Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

o

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016

 

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

(Translation of Registrant’s name into English)

 

United Mexican States

(Jurisdiction of incorporation or organization)

 

Torre Latitud, L501, Piso 5

Av. Lázaro Cárdenas 2225

Col. Valle Oriente, San Pedro Garza García

Nuevo León, Mexico

(Address of principal executive offices)

 

Vicsaly Torres Ruiz

Torre Latitud, L501, Piso 5

Av. Lázaro Cárdenas 2225

Col. Valle Oriente, San Pedro Garza García

Nuevo León, Mexico

+ 52 81 8625 4300

vtorres@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 (ADSs) 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 ADSs, 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

 



Table of Contents

 

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

 

350,234,000

Series BB shares

 

49,766,000

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

x Yes   o No

 

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.

o Yes   x No

 

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.

x Yes   o No

 

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).

o Yes   x No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

Non-accelerated filer o

 

Emerging growth company 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 x

 

Other o

 

Indicate by check mark which financial statement item the registrant has elected to follow:

o Item 17   x Item 18

 

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).

o Yes   x No

 



Table of Contents

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

1

 

 

 

 

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

 

1

 

 

 

 

ITEM 3.

KEY INFORMATION

 

1

 

Selected Financial Data

 

1

 

Exchange Rates

 

8

 

Risk Factors

 

9

 

Forward-Looking Statements

 

26

 

 

 

 

ITEM 4.

INFORMATION ON THE COMPANY

 

26

 

History And Development Of The Company

 

26

 

Business Overview

 

30

 

Regulatory Framework

 

55

 

Organizational Structure

 

68

 

Property, Plant And Equipment

 

70

 

 

 

 

ITEM 4A.

UNRESOLVED STAFF COMMENTS

 

70

 

 

 

 

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

70

 

 

 

 

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

102

 

 

 

 

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED-PARTY TRANSACTIONS

 

108

 

Major Shareholders

 

108

 

Related-Party Transactions

 

110

 

 

 

 

ITEM 8.

FINANCIAL INFORMATION

 

112

 

Legal Proceedings

 

112

 

Dividends And Capital Stock Reimbursements

 

115

 

 

 

 

ITEM 9.

THE OFFER AND LISTING

 

116

 

Share Price History

 

116

 

Trading On The Mexican Stock Exchange

 

117

 

 

 

 

ITEM 10.

ADDITIONAL INFORMATION BYLAWS

 

117

 

Material Contracts

 

129

 

Exchange Controls

 

130

 

Taxation

 

130

 

Documents On Display

 

133

 

 

 

 

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

133

 

 

 

 

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

133

 

 

 

 

ITEM 12A.

DEBT SECURITIES

 

133

 

 

 

 

ITEM 12B.

WARRANTS AND RIGHTS

 

133

 

 

 

 

ITEM 12C.

OTHER SECURITIES

 

133

 

 

 

 

ITEM 12D.

AMERICAN DEPOSITARY SHARES

 

133

 



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ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

135

 

 

 

 

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

135

 

 

 

 

ITEM 15.

CONTROLS AND PROCEDURES

 

135

 

 

 

 

ITEM 16.

[RESERVED]

 

136

 

 

 

 

ITEM 16A.

AUDIT COMMITTEE’S FINANCIAL EXPERT

 

136

 

 

 

 

ITEM 16B.

CODE OF ETHICS

 

137

 

 

 

 

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT AND NON-AUDIT FEES

 

137

 

 

 

 

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

137

 

 

 

 

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

137

 

 

 

 

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

138

 

 

 

 

ITEM 16G.

CORPORATE GOVERNANCE

 

138

 

 

 

 

ITEM 16H.

MINE SAFETY DISCLOSURES

 

141

 

 

 

 

ITEM 17.

FINANCIAL STATEMENTS

 

141

 

 

 

 

ITEM 18.

FINANCIAL STATEMENTS

 

141

 

 

 

 

ITEM 19.

EXHIBITS

 

142

 



Table of Contents

 

PART I

 

Item 1.           Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2.           Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3.           Key Information

 

SELECTED FINANCIAL DATA

 

Our consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB.  We publish our consolidated financial statements in thousands of Mexican 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.  References in this annual report on Form 20-F to “pesos” or “Ps.” are to the lawful currency of Mexico.  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.20.6640 to U.S.$1.00, the FIX exchange rate as reported by the Mexican Central Bank (Banco de México) on December 31, 2016.

 

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 discussion in this annual report of aeronautical and non-aeronautical revenues in relation to our total revenues is not in accordance with IFRS because it excludes our construction revenues from such amounts.  Therefore, in reviewing this annual report, you should be aware that in several sections of this annual report we take into account only revenues that resulted in actual cash inflows for the year (which we categorize as aeronautical and non-aeronautical revenues) for ratios or comparative calculations.  Both of these categories of revenues are dependent, either directly or indirectly, on passenger traffic, while revenues from construction services under IFRS Interpretations Committee (“IFRIC”) 12, “Service Concession Arrangements,” are not dependent upon passenger traffic, but from the level of capital expenditures carried out at each airport.  Information reported using only revenues that generated cash inflows may be more useful for readers of this annual report because those revenues are driven by the key elements of our business:  passenger traffic and our maximum tariffs.  The use of aeronautical and non-aeronautical revenues is more common in our industry, as they represent the revenues generated from our core operations, which are services provided to passengers, airlines and other third parties based on passenger traffic at our airports.  Additionally, management regularly reviews our aeronautical and non-aeronautical revenues as they provide representative information regarding our passenger traffic and cash flows, which allows us to compare such revenues over comparative periods as well as make projections about our expected future cash flows.  Finally, management reviews non-aeronautical revenues per terminal passenger excluding hotel services because hotel services are not necessarily driven by passenger traffic and therefore may not provide representative information with respect to passenger traffic.  This metric is not considered to be an IFRS metric, given its exclusion of certain revenues.  We indicate each instance in which we use only aeronautical and non-aeronautical revenues and non-aeronautical revenues excluding hotel services by indicating the category of revenues used.  The following tables present a reconciliation of our aeronautical and non-aeronautical revenues to our total revenues per our consolidated statement of income and other comprehensive income:

 



Table of Contents

 

 

 

For the Year Ended December 31, 2016

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Metropolitan

 

 

 

 

 

 

 

 

 

 

 

 

 

Monterrey

 

Ps.

1,799,823

 

Ps.

560,016

 

Ps.

2,359,839

 

96.0%

 

Ps.

97,631

 

Ps.

2,457,470

 

Tourist

 

 

 

 

 

 

 

 

 

 

 

 

 

Acapulco

 

149,214

 

30,446

 

179,660

 

70.1%

 

76,772

 

256,432

 

Mazatlán

 

221,522

 

46,879

 

268,401

 

93.2%

 

19,527

 

287,928

 

Zihuatanejo

 

141,091

 

26,280

 

167,371

 

86.7%

 

25,699

 

193,070

 

Regional

 

 

 

 

 

 

 

 

 

 

 

 

 

Chihuahua

 

272,921

 

48,374

 

321,295

 

95.2%

 

16,061

 

337,356

 

Culiacán

 

351,096

 

48,280

 

399,376

 

97.7%

 

9,608

 

408,984

 

Durango

 

98,550

 

11,026

 

109,576

 

96.2%

 

4,381

 

113,957

 

San Luis Potosí

 

130,337

 

23,666

 

154,003

 

86.3%

 

24,456

 

178,459

 

Tampico

 

162,389

 

22,735

 

185,124

 

85.2%

 

32,053

 

217,177

 

Torreón

 

151,251

 

20,087

 

171,338

 

96.8%

 

5,722

 

177,060

 

Zacatecas

 

87,616

 

10,120

 

97,736

 

92.7%

 

7,677

 

105,413

 

Border

 

 

 

 

 

 

 

 

 

 

 

 

 

Ciudad Juárez

 

208,042

 

34,351

 

242,393

 

96.1%

 

9,905

 

252,298

 

Reynosa

 

113,506

 

14,150

 

127,656

 

84.3%

 

23,847

 

151,503

 

Terminal 2 NH Collection Hotel

 

 

227,884

 

227,884

 

100.0%

 

 

227,884

 

Hilton Garden Inn Hotel

 

 

83,625

 

83,625

 

100.0%

 

 

83,625

 

OMA Vynmsa Aero Industrial Park

 

 

4,952

 

4,952

 

100.0%

 

 

4,952

 

Other(1)

 

 

4,847,425

 

4,847,425

 

100.0%

 

 

4,847,425

 

Total

 

3,887,358

 

6,060,296

 

9,947,654

 

96.6%

 

353,339

 

10,300,993

 

Eliminations(2)

 

(14,623

)

(4,727,534

)

(4,742,157

)

N/A

 

(8,567

)

(4,750,724

)

Total Revenues

 

Ps.

3,872,735

 

Ps.

1,332,762

 

Ps.

5,205,497

 

93.8%

 

Ps.

344,772

 

Ps.

5,550,269

 

 


(1)                                  Represents our subsidiaries Servicios Aeroportuarios del Centro Norte, S.A. de C.V., Operadora de Aeropuertos del Centro Norte, S.A. de C.V., Servicios Aero Especializados del Centro Norte, S.A. de C.V., OMA Logística, S.A. de C.V., Holding Consorcio Grupo Hotelero T2, S.A. de C.V. and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (on an individual basis).

(2)                                  Eliminations consist of operations and balances between our subsidiaries, as well as reclassifications.

 

2



Table of Contents

 

 

 

For the Year Ended December 31, 2015

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Metropolitan

 

 

 

 

 

 

 

 

 

 

 

 

 

Monterrey

 

Ps.

1,443,311

 

Ps.

484,111

 

Ps.

1,927,422

 

96.4%

 

Ps.

70,999

 

Ps.

1,998,421

 

Tourist

 

 

 

 

 

 

 

 

 

 

 

 

 

Acapulco

 

138,309

 

27,864

 

166,173

 

67.0%

 

81,869

 

248,042

 

Mazatlán

 

168,703

 

40,820

 

209,523

 

83.5%

 

41,487

 

251,010

 

Zihuatanejo

 

118,736

 

23,751

 

142,487

 

71.1%

 

57,943

 

200,430

 

Regional

 

 

 

 

 

 

 

 

 

 

 

 

 

Chihuahua

 

196,033

 

40,204

 

236,237

 

98.4%

 

3,769

 

240,006

 

Culiacán

 

255,921

 

39,981

 

295,902

 

89.7%

 

34,058

 

329,960

 

Durango

 

63,186

 

9,080

 

72,266

 

96.0%

 

2,992

 

75,258

 

San Luis Potosí

 

99,341

 

20,482

 

119,823

 

96.3%

 

4,668

 

124,491

 

Tampico

 

144,178

 

22,810

 

166,988

 

94.6%

 

9,589

 

176,577

 

Torreón

 

110,480

 

18,191

 

128,671

 

89.7%

 

14,796

 

143,467

 

Zacatecas

 

66,957

 

9,304

 

76,261

 

84.9%

 

10,294

 

86,555

 

Border

 

 

 

 

 

 

 

 

 

 

 

 

 

Ciudad Juárez

 

146,201

 

29,225

 

175,426

 

94.9%

 

9,512

 

184,938

 

Reynosa

 

95,742

 

12,557

 

108,299

 

94.7%

 

6,012

 

114,311

 

Terminal 2 NH Collection Hotel

 

 

212,488

 

212,488

 

100.0%

 

 

212,488

 

Hilton Garden Inn Hotel

 

 

16,882

 

16,882

 

100.0%

 

 

16,882

 

Other(1)

 

 

3,639,434

 

3,639,434

 

100.0%

 

 

3,639,434

 

Total

 

3,047,098

 

4,647,184

 

7,694,282

 

95.7%

 

347,988

 

8,042,270

 

Eliminations(2)

 

(13,968

)

(3,535,643

)

(3,549,611

)

N/A

 

 

(3,549,611

)

Total Revenues

 

Ps.

