447       25,362       392,377  
Reynosa
    12,137       9,956       1,859       23,952  
San Luis Potosí
    21,868       26,086       3,289       51,243  
Tampico
    13,186       16,562       4,770       34,518  
Torreón
    32,551       6,657       8,634       47,842  
Zacatecas
    4,791       25,904       8,271       38,966  
Zihuatanejo
    22,836       29,472       13,816       66,124  
Total
    516,043       318,005       120,579       954,627  


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,
 
   
2008
   
2009
   
2010
 
   
(thousands of pesos)
 
Acapulco                                   
    36,275       37,366       58,191  
Ciudad Juárez                                           
    52,641       18,465       47,348  
Culiacán                                           
    37,111       35,743       38,679  
Chihuahua                                           
    23,102       21,132       42,225  
Durango                                           
    30,548       10,285       11,329  
Mazatlán                                           
    24,021       10,324       62,124  
Monterrey                                           
    1,743,039       395,964       306,417  
Reynosa                                           
    13,644       19,386       11,240  
San Luis Potosí                                           
    23,050       26,273       8,786  
Tampico                                           
    25,028       18,430       11,739  
Torreón                                           
    24,516       30,998       6,808  
Zacatecas                                           
    15,177       17,222       35,929  
Zihuatanejo                                           
    22,613       32,269       29,065  
Other                                           
    156,796       193,799       25,609  
Total                                         
    2,227,561       867,656       695,489  

 
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,
 
   
2008
   
2009
   
2010
 
   
(thousands of pesos)
 
Terminals                                                   
    232,961       328,271       380,674  
Runways and aprons
    263,000       181,465       91,896  
Machinery and equipment
    35,796       38,988       68,392  
Land
    1,455,904       62,725       90,906  
Other                                                   
    239,900       256,207       63,621  
Total                                                  
    2,227,561       867,656       695,489  

Our capital expenditures from 2008 through 2010 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 handicapped 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.

 
·
Land.  As part of our strategic investments, in 2010, 2009 and 2008 territorial reserves of Ps. 90,906 Ps. 62,725 and Ps. 1,455,904, respectively, were purchased to develop and expand our key airports.

 
·
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.

 
·
Developments at México City International Airport.  In October 2008, we acquired 90% of the shares of Consorcio Grupo Hotelero Terminal 2, S.A. de C.V., which has the rights to develop and operate a 287-room hotel and approximately 5,000 square meters of commercial space inside the new Terminal 2 of the México City International Airport, under a 20-year lease agreement with the México City International Airport.  The Spanish company NH Hoteles, S.A. de C.V. owns the other 10%.  The Terminal 2 NH Hotel opened in August 2009.

 
The following table sets forth our committed investments approved by the Ministry of Communications and Transportation for each airport for 2011 through 2015.  We will be required to comply with the investment obligations under these programs on a year-by-year basis.  These capital expenditures are updated based on the Producer Price Index.

Committed Investments by Airport
 
   
Year ended December 31,
 
   
2011
   
2012
   
2013
   
2014
   
2015
   
Total
2011-2015
 
   
(thousands of pesos)
 
Acapulco
    28,345       55,170       53,006       107,116       29,216       272,853  
Ciudad Juárez
    16,484       34,201       81,920       17,891       14,530       165,026  
Culiacán
    50,577       51,232       84,439       65,849       50,905       303,002  
Chihuahua
    22,378       34,144       51,136       13,570       9,811       131,039  
Durango
    34,412       20,886       11,163       20,294       3,573       90,328  
Mazatlán
    18,317       26,187       45,842       95,208       26,597       212,151  
Monterrey
    249,695       83,777       225,747       229,260       109,412       897,891  
Reynosa
    31,000       36,042       32,473       23,592       5,859       128,966  
San Luis Potosí
    18,168       19,471       51,507       47,139       39,201       175,486  
Tampico
    29,908       43,278       41,940       16,486       12,528       144,140  
Torreón
    29,228       12,704       33,202       23,519       3,939       102,592  
Zacatecas
    16,943       36,371       24,396       9,787       10,649       98,146  
Zihuatanejo
    16,577       43,080       24,335       46,157       25,216       155,365  
Total
    562,032       496,543       761,106       715,868       341,436       2,876,985  


The following table sets forth our committed investments for 2011 through 2015 by type of investment, which are updated based on the Producer Price Index:

Committed Investments by Type
 
   
Year ended December 31,
 
   
2011
   
2012
   
2013
   
2014
   
2015
   
Total
2011-2015
 
   
(thousands of pesos)
 
Terminals
    45,772       63,265       163,617       212,988       65,602       551,244  
Runways and aprons
    62,137       141,573       261,233       233,614       142,732       841,289  
Machinery and equipment
    133,799       74,527       175,786       127,136       49,624       560,872  
Baggage screening system – investments
    137,554       14,615       6,317       2,977       50,628       212,091  
Security Airports – investments
    161,585       93,258       119,396       113,555       22,361       510,155  
Other
    21,185       109,305       34,757       25,598       10,489       201,334  
Total
    562,032       496,543       761,106       715,868       341,436       2,876,985  

For the year ended December 31, 2010, our capital expenditures totaled Ps. 695.5 million.  Our capital expenditures for 2010 were devoted primarily to our committed investments.