3,033,130

 

Ps.

1,111,541

 

Ps.

4,144,671

 

92.3%

 

Ps.

347,988

 

Ps.

4,492,659

 

 


(1)                                  Represents our subsidiaries Servicios Aeroportuarios del Centro Norte, S.A. de C.V., Operadora de Aeropuertos del Centro Norte, S.A. de C.V., Servicios Aero Especializados del Centro Norte, S.A. de C.V., OMA Logística, S.A. de C.V., Holding Consorcio Grupo Hotelero T2, S.A. de C.V. and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (on an individual basis).

 

(2)                                  Eliminations consist of operations and balances between our subsidiaries, as well as reclassifications.

 

3



Table of Contents

 

 

 

For the Year Ended December 31, 2014

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Metropolitan

 

 

 

 

 

 

 

 

 

 

 

 

 

Monterrey

 

Ps.

1,167,807

 

Ps.

360,228

 

Ps.

1,528,035

 

97.7%

 

Ps.

36,618

 

Ps.

1,564,653

 

Tourist

 

 

 

 

 

 

 

 

 

 

 

 

 

Acapulco

 

117,573

 

22,779

 

140,352

 

74.4%

 

48,313

 

188,665

 

Mazatlán

 

148,781

 

37,002

 

185,783

 

73.6%

 

66,475

 

252,258

 

Zihuatanejo

 

102,780

 

19,990

 

122,770

 

89.4%

 

14,504

 

137,274

 

Regional

 

 

 

 

 

 

 

 

 

 

 

 

 

Chihuahua

 

162,469

 

34,792

 

197,261

 

92.6%

 

15,719

 

212,980

 

Culiacán

 

223,423

 

35,022

 

258,445

 

88.3%

 

34,097

 

292,542

 

Durango

 

48,937

 

7,784

 

56,721

 

80.7%

 

13,598

 

70,319

 

San Luis Potosí

 

84,498

 

17,508

 

102,006

 

87.4%

 

14,772

 

116,778

 

Tampico

 

124,312

 

18,183

 

142,495

 

91.7%

 

12,981

 

155,476

 

Torreón

 

98,985

 

15,671

 

114,656

 

90.2%

 

12,444

 

127,100

 

Zacatecas

 

56,872

 

7,535

 

64,407

 

82.1%

 

14,036

 

78,443

 

Border

 

 

 

 

 

 

 

 

 

 

 

 

 

Ciudad Juárez

 

124,252

 

24,784

 

149,036

 

91.5%

 

13,782

 

162,818

 

Reynosa

 

85,018

 

10,988

 

96,006

 

90.6%

 

9,988

 

105,994

 

Terminal 2 NH Collection Hotel

 

 

195,742

 

195,742

 

100.0%

 

 

195,742

 

Other(1)

 

 

2,441,636

 

2,441,636

 

100.0%

 

 

2,441,636

 

Total

 

2,545,707

 

3,249,644

 

5,795,351

 

95.0%

 

307,327

 

6,102,678

 

Eliminations(2)

 

(13,041

)

(2,359,950

)

(2,372,991

)

N/A

 

 

(2,372,991

)

Total Revenues

 

Ps.

2,532,666

 

Ps.

889,694

 

Ps.

3,422,360

 

91.8%

 

Ps.

307,327

 

Ps.

3,729,687

 

 


(1)                                  Represents our subsidiaries Servicios Aeroportuarios del Centro Norte, S.A. de C.V., Operadora de Aeropuertos del Centro Norte, S.A. de C.V., Servicios Aero Especializados del Centro Norte, S.A. de C.V., OMA Logística, S.A. de C.V., Holding Consorcio Grupo Hotelero T2, S.A. de C.V. and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (on an individual basis).

 

(2)                                  Eliminations consist of operations and balances between our subsidiaries, as well as reclassifications.

 

4



Table of Contents

 

 

 

For the Year Ended December 31, 2013

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Metropolitan

 

 

 

 

 

 

 

 

 

 

 

 

 

Monterrey

 

Ps.

1,046,621

 

Ps.

320,774

 

Ps.

1,367,395

 

94.8%

 

Ps.

74,722

 

Ps.

1,442,117

 

Tourist

 

 

 

 

 

 

 

 

 

 

 

 

 

Acapulco

 

108,420

 

20,266

 

128,686

 

74.6%

 

43,861

 

172,547

 

Mazatlán

 

136,063

 

34,719

 

170,782

 

92.3%

 

14,173

 

184,955

 

Zihuatanejo

 

91,203

 

17,843

 

109,046

 

81.7%

 

24,348

 

133,394

 

Regional

 

 

 

 

 

 

 

 

 

 

 

 

 

Chihuahua

 

148,028

 

30,461

 

178,489

 

95.1%

 

9,127

 

187,616

 

Culiacán

 

211,588

 

32,504

 

244,092

 

93.0%

 

18,294

 

262,386

 

Durango

 

44,341

 

7,144

 

51,485

 

69.0%

 

23,149

 

74,634

 

San Luis Potosí

 

65,573

 

14,541

 

80,114

 

52.0%

 

73,874

 

153,988

 

Tampico

 

108,330

 

15,504

 

123,834

 

95.3%

 

6,116

 

129,950

 

Torreón

 

87,321

 

14,114

 

101,435

 

89.5%

 

11,887

 

113,322

 

Zacatecas

 

51,282

 

7,139

 

58,421

 

69.0%

 

26,264

 

84,685

 

Border

 

 

 

 

 

 

 

 

 

 

 

 

 

Ciudad Juárez

 

112,707

 

22,460

 

135,167

 

93.7%

 

9,078

 

144,245

 

Reynosa

 

69,919

 

9,425

 

79,344

 

81.7%

 

17,795

 

97,139

 

Terminal 2 NH Collection Hotel

 

 

176,510

 

176,510

 

100.0%

 

 

176,510

 

Other(1)

 

 

2,113,785

 

2,113,785

 

100.0%

 

 

2,113,785

 

Total

 

2,281,396

 

2,837,189

 

5,118,585

 

93.6%

 

352,688

 

5,471,273

 

Eliminations(2)

 

(12,527

)

(2,040,688

)

(2,053,215

)

N/A

 

 

(2,053,215

)

Total Revenues

 

Ps.

2,268,869

 

Ps.

796,501

 

Ps.

3,065,370

 

89.7%

 

Ps.

352,688

 

Ps.

3,418,058

 

 


(1)                                  Represents our subsidiaries Servicios Aeroportuarios del Centro Norte, S.A. de C.V., Operadora de Aeropuertos del Centro Norte, S.A. de C.V., Servicios Aero Especializados del Centro Norte, S.A. de C.V., OMA Logística, S.A. de C.V., Holding Consorcio Grupo Hotelero T2, S.A. de C.V. and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (on an individual basis).

 

(2)                                  Eliminations consist of operations and balances between our subsidiaries, as well as reclassifications.

 

 

 

For the Year Ended December 31, 2012

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Metropolitan

 

 

 

 

 

 

 

 

 

 

 

 

 

Monterrey

 

Ps.

989,976

 

Ps.

292,169

 

Ps.

1,282,145

 

94.7%

 

Ps.

72,331

 

Ps.

1,354,476

 

Tourist

 

 

 

 

 

 

 

 

 

 

 

 

 

Acapulco

 

99,498

 

18,725

 

118,223

 

85.7%

 

19,665

 

137,888

 

Mazatlán

 

122,061

 

34,900

 

156,961

 

92.9%

 

11,940

 

168,901

 

Zihuatanejo

 

89,602

 

17,401

 

107,003

 

87.2%

 

15,708

 

122,711

 

Regional

 

 

 

 

 

 

 

 

 

 

 

 

 

Chihuahua

 

139,127

 

27,259

 

166,386

 

86.2%

 

26,654

 

193,040

 

Culiacán

 

194,285

 

26,605

 

220,890

 

77.0%

 

66,093

 

286,983

 

Durango

 

45,051

 

6,723

 

51,774

 

98.1%

 

1,015

 

52,789

 

San Luis Potosí

 

63,281

 

13,836

 

77,117

 

89.2%

 

9,355

 

86,472

 

Tampico

 

105,275

 

14,938

 

120,213

 

93.7%

 

8,028

 

128,241

 

Torreón

 

77,305

 

13,259

 

90,564

 

89.8%

 

10,231

 

100,795

 

Zacatecas

 

51,177

 

6,713

 

57,890

 

73.1%

 

21,343

 

79,233

 

 

5



Table of Contents

 

 

 

For the Year Ended December 31, 2012

 

 

 

Aeronautical
Revenues

 

Non-
Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues

 

Total
Aeronautical and
Non-Aeronautical
Revenues as a
Percentage of
Total Revenues

 

Construction
Revenues

 

Total
Revenues

 

 

 

(in thousands of pesos)

 

Border

 

 

 

 

 

 

 

 

 

 

 

 

 

Ciudad Juárez

 

110,444

 

20,563

 

131,007

 

82.5%

 

27,785

 

158,792

 

Reynosa

 

53,719

 

8,143

 

61,862

 

66.2%

 

31,570

 

93,432

 

Terminal 2 NH Collection Hotel

 

 

158,477

 

158,477

 

100.0%

 

 

158,477

 

Other(1)

 

 

2,123,202

 

2,123,202

 

100.0%

 

 

2,123,202

 

Total

 

2,140,801

 

2,782,913

 

4,923,714

 

93.9%

 

321,718

 

5,245,432

 

Eliminations(2)

 

(10,138

)

(2,093,956

)

(2,104,094

)

N/A

 

 

(2,104,094

)

Total Revenues

 

Ps.

2,130,663

 

Ps.

688,957

 

Ps.

2,819,620

 

89.8%

 

Ps.

321,718

 

Ps.

3,141,338

 

 


(1)                                  Represents our subsidiaries Servicios Aeroportuarios del Centro Norte, S.A. de C.V., Operadora de Aeropuertos del Centro Norte, S.A. de C.V., Servicios Aero Especializados del Centro Norte, S.A. de C.V., OMA Logística, S.A. de C.V., Holding Consorcio Grupo Hotelero T2, S.A. de C.V. and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. (on an individual basis).

 

(2)                                  Eliminations consist of operations and balances between our subsidiaries, as well as reclassifications.

 

The following tables present our selected consolidated financial information for or as of each of the periods or dates indicated, and have been derived in part from our audited consolidated financial statements.  This information should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes to our consolidated financial statements.

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

(in thousands of pesos, except per share and operating data)

 

(in thousands of dollars)(1)

 

Statements of Income and Other Comprehensive Income data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Aeronautical services(2)

 

2,130,663

 

2,268,869

 

2,532,666

 

3,033,130

 

3,872,735

 

187,415

 

Non-aeronautical services(3)

 

688,957

 

796,501

 

889,694

 

1,111,541

 

1,332,762

 

64,497

 

Construction services

 

321,718

 

352,688

 

307,327

 

347,988

 

344,772

 

16,685

 

Total revenues

 

3,141,338

 

3,418,058

 

3,729,687

 

4,492,659

 

5,550,269

 

268,596

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs of services, excluding depreciation and amortization

 

656,217

 

725,329

 

772,946

 

836,133

 

900,141

 

43,561

 

Major maintenance provision

 

164,208

 

263,167

 

179,932

 

174,293

 

262,871

 

12,721

 

Cost of construction

 

321,718

 

352,688

 

307,327

 

347,988

 

344,772

 

16,685

 

Administrative expenses

 

457,749

 

501,233

 

539,753

 

558,222

 

642,345

 

31,085

 

Right to use airport facilities(4)

 

137,028

 

148,159

 

171,670

 

209,771

 

244,215

 

11,818

 

Technical assistance fees(5)

 

67,365

 

66,643

 

82,461

 

97,818

 

117,987

 

5,710

 

Depreciation and amortization(6)

 

186,803

 

201,226

 

223,982

 

238,809

 

276,634

 

13,387

 

Other income, net

 

(9,924

)

(49,782

)

(17,373

)

(6,930

)

(22,250

)

(1,077

)

Total operating costs and expenses

 

1,981,164

 

2,208,663

 

2,260,698

 

2,456,104

 

2,766,715

 

133,891

 

Operating income

 

1,160,174

 

1,209,395

 

1,468,989

 

2,036,555

 

2,783,554

 

134,705

 

Interest expense

 

(103,846

)

(209,359

)

(264,368

)

(334,764

)

(330,694

)

(16,003

)

Interest income

 

27,764

 

72,650

 

77,147

 

80,740

 

199,600

 

9,659

 

Exchange (loss) gain, net

 

23,168

 

(6,198

)

(22,463

)

(33,784

)

(29,177

)

(1,412

)

Income before income taxes

 

1,107,260

 

1,066,488

 

1,259,305

 

1,748,747

 

2,623,283

 

126,949

 

Income tax (benefit) expense

 

288,172

 

(134,876

)

232,345

 

512,110

 

746,782

 

36,139

 

Consolidated net income for the year

 

819,088

 

1,201,364

 

1,026,960

 

1,236,637

 

1,876,501

 

90,810

 

Items that will not be subsequently reclassified to income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses on labor obligations

 

(11,313

)

(2,851

)

437

 

(1,286

)

3,533

 

171

 

Income tax relating to items that will not be subsequently reclassified to profit or loss

 

3,390

 

843

 

(131

)

386

 

(1,060

)

(51

)

Total comprehensive income for the year

 

811,165

 

1,199,356

 

1,027,266

 

1,235,737

 

1,878,974

 

90,930

 

Consolidated net income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Controlling interest

 

818,121

 

1,199,636

 

1,024,694

 

1,233,772

 

1,870,187

 

90,505

 

Non-controlling interest

 

967

 

1,728

 

2,266

 

2,865

 

6,314

 

306

 

Consolidated comprehensive income attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Controlling interest

 

810,198

 

1,197,628

 

1,025,000

 

1,232,872

 

1,872,660

 

90,624

 

 

6



Table of Contents

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

(in thousands of pesos, except per share and operating data)

 

(in thousands of dollars)(1)

 

Non-controlling interest

 

967

 

1,728

 

2,266

 

2,865

 

6,314

 

306

 

Basic and diluted earnings per share of controlling interest(7)

 

2.0501

 

3.0062

 

2.5844

 

3.1328

 

4.7614

 

0.2304

 

Basic and diluted earnings per ADS(7)

 

16.4008

 

24.0496

 

20.6752

 

25.0623

 

38.0912

 

1.8434

 

Dividend or reimbursement of capital per share(8)

 

1.2500

 

3.0000

 

3.0000

 

3.0000

 

3.5000

 

0.1694

 

Other operating data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Total terminal passengers (thousands of passengers)(9)

 

12,594

 

13,292

 

14,695

 

16,922

 

18,764

 

N/A

 

Total air traffic movements (thousands of movements)

 

332

 

321

 

337

 

345

 

344

 

N/A

 

Aeronautical and non-aeronautical revenues per terminal passenger(10)

 

224

 

231

 

233

 

245

 

277

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

(in thousands of pesos)

 

(in thousands of dollars)(1)

 

Statement of Financial Position data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,152,433

 

1,534,006

 

2,808,149

 

2,605,196

 

3,005,792

 

145,460

 

Other investments held to maturity

 

 

 

 

60,445

 

 

 

Total current assets

 

1,696,415

 

2,276,938

 

3,404,343

 

3,216,774

 

4,098,459

 

198,338

 

Property, leasehold improvements and equipment, net

 

2,150,327

 

2,165,766

 

2,284,314

 

2,370,975

 

2,444,205

 

118,283

 

Investment in airport concessions

 

5,942,989

 

6,092,046

 

6,180,277

 

6,348,605

 

6,513,514

 

315,211

 

Total assets

 

10,010,410

 

11,011,453

 

12,417,880

 

12,510,336

 

13,545,323

 

655,503

 

Current liabilities

 

1,216,881

 

956,989

 

830,680

 

968,782

 

1,108,331

 

53,636

 

Total liabilities

 

3,594,454

 

4,614,059

 

6,301,277

 

6,559,809

 

6,858,343

 

331,898

 

Total shareholders’ equity

 

6,415,956

 

6,397,394

 

6,116,603

 

5,950,527

 

6,686,980

 

323,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31,

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

 

 

(in thousands of pesos)

 

(in thousands of dollars)(1)

 

Statement of Cash Flows data:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flows from operating activities

 

1,260,413

 

1,005,246

 

1,610,772

 

2,069,331

 

2,386,146

 

115,474

 

Net cash flows used in investing activities

 

(393,884

)

(270,880

)

(371,844

)

(493,235

)

(471,357

)

(22,811

)

Net cash flows (used in) from financing activities

 

(237,730

)

(352,793

)

35,215

 

(1,779,049

)

(1,514,193

)

(73,277

)

Increase in cash and cash equivalents

 

628,799

 

381,573

 

1,274,143

 

(202,953

)

400,596

 

19,386

 

 


(1)                                  Translated into dollars at the rate of Ps.20.6640 per U.S.$1.00, the FIX exchange rate as reported by the Mexican Central Bank on December 31, 2016.  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: (i) revenues from commercial activities, such as, car parking charges, advertising, leasing of commercial space to tenants, food and beverage services, car rentals and retail; (ii) revenues from diversification activities, such as hotel services, revenues from OMA Carga and real estate services; and (iii) revenues from complementary activities, such as revenues from our checked baggage-screening services, among other sources of revenues.  Pursuant to our concessions and to the Mexican Airport Law (Ley de Aeropuertos) and the regulations thereunder, parking services are currently excluded from aeronautical services under our maximum rates, although the Mexican Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes) could decide to regulate such rates, and such rates may be regulated by other authorities.

 

(4)                                  Each of our subsidiary concession holders is required to pay a concession tax to the Mexican government under the Mexican Federal Duties Law (Ley Federal de Derechos) 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.

 

(5)                                  We pay Servicios de Tecnología Aeroportuaria, S.A. de C.V. (“SETA”) a technical assistance fee under the technical assistance agreement entered into with SETA providing for management and consulting services (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 Transactions—Related-Party Transactions—Arrangements with SETA.”

 

(6)                                  Reflects depreciation of fixed assets and amortization of airport concessions and rights to use airport facilities.

 

(7)                                  Based on net income attributable to controlling interest for each year and on 399,060,153 weighted average common shares in 2012, 399,052,350 weighted average common shares in 2013, 396,493,090 weighted average common shares in 2014, 393,826,266 weighted average common shares in 2015 and 392,784,322 weighted average common shares in 2016.  Earnings per ADS are based on the ratio of eight Series B shares per ADS.

 

(8)                                  Declared dividends per share for the period based on 400,000,000 shares.  Includes reimbursements of capital per share.

 

(9)                                  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).

 

(10)                            Aeronautical plus non-aeronautical revenues divided by terminal passengers for the period.  Expressed in pesos (not thousands of pesos).

 

7



Table of Contents

 

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 U.S. Federal Reserve 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.

 

For the Year Ended December 31,

 

High

 

Low

 

Period End

 

Average(1)

 

 

 

 

 

 

 

 

 

 

 

2012

 

14.37

 

12.63

 

12.96

 

13.15

 

2013

 

13.43

 

11.98

 

13.10

 

12.76

 

2014

 

14.79

 

12.85

 

14.75

 

13.30

 

2015

 

17.36

 

14.56

 

17.20

 

15.87

 

2016

 

 

 

 

 

 

 

 

 

October

 

19.34

 

18.49

 

18.79

 

18.89

 

November

 

20.84

 

18.44

 

20.46

 

20.01

 

December

 

20.74

 

20.22

 

20.62

 

20.50

 

2017

 

 

 

 

 

 

 

 

 

January

 

21.89

 

20.75

 

20.84

 

21.39

 

February

 

20.82

 

19.74

 

20.00

 

20.30

 

March

 

19.93

 

18.67

 

18.83

 

19.28

 

April (through April 14)

 

18.82

 

18.53

 

18.53

 

18.69

 

 


(1)                                  Average of month-end rates or daily rates, as applicable.

 

Source:  U.S. 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, foreign currency may not continue to be available to private-sector companies, and we may not be able to purchase foreign currency that we need to service foreign currency obligations or to import goods 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 (Bolsa Mexicana de Valores) and, as a result, will likely affect the market price of the ADSs.  Such fluctuations will also affect the U.S. dollar conversion by the depositary of any cash dividends paid in pesos.

 

On December 31, 2016, the U.S. Federal Reserve noon buying rate was Ps.20.62 per U.S.$1.00.  On April 14, 2017, the U.S. Federal Reserve noon buying rate was Ps.18.53 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.”

 

8



Table of Contents

 

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 2014, 2015 and 2016, approximately 67.9%, 67.5% and 69.8% respectively, of our total revenues, and approximately 74.0%, 73.2% and 74.4%, respectively, of the sum of our aeronautical and non-aeronautical revenues were earned from aeronautical 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, this price regulation system may be amended in the future in a manner that would cause additional sources of our revenues to be regulated.

 

We cannot predict how the regulations governing our business will be applied.

 

Many of the laws, regulations and instruments that regulate our business were adopted or became effective in 1999, and there is only a limited history that would allow us to predict the impact of these legal requirements on our future operations.  In addition, although Mexican law establishes ranges of sanctions that might be imposed should we fail to comply with the terms of one of our concessions, the Mexican Airport Law 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 may encounter difficulties in complying with these laws, regulations and instruments.