BUSINESS OVERVIEW

Our Operations

Through our subsidiaries, we hold concessions to operate, maintain and develop 13 airports in México, 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 24million 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 14.9% of all arriving and departing commercial aviation passengers in México in 2010.

In 2010, we recorded revenues of Ps. 2,651.4 million (U.S.$ 214.1 million) and net income of Ps. 552.0 million (U.S.$ 44.6 million).  In 2010 our airports handled approximately 11.6 million terminal passengers, an increase of 0.6% with respect to the 11.5 million terminal passengers in 2009.


Our airports serve several major international routes, including Monterrey-Houston, Monterrey-Dallas, Monterrey-Las Vegas, Monterrey-Atlanta, Monterrey-Detroit and Monterrey -Chicago.  Our airports also serve several other major international destinations, including Houston, Los Angeles, Phoenix and Dallas.  In addition, our airports serve major resort destinations, such as Acapulco, Mazatlán and Zihuatanejo, which are popular destinations in México frequented by tourists from México, the United States and Canada.  Our airports also serve major domestic routes, including Monterrey-México City, which was the country’s busiest domestic route in 2010, with approximately2.2 million total passengers (including passengers flying directly to the nearby airport of Toluca, which are counted together with those flying to México City), according to the Mexican Bureau of Civil Aviation.  Other major domestic routes served by our airports include México City-Acapulco, México City-Tampico and México City-Chihuahua, with approximately 370 thousand, 333 thousand and 324 thousand total passengers, respectively, in 2010 according to the Mexican Bureau of Civil Aviation.

Monterrey and its metropolitan area is the third largest city in México in terms of population, with a population of 3,930,388. Monterrey ranks among México’s most established urban and commercial centers and is the capital of the state of Nuevo León, México’s eighth largest state in terms of population, which totaled 4,653,458 in 2010. It is home to many of México’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 México based on passenger traffic volume in 2010, according to data published by the Mexican Bureau of Civil Aviation.  Our Monterrey International Airport accounted for approximately 45.1% and 46.4% of our terminal passenger traffic in 2009 and 2010, 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 México’s sixteenth largest international tourist destination and Mazatlán the fifteenth largest in terms of visitors in 2010, according to the Mexican National Institute of Immigration.  Acapulco is a principal port of call for cruise ships.  In 2010, the Acapulco International Airport, Mazatlán International Airport and Zihuatanejo International Airport collectively accounted for 17.2% of our aggregate terminal passengers and 18.8% of our total revenues.

México was the tenth largest tourist destination in the world in 2009 in terms of international arriving tourists.  México had 21.4 million arriving tourists, according to the latest data published by the World Tourism Organization.  Within Latin America and the Caribbean, in October 2010 México ranked first 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 2010, these seven regional airports collectively accounted for 29.0% of our aggregate terminal passengers and 29.0% 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 México and the United States.  Both Ciudad Juárez and Reynosa are popular entry points to the United States.  In 2010, the Ciudad Juárez International Airport and the Reynosa International Airport collectively accounted for 7.2% of our aggregate terminal passengers and 7.2% of our total revenues.

In addition, we entered into a joint investment with the international hotel operator NH Hoteles, S.A. de C.V., under Consorcio Grupo Hotelero T2 (“Consortium”) to develop and operate a 287-room hotel and more than 5,000 square meters of commercial space inside Terminal 2 of the México City International Airport (the México City International Airport), under a 20-year lease agreement with the México City International Airport.  The Terminal 2 NH Hotel opened in August 2009.

The Consortium is currently carrying out market and feasibility studies for the development of the commercial areas, with an expected beginning of operations of the first phase of the commercial development in 2011.

This project provides us with the opportunity to participate in the operation of the México City International Airport Terminal 2 passenger terminal, which according to the México City International Airport, served more than 24 million passengers in 2010.  Airlines based in Terminal 2 include Aeromar, Aeroméxico and Aeroméxico Connect, Continental, Copa, Delta and LAN.  We consider this a key part of our strategy to increase our non-aeronautical revenues.  This project, along with acquisitions of land reserves in 2008 to develop and expand our key airports, accounted for the significant increase in our balance of property, machinery and equipment at December 31, 2008 compared to our balance at December 31, 2007.