 

Although our master development programs and maximum rates through 2020 have been set, we cannot predict what our master development program for 2021 and following years will establish.  When determining our maximum rates for the next five year period (from 2021 to 2025), the Ministry of Communications and Transportation may be solicited by different entities (for example, the Mexican Federal Competition Commission (Comisión Federal de Competencia Económica, or the “Competition Commission”) and the carriers operating at our airports) to modify our maximum rates, thus reducing our profitability.  Therefore, the laws and regulations governing our business, including the rate-setting process and the Mexican Airport Law, may change in the future or be applied or interpreted in a way that could have a material adverse effect on our business, results of operations, prospects and financial condition.

 

Additionally, the Ministry of Communications and Transportation has announced that it intends to establish a new, independent regulatory agency, the Federal Agency of Civil Aviation, that is expected to serve a similar role as the Mexican Bureau of Civil Aviation (Dirección General de Aeronáutica Civil) of establishing, coordinating, overseeing and controlling international and national air transportation, as well as the airports, complementary services and generally all activities related to civil aviation.  We cannot predict whether or when this new agency will be organized, the scope of its authority, the actions that it will take in the future or the effect of any such actions on our business.

 

On February 20, 2014, a bill of the new Federal Economic Competition Law (Ley Federal de Competencia Económica) was submitted to Mexico’s Congress in furtherance and as a result of certain amendments to Mexico’s Constitution passed in 2013.  The bill was enacted and published on May 23, 2014.  The new law grants broader powers to the Competition Commission, including the abilities to regulate essential facilities, order the divestment of assets and eliminate barriers to competition in order to promote access to the market.  The new law also sets forth important changes in connection with mergers and anti-competitive behavior, increases liabilities that may be incurred for violations of the law, increases the amount of fines that may be imposed for violations of the law and limits the availability of legal defenses against the application of the law.  The Mexican Competition Commission may therefore determine that the services that we provide at our airports are essential and require us to implement significant changes to our business operations and thus generate a significant impact on our results of operations.

 

Our business is dependent upon international regulations that affect Mexican airlines.

 

The U.S. Federal Aviation Administration (“FAA”) 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, an agency of the United Nations Organization (“ICAO”).

 

On July 30, 2010, the FAA downgraded Mexico’s aviation safety rating from an ICAO Category 1 rating to an ICAO Category 2 rating, as a result of the FAA’s visit to the Mexican Bureau of Civil Aviation between January and July 2010.  The

 

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downgrade was attributable to an insufficient number of flight inspectors and administrative and organizational elements in the Mexican Bureau of Civil Aviation.

 

The consequences of the downgrade from a Category 1 rating to a Category 2 rating were the suspension of the right to operate code-shared flights and the restriction of Mexican airlines’ ability to increase the frequency of, or add new routes to, the United States and that the international routes of Mexicana de Aviación would not be flown by any Mexican carrier with a Category 2 rating.

 

Mexico regained its Category 1 safety rating on December 1, 2010; however, Mexico may 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 the results of operations of any airport, will be profitable, or that we will realize our expected return on investment.

 

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.  For a discussion of the framework for establishing our maximum rates and the application of our rates, see “Item 4. Information on the Company—Regulatory Framework—Revenue Regulation.”  On December 21, 2015, the Ministry of Communications and Transportation determined, based on the terms of our concessions, the maximum rates for our airports from January 1, 2016 through December 31, 2020.  Under the terms of our concessions, there is no guarantee that the results of operations of any airport will be profitable.  We may not realize our expected return on investment from investments under the master development programs.

 

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, 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, such a request may not be granted in the future.  If a request to increase an airport’s maximum rates is not granted, and we are impacted by the circumstances that led to the request, 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 2016, our revenues subject to maximum rate regulation represented approximately 93.7% of the amounts we were entitled to earn under the maximum rates for all of our airports.  We may not be able to establish prices in the future that allow us to collect substantially all of the revenues 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 our 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.  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.”

 

Depreciation of the peso may cause us to exceed our maximum rates.

 

We aim to charge prices that are as close as possible to our maximum chargeable rates, and we are entitled to adjust our specific prices only once every six months for inflation (or earlier upon a cumulative increase of 5% in the Mexican producer price index (excluding fuel)).  However, we generally collect passenger charges from airlines 30 to 60 days following the date of each flight.  The tariffs for the services that we provide to international flights or international passengers are generally denominated in U.S. dollars but are paid in Mexican pesos based on the average exchange rate for the month prior to each flight.  Accordingly, depreciation of the peso, particularly late in the year, could cause us to exceed the maximum rates at one or more of our airports, which could lead

 

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to the imposition of fines and the subsequent termination of one or more of our concessions.  The peso has historically experienced significant volatility.  From December 31, 2014 to December 31, 2015, the peso depreciated by approximately 16.6%, from Ps.14.75 per U.S.$1.00 on December 31, 2014, to Ps.17.20 per U.S.$1.00 on December 31, 2015.  From December 31, 2015 to December 31, 2016, the peso depreciated by approximately 19.9%, from Ps.17.20 per U.S.$1.00 on December 31, 2015, to Ps.20.62 per U.S.$1.00 on December 31, 2016. On April 14, 2017, the exchange rate was Ps.18.53 per U.S.$1.00.

 

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 the failure to comply with our master development programs, a temporary or permanent halt in our operations, actions affecting the operations of other concession holders in Mexico, the failure to pay damages resulting from our operations, the failure to keep our rates from exceeding our maximum rates or the 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 regulations 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.  We may not 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.

 

On February 5, 2014, the Mexican government announced in the Official Gazette of the Federation that the Ministry of Communications and Transportation granted to Administradora de Servicios Aeroportuarios de Chihuahua, S.A. de C.V., a concession for 20 years to construct, operate and exploit a civil-aviation airport in the municipality of Bocoyna, Chihuahua, located 250 kilometers (144 miles) from the city of Chihuahua, within an area of 95.5 hectares (0.4 square miles).  The government of the state of Chihuahua owns 98% of the capital stock of Administradora de Servicios Aeroportuarios de Chihuahua, S.A. de C.V.  The Bocoyna airport is expected to operate daily public and private domestic flights.  The airport has an ICAO Category 3C rating and could present competition to our airport located in the municipality of Chihuahua, which has a higher ICAO Category 4D rating and is located 18 kilometers (11.2 miles) from the city of Chihuahua.  The Ministry of Communications and Transportation has the capacity to upgrade the category of the airport depending on improvements to infrastructure made by the concessionaire or could downgrade the category if the concessionaire does not maintain adequate conditions in the airport.  To date, the airport has not announced the commencement date of operations.

 

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 León 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, the Ministry of Communications and Transportation may authorize such an amendment and commercial aviation flights may operate from Aeropuerto del Norte in the future.

 

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Any competition from other such airports could have a material adverse effect on our business, results of operations, prospects and financial condition.  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 may not participate in such a process, or we may not successful if we were to participate.  Please see “Item 4. Information on the Company—Regulatory Framework—Grants of New Concessions” below.

 

Risks Related to Our Operations

 

Our business could be adversely affected by a downturn in the global economy, particularly with regard to the U.S. economy.

 

The global economic and financial crisis in 2009 led to high volatility and lack of liquidity in the global credit and other financial markets.  These 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, in the U.S. and global economies.  These conditions also limited the availability of credit and increased financial costs for companies around the world, including in Mexico and the United States.  Although economic conditions improved starting in 2010 and the availability of credit has increased while interest rates remained stable, another recession could significantly affect our ability to access credit to finance our future projects, therefore adversely affecting our business.

 

During the second half of 2011, global economic growth decreased due to persistent weaknesses such as the jobs crisis in the United States, the sovereign-debt crises in the Eurozone, which worsened during this period, fiscal problems and the declining prospects for economic growth, especially in developed economies.  In 2010, the U.S. economy showed certain improvement; however, in 2011, the recovery of the U.S. economy slowed slightly, with the gross domestic product (“GDP”) increasing at an annualized real rate of 1.7% and our international passenger traffic decreasing by 7.4%.  In 2012, the recovery of the U.S. economy improved slightly, with the GDP increasing at an annualized real rate of 2.2%.  In 2014 and 2015, the U.S. economy continued to improve, with the GDP increasing at an annualized rate of 2.4% and 2.4%, respectively, in real terms and our international passenger traffic increasing 9.3% and 18.4%, respectively.  In 2016, the U.S. economy showed a slight slowdown, with the GDP increasing at an annualized real rate of 1.6%, and our international passenger traffic increasing by just 0.2%. The Congressional Budget Office forecasts that the real GDP will grow by 2.3% in 2017.  In the event of a new economic downturn, developing countries, which had largely rebounded from the economic and financial crisis in 2009, would be impacted through trade and financial channels.  According to the Mexican National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía), in 2016, exports from Mexico to the United States represented approximately 80.9% of Mexican exports, 38.9% of foreign direct investment in Mexico originated in the United States, and secondary income, which includes government and private transfers, received from the United States were approximately U.S.$15.7 billion, according to the U.S. Bureau of Economic Analysis.

 

Our business is particularly dependent on the condition of the U.S. economy and is particularly influenced by trends in the United States relating to leisure travel, consumer spending and international tourism.  In 2016, 81.1% of the international passengers served by our airports arrived or departed on flights originating in or departing to the United States.

 

International events such as decreases in oil prices and the slower growth in the Chinese economy have led to volatility in the international markets and adversely affected the Mexican economy, which has been forced to cut public expenses, as oil output is one of the main source of revenues in Mexico.  In February 2016, the Mexican government announced a cut of Ps.132.3 billion to the 2016 federal annual budget, equivalent to 0.7% of the Mexican GDP, and in June 2016, it announced a second cut of 31.7 billion equivalent to 0.2% of the Mexican GDP.  In addition, the persistent weakness in the European banking system could have an adverse impact on the global economy and the availability of credit, which could in turn have an adverse impact on consumer spending and the Mexican economy in general.

 

As the demand for aeronautical services in Mexico is substantially dependent on the performance of the Mexican economy, which is in turn highly dependent on the performance of the U.S. economy, a further downturn in the U.S. economy or a disruption in commercial activities among the U.S. and Mexico could cause a material adverse effect on our business, results of operations, prospects and financial condition.  More generally, further downturns in the global economy and/or in the Mexican economy would also adversely affect our business, results of operations, prospects and financial condition.  See also “—Risks Related to Mexico—Our business is significantly dependent upon the volume of air passenger traffic in Mexico, and negative economic developments in Mexico will adversely affect our business and results of operations.”

 

Our business could be adversely affected by global political developments, particularly with regard to U.S. policies.

 

Changes in economic, political and regulatory conditions in the United States or in U.S. laws and policies governing foreign trade and foreign relations could create uncertainty in the international markets and could have a negative impact on the Mexican economy and public finances. This correlation is due, in part, to the high level of economic activity between the two countries generally, including the trade facilitated by the North American Free Trade Agreement (“NAFTA”), as well as physical proximity.

 

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Following the U.S. elections in November 2016 and the change in the U.S. administration for the four-year period from 2017 to 2020, there is uncertainty regarding future U.S. policies with respect to matters of importance to Mexico and its economy, particularly including trade and migration.  In particular, the U.S. administration has raised the possibility of re-negotiating NAFTA.  It stated that if Canada and Mexico do not agree to re-negotiate NAFTA, the United States may withdraw from the agreement.  As a result, on February 1, 2017, the Mexican Government began a 90-day consultation with the Senate and private sector on a potential renegotiation of NAFTA.  Because the Mexican economy is heavily influenced by the U.S. economy, the re-negotiation, or even termination, of NAFTA and/or other U.S. government policies that may be adopted by the new U.S. administration may adversely affect economic conditions in Mexico.  The aforementioned proposal, along with any decision taken by the current U.S. administration and any amendments to NAFTA that have an impact on the Mexican economy, such as reductions in the levels of remittances, reduced commercial activity among the two countries or a slowdown in direct foreign investment in Mexico, could adversely affect our business and our results of operations.

 

The U.S. administration has also raised the possibility of taking various forms of action in the area of trade, tariffs, immigration and taxation that could affect Mexico. On January 23, 2017, the U.S. President signed an Executive Order directing the United States Trade Representative to withdraw the United States as a signatory to the Trans-Pacific Partnership Agreement (“TPP”), a proposed international trade agreement among twelve Pacific Rim countries, and to permanently withdraw the United States from TPP negotiations. Mexico and other parties are evaluating alternatives following the United States’s decision.

 

U.S. immigration policies could also affect trade and other relations between Mexico and the U.S. and have other consequences for Mexican Government policies. These factors could have an impact on Mexico’s GDP growth, the exchange rate between the U.S. dollar and the Mexican peso, levels of foreign direct investment and portfolio investment in Mexico, interest rates, inflation, and the Mexican economy generally; which in turn, may have an impact in our business and results of operations.

 

Our revenues are highly dependent on levels of air traffic, which depend on factors beyond our control.

 

Our revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at our airports.  These factors directly determine our revenues from aeronautical services and indirectly determine our revenues from non-aeronautical services.  Passenger and cargo traffic volumes and air traffic movements depend on many factors beyond our control, including an economic downturn in Mexico, the United States and globally, the political situation in Mexico and elsewhere in the world, the attractiveness of our airports relative to that of other competing airports, fluctuations in fuel prices (which could cause airlines to increase tariffs and have a negative impact on traffic as a result of increased fuel costs), changes in regulatory policies applicable to the aviation industry and an increase or decrease in Mexican airlines’ fleets.

 

Any decreases in passenger and cargo traffic volumes and the number of air traffic movements to or from our airports as a result of these factors could adversely affect our business, results of operations, prospects and financial condition.

 

Our business is highly dependent on the operations of Mexico City International Airport.

 

In 2014, 2015 and 2016, approximately 51.5%, 50.7% and 48.1%, respectively, of our domestic passengers flew to or from our airports via Mexico City International Airport.  As a result, our domestic traffic is highly dependent upon the operations of Mexico City International Airport.

 

In 2016, domestic passenger traffic to and from Mexico City International Airport increased 6.8% mainly as a result of an increase in flight frequencies by Volaris, Interjet and VivaAerobus.  Even though a new Mexico City international airport with more capacity than the existing airport is being built and is expected to start operations in 2020, we cannot assure you that the existing or new airport’s operations will remain at existing levels or increase in the future.

 

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.  Any future terrorist attacks involving one of our airports, whether or not involving aircraft, will likely adversely affect our business, results of operations, prospects and financial condition.  Among other consequences, 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.  On May 1, 2014 and July 1,

 

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2016, the Mexican Bureau of Civil Aviation published mandatory circulars CO SA-17.2/10 R3 and CO SA-17.9/16, respectively, which require that all airlines screen checked baggage and that all airports have screening equipment that complies with specified guidelines.  World events such as the terrorist attacks in Paris and Brussels and other attacks attributed to the Islamic State of Iraq and Syria or any other organization could lead to additional security measures taken by the FAA or the ICAO and could require us to incur in additional costs to comply with these measures.  Similarly, our airport operations and passenger volume could be negatively impacted by terrorist attacks on aircrafts, such as those which occurred with international airlines’ aircraft operating over Egypt and the Ukraine in 2015.

 

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 business, results of operations, prospects and financial condition.

 

International events could have a negative impact on international air travel and our revenues.

 

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 2014, 2015 and 2016, passenger charges represented 55.5%, 55.6% and 59.2%, respectively, of our total revenues and 60.4%, 60.2% and 63.2%, respectively, of the sum of our aeronautical and non-aeronautical revenues.  Events such as the conflicts in the Middle East, terrorist attacks in Europe and public health crises such as the Severe Acute Respiratory Syndrome, or SARS crisis, the Influenza A(H1N1) crisis and the Ebola crisis have negatively affected in the past the frequency and pattern of air travel worldwide.

 

On February 1, 2016, the World Health Organization designated the Zika virus and its suspected complications in newborns an international public health emergency.  The U.S. Department of Health and Human Services’ Centers for Disease Control and Prevention has issued a travel advisory for people traveling to regions within the Zika virus outbreak, which include popular vacation destinations in Mexico.  These travel advisories to Mexico could negatively affect the frequency and pattern of travel to our airports.

 

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), Ebola, Zika and Chikungunya, or other international events of general 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.

 

Adverse domestic events could negatively impact our operations.

 

On November 20, 2014, a peaceful demonstration in the city of Acapulco, in which demonstrators marched toward the Acapulco airport, generated minor flight delays and cancellations.  On February 24, 2015, demonstrators marched on the access road to the Acapulco airport and blocked access to the airport, which caused a number of passengers to miss their flights, though the airport continued to operate regularly.  Although the airport facilities were not materially damaged during these demonstrations, future demonstrations and riots taking place in cities where our airports are located and where they are either a potential target or in the path of such demonstrations could generate flight cancellations and the suspension of our operations and could materially adversely affect our business, results of operations, prospects and financial condition.

 

High incidences of crime in Mexico, including extortion and drug trafficking in particular, could adversely affect our business.

 

Higher incidences of crime throughout Mexico, including extortion and drug trafficking in particular, could have an adverse effect on our business, results of operations, prospects and financial condition, as it may decrease the international passenger traffic directed to Mexico from abroad.  The travel warning issued by the U.S. Department of State (Bureau of Consular Affairs) on December 8, 2016 (the “Travel Warning”) urges U.S. citizens to defer non-essential travel to the states of Tamaulipas, Chihuahua, Coahuila (particularly along the border between Piedras Negras and Nuevo Laredo), areas of the state of Jalisco that border the states of Michoacán and Zacatecas, Sinaloa (except the city of Mazatlán), the eastern edge of Sonora, which borders the state of Chihuahua (as well as the city of Ciudad Obregón and south of the city of Navojoa), among others.  The travel warning also recommends to be aware of security when visiting these cities and other regions, such as Durango, the metropolitan area of Monterrey, Ciudad Juárez, San Luis Potosí, the cities of Mazatlán, Zacatecas, and several states. Guerrero (including the cities of Acapulco, Ixtapa, Taxco and Zihuatanejo) remains as a place prohibited for U.S. government personnel, with the exception of trips to Ixtapa/Zihuatanejo by air, where they must exercise caution and remain in tourist areas.

 

Variations in international fuel prices could directly or indirectly adversely affect our business and results from operations.

 

International fuel prices, which represent a significant cost for airlines using our airports, have increased in recent months.  In the past, increased 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.  Any substantial variation in fuel prices could have an adverse effect on our results of operations and financial condition.

 

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We could be exposed to additional risks if we pursue business opportunities in other countries.

 

From time to time, we may consider strategic participation in airport assets located in other countries.  We may evaluate international expansion opportunities through capital investment in other concessions.  Expansion into a market outside of Mexico could require significant capital expenditures.  If we pursue an international expansion opportunity, we could face internal or external risks, including, without limitation: (i) a lack of market experience in the relevant country, (ii) foreign exchange and economic volatility, (iii) the dedication of significant management resources to executing the international operation and (iv) exposure to risks inherent to doing business in the relevant country.  Our inability to successfully manage the risks and uncertainties related to such business opportunities could have a material adverse effect on our business, results of operations, prospects and financial condition, including our capital structure.

 

We may not fully recover our investment for the acquisition of the Terminal 2 NH Collection 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 (53,820 square feet) of commercial space inside the Terminal 2 of Mexico City International Airport, under a lease with Mexico City International Airport that expires in 2029.  A Mexican subsidiary of NH Hoteles SA, a Spanish company, owns the other 10%.  The Terminal 2 NH Collection Hotel opened in August 2009.  The net amount of our investment in the Terminal 2 NH Collection Hotel as of December 31, 2016, was Ps.265,451 thousand.

 

In September 2014, the federal government presented the new Mexico City International Airport project, which will be built on 4,430 hectares (17.1 square miles) of land owned by the federal government located in the eastern part of the Mexico Valley.  The new airport will be built in several stages.  The first stage consists of three runways with the ability to have simultaneous operations and a capacity to transport 50 million passengers annually and is expected to start operations in 2020.  As a result, the current Mexico City International Airport could be closed before the expiration of our lease, and we may not be able to continue operating the hotel and the commercial space, which could impact our ability to recover our investment.  In addition, under certain circumstances, the operating lease agreement with the Mexico City International Airport can be terminated by such party with partial or no compensation to us.  If the current Mexico City airport is closed, or the Mexico City International Airport terminates our operating lease agreement, we may not be able to fully recover our investment in the Terminal 2 NH Collection Hotel.

 

The Terminal 2 NH Collection Hotel faces the challenge of maintaining enough market participation as it continues with its operations.  The occupancy rate of the hotel may not be sufficient to recover our investment.  For the year ended December 31, 2016, annual average occupancy decreased to 79.0% from 80.5% in 2015.  Nevertheless, total revenues amounted to Ps.227,884 thousand, as compared to Ps.212,488 thousand in 2015, and average rates per room were Ps.2,202 in 2016, as compared to Ps.1,968 in 2015.  The occupancy rate of the hotel or the annual average rate may not increase or may decrease in the future.

 

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 the Acapulco, Mazatlán and Zihuatanejo airports) may vary as a result of factors beyond our control, including the level of tourism in Mexico.  In addition, our passenger traffic volume may be adversely affected by the attractiveness, affordability and accessibility of competing tourist destinations in Mexico, such as Cancún, Puerto Vallarta and Los Cabos, or elsewhere, such as Florida, Puerto Rico, Cuba, Jamaica, the Dominican Republic and other Caribbean islands and destinations in Central America.

 

Tourism levels may decrease, and therefore the number of passengers using our airports in the future may not exceed or match 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 seven of our airports and the Terminal 2 NH Collection Hotel and could be adversely impacted by any condition affecting those businesses.

 

In 2016, approximately 80.6% of the sum of our aeronautical and non-aeronautical revenues, were generated from seven of our 13 airports and the Terminal 2 NH Collection Hotel operations.  The Monterrey airport generated the most significant portion of our revenues.  The following table lists the percentage of the sum of aeronautical and non-aeronautical revenues generated at our airports, including the percentage of total revenues generated by our hotel services:

 

Airport

 

For Year Ended
December 31, 2016

 

Monterrey

 

45.3%

 

Culiacán

 

7.7%

 

Chihuahua

 

6.2%

 

Mazatlán

 

5.2%

 

Ciudad Juárez

 

4.7%

 

Terminal 2 NH Collection Hotel

 

4.4%

 

Tampico

 

3.6%

 

Acapulco

 

3.5%

 

Six other airports, Servicios Complementarios del Centro Norte and OMA Logística, S.A. de C.V. (“OMA Logística”)

 

19.4%

 

Total

 

100.0%

 

 

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As a result of the substantial contribution to our revenues from these seven airports and the operation of the Terminal 2 NH Collection Hotel, any event or condition affecting these principal airports or the Terminal 2 NH Collection Hotel could have a material adverse effect on our business, results of operations, prospects and financial condition.