The following table provides summary data for each of our 13 airports for the years ended December 31, 2009 and 2010:

   
Year ended December 31, 2009
   
Year ended December 31, 2010
 
Airport
 
Terminal
Passengers
   
Total Revenues(1)
   
Total Revenues per terminal passenger(2)
   
Terminal
passengers
   
Total Revenues(1)
   
Total Revenues per terminal passenger(2)
 
   
Number (in millions)
   
%
   
(millions of pesos)
   
%
   
(pesos)
   
Number (in millions)
   
%
   
(millions of pesos)
   
%
   
(pesos)
 
Metropolitan area:
                                                           
Monterrey International Airport
    5.2       45.1       1,246.1       49.3       239.6       5.4       46.4       1,109.4       43.3       206.2  
Tourist destinations:
                                                                               
Acapulco International Airport
    0.8       7.3       173.3       6.9       206.6       0.7       6.4       195.6       7.6       265.4  
Mazatlán International Airport
    0.7       6.5       152.8       6.0       205.5       0.8       6.5       214.5       8.4       283.7  
Zihuatanejo International Airport
    0.5       4.7       138.5       5.5       254.2       0.5       4.3       115.7       4.5       233.1  
Total tourist destinations
    2.1       18.5       464.7       18.4       218.4       2.0       17.2       525.8       20.5       264.3  
Regional cities:
                                                                               
Chihuahua International Airport
    0.7       6.5       134.6       5.3       180.6       0.8       7.1       179.9       7.0       217.2  
Culiacán International Airport
    1.1       9.2       165.4       6.5       155.6       1.1       9.1       206.9       8.1       195.2  
Durango International Airport
    0.2       1.9       42.9       1.7       201.1       0.2       1.9       50.4       2.0       231.8  
San Luis Potosí International Airport
    0.2       1.8       69.8       2.8       338.1       0.2       1.9       60.3       2.4       270.4  
Tampico International Airport
    0.5       4.1       88.5       3.5       188.2       0.5       3.9       90.4       3.5       200.4  
Torreón International Airport
    0.4       3.4       101.6       4.0       257.6       0.3       2.9       69.5       2.7       205.5  
Zacatecas International Airport
    0.3       2.2       56.9       2.3       226.3       0.3       2.3       83.4       3.3       310.5  
Total regional destinations
    3.3       29.0       659.8       26.1       197.3       3.4       29.2       740.6       28.9       218.8  
Border cities:
                                                                               
Ciudad Juárez International Airport
    0.6       5.5       106.7       4.2       169.0       0.6       5.5       138.1       5.4       217.8  
Reynosa International Airport
    0.2       1.9       49.9       2.0       231.8       0.2       1.7       45.5       1.8       229.9  
Total border city destinations
    0.8       7.3       156.6       6.2       185.0       0.8       7.2       183.6       7.2       220.7  
TOTAL AIRPORT REVENUES (1):
    11.5       100.0       2,527.2       100.0       219.4       11.6       100.0       2,559.5       100.0       220.9  
______________
(1)
Total Revenues in millions rounded to the decimal, which does not include eliminations of transactions among our subsidiaries.
(2)
Revenues per terminal passenger are calculated by dividing the total revenues for each airport by the number of terminal passengers for each airport. The result has been rounded to the decimal.


As of July 2006, México and the United States are parties to an amended bilateral aviation agreement that increases, from two each to three each, the number of Mexican and U.S. carriers eligible to operate routes between certain pairs of cities, which may include any U.S. city and twelve specified cities in México including Acapulco, Mazatlán and Zihuatanejo.  The agreement also provides for a future increase, from two each to three each, in the number of Mexican and U.S. carriers eligible to operate routes between U.S. cities and two specified additional Mexican cities, including Monterrey.  This subsequent increase took effect in October 2007.  To date, this bilateral agreement did not benefit our business as we expected, mainly because of the decrease in the tourism levels from the U.S. to México connected with the U.S. economic recession.

Our Sources of Revenues

Aeronautical Services

Aeronautical services represent the most significant source of our revenues.  All of our revenues from aeronautical services are regulated under the maximum-rate price regulation system applicable to our airports.  In 2008, 2009 and 2010 aeronautical services revenues represented approximately 65.2%, 60.2% and 62.3%respectively, of our total revenues.

Our revenues from aeronautical services are derived principally from: passenger charges, landing