 

We face risks associated with our diversification activities, which could lead to our inability to recover our investment as planned.

 

We face risks associated with the nature of the diversification projects that we have developed and in which we participate as shareholders, which could impact our results of operations, prospects and financial condition.  Our Terminal 2 NH Collection Hotel and our Hilton Garden Inn Hotel depend on passenger traffic travel to and from the Mexico City International Airport and the Monterrey airport, respectively, and any event that reduces passenger volume in these airports could adversely affect the results of operations of these hotels.  The passenger traffic volume in such 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 such airports will increase or maintain the current level.

 

Both of the hotels that we operate and our OMA-VYNMSA industrial park could face additional competition from third parties developing similar projects in areas adjacent to the Mexico City and the Monterrey airports.  Furthermore, the continued growth at our OMA-VYNMSA industrial park could also decelerate should there be a slowdown in the Mexican economy.  All such factors could adversely affect the profitability of our non-aeronautical businesses and our ability to recover our investments in such projects.

 

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 55.2% of our total employees as of December 31, 2016), 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 unionized employees are represented by a national union of airport workers that operates throughout Mexico.  To the extent that any unionized airport workers throughout the country successfully negotiate different employment terms than those we offer at our airports, our operations could be adversely affected by union activities, including organized strikes or other work stoppages.  In addition, we could be required to increase our labor expenses to match the terms agreed by the union with other Mexican airport operators.

 

Our operations depend on certain key airline customers, and the loss 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 2016, Aeroméxico and its affiliates represented 24.6%, VivaAerobus represented 17.5%, Volaris represented 17.3%, and Interjet represented 15.4%.  None of our contracts with our airline customers obligate them to continue providing service from our airports and, if any of our key customers reduced their use of our airports, competing airlines may not 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 revenues from our key customers.

 

In addition, Mexican law prohibits an international airline from transporting passengers from one Mexican location to another (unless the flight originated outside Mexico), which limits the number of airlines providing domestic service in Mexico.  On December 18, 2015, the United States and Mexico entered into an Air Transport Agreement with the purpose of promoting and facilitating an international aviation system based on competition among airlines, to facilitate the expansion of international air transport opportunities and ensure the highest degree of safety and security in air transport.  The new agreement, which replaced the agreement that had been in effect since 1960, became effective as of August 21, 2016, after approval by the Mexican Senate and the competent authorities in the United States.  The new agreement provides for an increase in services on existing routes between both nations, as well as the addition of new routes and an increase in the frequency of flights on existing routes.  The agreement also grants Mexican airlines the ability to further penetrate international markets, as it permits airlines from both countries that operate flights between the United States and Mexico, to pick up passengers and continue with the flights to a third country.  This agreement may be modified in the future to provide for international airlines to operate domestic flights in our airports, but until then we expect to continue to generate a significant portion of our revenues from domestic travel from a limited number of airlines.

 

Due to increased competition, volatility in fuel prices and the general decrease in demand because of global volatility in the financial and exchange markets and economic crises, many airlines are operating in adverse conditions.  Should fuel prices increase or

 

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in the event of other adverse economic developments, one or more of our principal carriers could 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 all cases, our revenues from passenger charges and other aeronautical services are secured by a performance bond or other types of guarantees; however, guarantees may not fully cover the amount owed by an airline at a certain date.  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 de Aviación, Aeromar and Aeroméxico Connect—refused to pay certain increases in our airport service charges.  As part of this dispute, these airlines brought proceedings challenging the privatization of the Mexican airport sector and the methodology for calculating the maximum rate system applicable under the privatization of all of the airport groups in Mexico.

 

Subsequently, we entered into a series of agreements with the Mexican National Air Transportation Board (Cámara Nacional de Aerotransportes) and the Ministry of Communications and Transportation (most recently in January 2013, covering the period from January 1, 2013 to December 31, 2015), pursuant to which we settled the existing disputes with our principal airline customers and established specific prices for regulated aeronautical services applicable to those airlines. Although this agreement has not been renewed as of April 14, 2017, all benefits continue to be provided on the same terms.  Furthermore, we have expanded the benefits of the agreement to all domestic and international airlines operating at our airports, even to those airlines that are not affiliated to the Mexican National Air Transportation Board.   Historically, amounts paid under these agreements have not been material, and we do not expect any current agreement or any similar future agreements with the Mexican National Air Transportation Board or any airline to have a material effect on our results of operations.

 

Although passenger traffic volume (and therefore overall revenues) may increase, any agreed incentives and/or discounts offered to airlines as a means to prevent or settle any potential dispute 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.

 

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 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 additional 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 government entities 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, if any service providers were to halt operations at any of our airports, we could be required to seek a new provider of these services or to provide these services ourselves, either of which may result in increased costs and have an adverse impact on our results of operations.

 

We may be liable for property taxes as a result of claims asserted against us by certain municipalities.

 

Various municipalities have asserted administrative law proceedings against us for the payment of property taxes with respect to the real estate on which we operate our airports in those cities.  We have appealed all the administrative law proceedings against us and, while some have been dismissed by the relevant administrative authority, some are still pending.

 

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

 

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of the surety bonds may restrict our ability to pay dividends or otherwise limit our flexibility.  In addition, if we are required to pay for additional state or municipal rights, we could face costs, limiting our flexibility and our ability to pay dividends.

 

Future changes in applicable laws with respect to property or other taxes could have an adverse effect on us.

 

Changes to the Mexican Constitution and other laws on property taxes that could affect our business, results of operations, prospects and financial condition may be enacted in the future.  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 material adverse effect on our business, results of operations, prospects and financial condition.

 

On November 19, 2014 and March 3, 2015, proposed amendments to Article 115 of the Constitution to eliminate the exemption from the payment of property taxes for the use of public domain assets were filed before the Mexican House of Deputies (Cámara de Diputados).  The initiative was sent to the Constitutional Commission (Comisión de Puntos Constitucionales) of the House of Deputies for review and on July 15, 2016, the Constitutional Commission rejected the initiative.  As of April 14, 2017, no further legislative action had been taken with regard to this proposed amendment.

 

On October 27, 2015 and October 25, 2016, initiatives to amend certain articles of the Mexican Airport Law were filed with the House of Deputies, in order to make a distinction between assets related to the provision of aeronautical services from assets destined to the provision of commercial services.  The proposed amendments include the obligation to pay municipal taxes and to obtain municipal authorizations in connection with assets related to commercial activities and incorporate a new cause of revocation of concessions if the concessionaire fails to pay any taxes, including the municipal taxes that would become effective if the reform is adopted.  These initiatives are being reviewed by the Transportation Commission (Comisión de Transportes) of the House of Deputies and, if approved, will be returned and submitted for approval with the House of Deputies.  As of April 14, 2017, the Transportation Commission has not issued a determination.  However, if this amendment is adopted, we would incur additional costs to pay the corresponding taxes, and our current ability to develop commercial and diversification activities would be impacted.

 

Certain reforms to the Mexican Constitutional Protection Law (Ley de Amparo) may cause a material adverse effect on our results of operations.

 

On April 2, 2013, amendments to the Mexican Constitutional Protection Law were published in the Official Gazette of the Federation.  These amendments include, among others, new criteria for suspending acts by government authorities relating to concessions granted by the government.  Pursuant to this amendment, such a suspension will not be applied when it would impede the government’s ability to benefit from goods in the public domain.  It is possible that a judge would consider that our airports are government concessions intended for public use.  Therefore, if we are unable to obtain a suspension of a government act that we believe to be unconstitutional, our business, results of operations, prospects and financial condition could be adversely affected.

 

For instance, on November 19, 2013, the Apodaca municipality executed an inspection order and closed the commercial premises located in the Monterrey airport, which include a strip mall, gas station and industrial park, because they did not have multiple licenses for ground use and/or construction.  A constitutional claim (juicio de amparo) lawsuit was filed against these acts challenging this shutdown and the constitutionality of the municipal order.  The court granted a provisional suspension ordering that municipal authorities remove the barriers and enable the businesses to continue operations.  On October 14, 2014, the District Court ruled in favor of the Monterrey airport.  On November 19, 2014, the Apodaca municipality filed an appeal before the Federal Circuit Court against the judgment.

 

On February 4, 2015, the Apodaca municipality filed a revision appeal (recurso de revisión) with the Federal District Circuit Court to exercise its competence to hear and determine the appeal against the October 2014 judgment of the District Court.  On March 6, 2015, the First Chamber of the Mexican Supreme Court decided to exercise its competence to hear the revision appeal and on August 5, 2015, the First Chamber of the Mexican Supreme Court ruled that the Federal District Circuit Court had competence to hear and resolve the appeal. On June 16, 2016, the Federal District Circuit Court confirmed the October 2014 ruling in favor of the Monterrey airport.

 

Moreover, in February 2014, the Apodaca municipality filed a constitutional controversy lawsuit against the federal government for its approval of the Monterrey airport’s 2011-2015 master development program as well as the authorization of the construction projects, including the Hilton Garden Inn Hotel, protected under amparo.  The Mexican Supreme Court agreed to hear the constitutional controversy claim but denied the Apodaca municipality’s petition for the suspension of the challenged authorizations and construction projects carried out at the Monterrey airport under the master development program.  On February 18, 2015, the constitutional controversy claim was decided against the Apodaca municipality.  The judgment determined that the constitutional controversy claim was unfounded and declared the federal government’s authorizations to be valid.

 

Reforms to the Mexican Federal Labor Law (Ley Federal del Trabajo) may cause a material adverse effect on our results of operations.

 

Amendments to several articles of the Mexican Federal Labor Law became effective on November 30, 2012.  The Mexican Federal Labor Law had not been substantially modified since it was enacted in 1970.  The principal changes resulting from the

 

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amendments include:  (i) the creation of new models of employment (seasonal employment and employment following training); (ii) increased flexibility for termination of employment; (iii) a requirement that the monthly total of salaries paid on an hourly basis be no less than the minimum mandatory monthly wage in effect; (iv) the application of regulations under the Mexican Federal Labor Law to personnel employed by services companies; (v) an increase in labor inspectors’ power to review employers; (vi) the addition of sexual harassment and other abuses as justified causes for termination of employment; and (vii) a new profit-sharing scheme for employees.  Our business, results of operations, prospects and financial condition may be materially and adversely impacted as a result of increases in labor costs or modified labor conditions derived from the interpretation of the Mexican courts of these amendments to the Mexican Federal Labor Law.

 

Natural disasters could adversely affect our business.

 

From time to time, the Northern and Central regions of Mexico experience torrential rains, hurricanes (particularly during the months of July through September) and, depending on the region, earthquakes and volcanic activity.  In addition, the Mazatlán, Culiacán and Acapulco airports are susceptible to occasional flooding due to torrential rainfall.

 

For instance, on November 3, 2016, the Tampico airport flooded due to heavy rains, causing the collapse of part of the bordering fence that affected nearby neighbors. The affected neighbors filed claims for damages against the Tampico airport totaling Ps.4.2 million; however, on November 23, 2016, the insurance carrier rejected the neighbors’ claims alleging that the damage was caused by a natural disaster.

 

Natural disasters may impede or cause the suspension of 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 that we serve could adversely affect our business, results of operations, prospects and financial condition.

 

We have insurance for the physical facilities at our airports against damage caused by natural disasters, accidents or other similar events, but we do not have insurance covering losses due to resulting business interruption.  Moreover, should losses occur, losses caused by damages to the physical facilities may 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 airports, have only one commercial aviation runway.  The operation of our runways may 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 expenditures 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.

 

In accordance with applicable labor laws, subcontractors are required to register their employees with the Mexican Social Security Institute (Instituto Mexicano del Seguro Social), and anyone employing the services of subcontractors that have failed to comply with these laws is 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 Mexican Social Security Institute, we could be held jointly liable for the payment of social security obligations that such contractors 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 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

 

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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 business, results of operations, prospects and financial condition.

 

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 ICAO 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 ICAO 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.

 

To allow the future expansion of the Monterrey airport, in February and June 2007, March and May 2008, July and December 2009 and February, July and December 2010, we completed acquisitions of land surrounding the airport with an aggregate area of 777 hectares (3 square miles), including the construction of a second runway, for an aggregate price of Ps.1,559,381 thousand (U.S.$121.3 million).  Improvements made to airport facilities at our expense may be recognized by the Mexican Bureau of Civil Aviation as part of the Company’s investment in the airport concession.  We received authorization from the Mexican Bureau of Civil Aviation to reallocate Ps.386,538 thousand (amount expressed in nominal 2009 pesos) of our investment in this land to investments included in the 2011—2015 master development program for the Monterrey airport.  We are currently reviewing various possibilities for the recovery of the remaining investment with the Mexican Bureau of Civil Aviation at a cost of Ps.695,759 thousand (amount expressed in nominal 2009 pesos), which was not recognized under the 2016—2020 master development program for the Monterrey airport.  The remaining amount of the investments may not be recognized by the Ministry of Communication and Transportation in the future.

 

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 those 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 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.

 

We are dependent on information technology, and our systems and infrastructure face certain risks, including cybersecurity risks.

 

We rely on a variety of information technology to manage our operations.  The proper functioning of these systems is critical to the efficient operation and management of our business.  In addition, these systems may require modifications or upgrades as a result of technological changes or growth in our business.  These changes may be costly and disruptive to our operations, and could impose substantial demands on management time.  Our systems may be vulnerable to damage or disruption caused by circumstances beyond our control, such as catastrophic events, power outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic break-ins, unauthorized access and cyber-attacks.  Currently, our information systems are protected with backup systems, including physical and software safeguards located outside of our offices for protection purposes, and a cold site on critical systems to recover information technology operations; furthermore, we undertake other steps to secure our systems and electronic information from exogenous events.  These safety components reduce the risk of disruptions, failures or security breaches of our information technology infrastructure and are reviewed periodically by external advisors.  Any such disruption, failure or security breach of our information technology infrastructure, including our back-up systems, could have a negative impact on our operations.

 

Our insurance policies may not provide sufficient coverage against all liabilities.

 

While we seek to insure all reasonable risks, our insurance policies may not 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.

 

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Mexico’s environmental legislation could limit the growth of some of our airports.

 

According to the Mexican Ministry of the Environment and Natural Resources (Secretaría de Medio Ambiente y Recursos Naturales) norm NOM-SEMARNAT-059-2010, mangroves are protected species, and it is a criminal offense to remove such species.  Within the grounds of our Acapulco and Zihuatanejo airports we have extended areas with mangroves, which may limit our potential to expand such airports.

 

The Mexican National Water Commission (Comisión Nacional del Agua) has the authority to restrict water use in some of our airports due to water shortage in the north of Mexico, and has enhanced its mechanisms to verify compliance with the fiscal, administrative and technical requirements regarding the extraction and discharge of water.  Concessionaires who fail to comply with any of these requirements may be subject to administrative procedures which may result in the cancellation of water extraction rights and /or the imposition of significant fines.

 

Furthermore, the General Law on Climate Change (Ley General de Cambio Climático) was adopted and published in the Official Gazette of the Federation on June 6, 2012, which, among other objectives:  (i) regulates greenhouse gases and emissions so as to stabilize their concentrations in the atmosphere to a point where they will not increase climate change, in consideration of the goals set forth by the UN Framework Convention on Climate Change; (ii) promotes the education, research, development and technology transfer, innovation and promotion with respect to adapting to and mitigating climate change; and (iii) promotes the transition to a competitive, sustainable and low-carbon economy.  The regulations regarding climate change in effect or their enforcement may have a material adverse effect on our business, results of operations, prospects and financial condition.

 

To ensure continuous compliance with all environmental requirements, including those related to water use, we maintain an ISO 14001 certification and has voluntarily registered all its airports to the Environmental Audit Program of the Federal Attorney for Environmental Protection (Procuraduría Federal de Protección al Ambiente).  However, compliance with current or 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 the Mexican Airport Law, 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 ICAO’s security guidelines requires checked baggage on all international commercial flights and domestic commercial flights to undergo a comprehensive screening process for the detection of explosives.  In some countries, such as the United States, the federal government (in the case of the United States, through the Transportation Security Administration (“TSA”)) is responsible for screening checked baggage.  On May 1, 2014 and July 1, 2016, the Mexican Bureau of Civil Aviation published mandatory circulars CO SA-17.2/10 R3 and CO SA-17.9/16, respectively, which require that all airlines screen checked baggage and that all airports have screening equipment that complies with specified guidelines.  In 2015, we completed the purchase and installation of screening equipment in all of our airports to facilitate compliance with the baggage screening guidelines and our subsidiary, Servicios Complementarios del Centro Norte, S.A. de C.V., has operated the checked baggage screening system since March 1, 2012.  Although Mexican law holds airlines liable for screening checked baggage, the purchase, installation and operation of equipment could increase our exposure to liability as a result of our involvement in the screening process.

 

We are exposed to risks related to handling cargo.

 

The air cargo system is a complex, multi-faceted network that handles a vast amount of freight, packages and mail carried aboard passenger and all-cargo aircraft.  The air cargo system is vulnerable to several security threats, including:  potential plots to place explosives aboard aircraft; illegal shipments of hazardous materials; criminal activities, such as smuggling and theft; and potential hijackings and sabotage by persons with access to aircraft.  Several procedural and technology initiatives to enhance air cargo security and detect terrorist and criminal threats have been put in place, such as an x-ray machine certified by the TSA in the bonded OMA Carga area at the Monterrey airport, or are under consideration.

 

We may be subject to risks related to the integrity of our facilities or the reduction of our cargo traffic volume.  The occurrence of such events could adversely affect our business, results of operations, prospects and financial condition.

 

Enforcing civil liabilities against us or our directors, officers and controlling persons may be difficult.

 

We are organized under the laws of Mexico, and all of our directors, officers and controlling persons reside in Mexico.  In addition, a substantial portion of our assets and the assets of our directors, officers and controlling persons are located in Mexico.  As a

 

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

 

Risks Related to Our Shareholders

 

Controladora de Operaciones de Infraestructura, S.A. de C.V. (“CONOISA”), and SETA control our management, and their interests may differ from those of other shareholders.

 

As of the date of this report, CONOISA (successor in interest to Aeroinvest, S.A. de C.V. (“Aeroinvest”)) is the beneficial owner of 14.3% of our total capital stock.  CONOISA directly owns Series B shares representing 1.9% of our total capital stock and Series A shares of SETA representing 99.99% of its capital stock (0.01% owned by Empresas ICA).  SETA in turn owns Series BB shares that represent 12.4% of our capital stock.  SETA and CONOISA are each subsidiaries of Empresas ICA, S.A.B. de C.V. (“Empresas ICA”).  Pursuant to our bylaws, SETA (as holder of our Series BB shares) has the right to present to our 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 shareholders (including the payment of dividends, the amendment of our bylaws, investment projects 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.  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, all of its special rights will remain in place.  The rights and obligations of SETA in our management are explained in “Item 7. Major Shareholders and Related-Party Transactions—Major Shareholders.”

 

On September 15, 2015, we, at the request of SETA, converted 9,034,000 of our Series BB shares held by SETA to Series B shares.  On October 6, 2016 Aéroports de Paris Management, S.A. (“ADPM”) informed its decision to exercise its option to exchange its 25.5% shareholding in SETA for the Series B shares held by SETA, representing 4.3% of our total capital stock, and its intention to sell the Series B shares through a private placement outside Mexico (see “Item 5. Operating and Financial Review and Prospects—Recent Developments—Change in Ownership of SETA”).

 

The termination of the Technical Assistance Agreement would also trigger the conversion of SETA’s remaining Series BB shares into Series B shares, resulting in the termination of all of SETA’s special rights.  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 was extended for a term that ends on December 31, 2020 and will be automatically extended for successive one-year periods unless any party thereto elects otherwise, so long as CONOISA retains at least 12.75% of SETA’s capital.  For further information on the Technical Assistance Agreement, see “Item 7. Major Shareholders and Related-Party Transactions—Related-Party Transactions—Arrangements Relating to SETA.”

 

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, appoint and remove certain directors and officers as holder of Series BB shares, which 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 shareholder 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.

 

The interests of SETA and CONOISA may differ from those of our other shareholders and can be contrary to the preferences and expectations of our other shareholders.  SETA and CONOISA and the officers nominated or appointed by them may not exercise their rights in ways that favor the interests of our other shareholders.  Furthermore, as a result of our board’s decision-making process, officers appointed by SETA and CONOISA may influence decisions taken by the rest of our officers.

 

If SETA, one of our principal shareholders, should sell or otherwise transfer all or a portion of our Series BB shares that it holds, our operations could be adversely affected.

 

SETA currently exercises a substantial influence over our management, as described above.  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, 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

 

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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.

 

Future sales of shares by our shareholders may depress the price of our Series B shares and ADSs.

 

During the past years, a number of our Series B shares have been granted as collateral under certain financing and derivatives transactions entered into by Aeroinvest (currently CONOISA), or an affiliate, with various creditors.  During the first quarter of 2016, the creditors in certain of such transactions either exercised their right to sell or foreclosed on the shares granted as collateral. As a result, Aeroinvest’s (currently CONOISA’s) holding of Series B shares decreased to 1.9% of our outstanding Series B shares.

 

Any future pledge and subsequent sale of our shares may lead to a decline in the price of our Series B shares and ADSs.  The price of our Series B shares and ADSs may not recover from any such decline in value.

 

Risks Related to Mexico

 

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

 

In 2014, 2015 and 2016, domestic terminal passengers have represented approximately 86.4%, 86.0% and 87.3%, respectively, of the passenger traffic volume in our airports.  In addition, all of our assets are located, and all of our operations are conducted, in Mexico.  Accordingly, our financial conditions and results of operations are substantially dependent on economic conditions prevailing from time to time in Mexico.  As a result, our business, financial condition and results of operations could be adversely affected by any deterioration of the general condition of the Mexican economy, by a devaluation of the peso, by inflation and high interest rates in Mexico or by other negative political, social and economic developments in Mexico.

 

In the past, Mexico has experienced economic crises, caused by internal and external factors, characterized by exchange-rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates.

 

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 Mexico.  This crisis adversely impacted our business. In 2014, GDP increased by 2.6%, and inflation was 4.1%.  In 2015, GDP increased by 2.5%, and inflation was 2.1%. In 2016, GDP increased by 2.3%, and inflation was 3.4%.

 

During 2016, average reference interest rates in Mexico increased by 254 basis points compared to 2015.  The annualized interest rates on 28-day short-term Mexican treasury bills, or Cetes (Certificados de la Tesorería de la Federación), averaged approximately 4.2%, 3.8%, 3.0%, 3.0% and 4.2% for 2012, 2013, 2014 2015 and 2016, respectively.  To the extent that we incur peso-denominated debt in the future, it could be at high interest rates.

 

If inflation or interest rates increase significantly or if the Mexican economy is otherwise further adversely impacted, our business, financial condition, prospects and results of operations could be materially and adversely affected because, among other things, demand for transportation services may decrease.  Similar events may occur, and the recurrence of such events may adversely affect our business, results of operations, prospects and financial condition.

 

Political conditions in Mexico could materially and adversely affect Mexican economic policy and, in turn, our operations.

 

National presidential and legislative elections are set to take place in 2018, and could result in political and economic instability.  Multiparty rule is still relatively new in Mexico, and new legislative initiatives could result in economic or political conditions that could materially and adversely affect our business.

 

Changes in laws, public policies or regulations, may affect the political and economic environment in Mexico, and consequently they may contribute to economic uncertainty and to heightened volatility of the Mexican capital markets and in securities issued by Mexican companies.

 

In 2013, Mexico’s Congress passed an energy reform plan and a comprehensive tax reform plan.  Any changes in the Mexican economy or the Mexican government’s economic policies may have a negative effect on our business, financial condition and results of operations.  Political or social developments in Mexico, over which we have no control, may have an adverse effect on Mexico’s economic situation and on our business, results of operations, financial condition and ability to repay our indebtedness.  Finally, drug-related violence and crime may not be contained, which could have a material adverse effect on our business, results of operations, prospects and financial condition.

 

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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 December 31, 2014 to December 31, 2015, the peso depreciated by approximately 16.6%, from Ps.14.75 per U.S.$1.00 on December 31, 2014, to Ps.17.20 per U.S.$1.00 on December 31, 2015. From December 31, 2015 to December 31, 2016, the peso depreciated by approximately 19.9%, from Ps.17.20 per U.S.$1.00 on December 31, 2015, to Ps.20.62 per U.S.$1.00 on December 31, 2016.  The peso appreciated, reaching Ps.18.53 per U.S.$1.00 on April 14, 2017.

 

A depreciation of the peso affects our business in the following ways:  (i) international passengers and international flights pay tariffs reported in U.S. dollars, while these tariffs are generally collected in Mexican pesos up to 60 days following the date of each flight; thus, any depreciation of the Mexican peso has a positive impact on our results from operations, which are reported in Mexican pesos; and (ii) we have financial liabilities denominated in U.S. dollars; a depreciation in the Mexican peso results in higher debt balances when converted to Mexican pesos thus causing foreign exchange losses.  As of December 31, 2016, we had U.S.$14.5 million of liabilities denominated in U.S. dollars, representing 6.3% of our debt.

 

Moreover, the depreciation of the peso also affects 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.

 

In recent years, the Mexican government has implemented changes to the tax laws applicable to Mexican companies, including us.  The terms of our concessions do not exempt us from any changes to the Mexican tax laws.  Should the Mexican government implement changes to the tax laws that result in our having significantly higher income 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 Business Flat Tax (Impuesto Empresarial a Tasa Única), which was published on October 1, 2007 and repealed in 2013, adversely impacted our results of operations in each of the years from 2007 through 2013.  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 business, results of operations, prospects and financial condition.

 

On November 1, 2013, Mexico’s Congress approved several tax reforms that became effective at the beginning of 2014.  These reforms included changes to the Income Tax Law (Ley del Impuesto Sobre la Renta), Value Added Tax Law (Ley del Impuesto al Valor Agregado) and the Tax Code (Código Fiscal de la Federación).  The tax reforms also repealed the Business Flat Tax Law and the Tax on Cash Deposits Law (Ley del Impuesto a los Depósitos en Efectivo).

 

The main result of the tax reforms was the elimination of a previously recognized deferred Business Flat Tax liability and the recognition of deferred asset taxes based only on the Corporate Income Tax at a number of our airports representing Ps.339,325 thousand.  We cannot predict the impact that future federal tax legislation reforms in Mexico may have on our financial condition and results of operations.

 

The Mexican Government has announced that it will gradually remove price controls on gasoline and diesel over the course of 2017 and 2018, as part of the liberalization of fuel prices in Mexico. On December 27, 2016, the Ministry of Finance and Public Credit announced an increase, effective January 1, 2017, in the maximum gasoline and diesel prices to be applied in certain regions of Mexico, which caused an increase of gasoline prices of up to 20% in those areas. The removal of price controls and the resulting price increases have led to widespread protests across Mexico. We cannot predict the effect of changes in gasoline and diesel prices, and any related political and social unrest, on the Mexican economy or whether the Mexican Government may alter its strategy for price liberalization in the future.

 

Economic developments in other countries may affect us.

 

The market value of securities of Mexican companies may be, to varying degrees, affected by economic and market conditions in other countries.  Although economic conditions in these countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers.  In past years, prices of both Mexican debt and equity securities have been adversely affected by the sharp drop in Asian securities markets and the economic crises in Argentina, Brazil, Greece, Italy, Portugal, Russia, Spain, Venezuela and the United Arab Emirates.

 

In addition, economic conditions in Mexico 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.  Furthermore, on November 8, 2016, presidential elections took place in the United States.  The new president has stated the intention to adopt measures

 

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and policies directed to protect American producers, including the re-negotiation of the terms of NAFTA, and these announcements have caused high volatility in the financial markets. We cannot assure you that any policies adopted by the new U.S. administration will not have an impact in the market value of our securities, or 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.

 

Minority shareholders may be less able to enforce their rights against us, our directors or our controlling shareholders in Mexico.

 

Under Mexican law, the protections afforded to minority shareholders are different from those afforded to minority shareholders in the United States.  For example, because provisions concerning fiduciary duties of directors have only recently been incorporated into the Mexican Securities Law, it may be difficult for minority shareholders to bring an action against directors for breach of these duties and achieve the same results as in most jurisdictions in the United States.  Procedures for class-action lawsuits were incorporated into Mexican law and became effective in March 2012.  However, these rules and procedures are different and more limited than those in place in the United States.  Therefore, it may be more difficult for minority shareholders to enforce their rights against us, our directors or our controlling shareholders.

 

Mexican law and our bylaws restrict the ability of non-Mexican shareholders to invoke the protection of their governments with respect to their rights as shareholders.

 

As required by Mexican law, our bylaws provide that non-Mexican shareholders shall be considered as Mexicans in respect of their ownership interests in the Company and shall be deemed to have agreed not to invoke the protection of their governments in certain circumstances.  Under this provision, a non-Mexican shareholder is deemed to have agreed not to invoke the protection of his own government by asking such government to interpose a diplomatic claim against the Mexican government with respect to the shareholder’s rights as a shareholder, but is not deemed to have waived any other rights it may have, including any rights under the U.S. securities laws, with respect to its investment in the Company.  If you invoke such governmental protection in violation of this agreement, your shares could be forfeited to the Mexican government.

 

We are subject to different corporate disclosure 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.

 

Risks Related to Our ADSs

 

You may not be entitled to participate in future preemptive rights offerings.

 

Under Mexican law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in the Company.  Rights to purchase shares in these circumstances are known as preemptive rights.  We may not legally be permitted to allow holders of ADSs in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the SEC, with respect to that future issuance of shares, or the offering qualifies for an exemption from the registration requirements of the Securities Act of 1933, as amended.

 

At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether we will file such a registration statement.

 

We may not file a registration statement with the SEC in the future to allow holders of ADSs or shares in the United States to participate in a preemptive rights offering.  In addition, under current Mexican law, sales by the depository of preemptive rights and distribution of the proceeds from such sales to you, the ADS holders, is not possible.  As a result, your equity interest in the Company may be diluted proportionately.

 

Holders of ADSs are not entitled to attend shareholders’ meetings, and they may only vote through the depositary.

 

Under Mexican law, a shareholder is required to deposit its shares with the Secretary of the Company, S.D. Indeval Institución para el Depósito de Valores, S.A. de C.V. (“Indeval”), a Mexican or foreign credit institution or a brokerage house in order to attend a shareholders’ meeting.  A holder of ADSs will not be able to meet this requirement, and accordingly is not entitled to attend shareholders’ meetings.  A holder of ADSs is entitled to instruct the depositary as to how to vote the shares represented by

 

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ADSs, in accordance with the procedures provided for in the deposit agreement, but a holder of ADSs will not be able to vote its shares directly at a shareholders’ meeting or to appoint a proxy to do so.

 

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 SEC 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 comprehensive 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,

 

·                                          changes in our regulatory environment,

 

·                                          statements about our future economic performance or that of Mexico, and

 

·                                          statements of assumptions underlying such statements.

 

Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

 

Forward-looking statements involve inherent risks and uncertainties.  We caution you that a number of important factors could cause actual results to differ materially from the projections, plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements.  These factors, some of which are discussed above under “Risk Factors,” include material changes in the performance or terms of our concessions, developments in legal proceedings, economic and political conditions and government policies in Mexico or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition.  We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements.

 

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.

 

Item 4.           Information on the Company

 

HISTORY AND DEVELOPMENT OF THE COMPANY

 

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., which we refer to by the acronym “GACN”, is a corporation (sociedad anónima bursátil de capital variable) organized under the laws of Mexico.  We were incorporated in 1998 as part of the Mexican government’s program for the opening of Mexico’s airports to private investment.  The duration of our corporate existence is indefinite.  We are a holding company and conduct substantially all of our operations through our subsidiaries.  The terms “GACN”, “the Company”, “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 Torre Latitud, L501, Piso 5, Av. Lázaro Cárdenas 2225, Col. Valle Oriente, San Pedro Garza García, Nuevo León, Mexico, telephone +52.81.8625.4300.  Our U.S. agent is Puglisi & Associates.  Our U.S. agent’s address is 850 Library Avenue, Suite 204, Newark, Delaware 19711.

 

Investment by SETA and Its Affiliates

 

In 2000, as part of the first stage of our privatization, the Mexican government sold Series BB shares to SETA in a public bidding process.  Pursuant to this transaction, SETA paid the Mexican government a total of Ps.864,055,578 (amount in nominal pesos, excluding interest) (U.S.$76.0 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 12.4% 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 (currently CONOISA), 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 exercised in September 2006); and

 

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·                                          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) (the “Participation Agreement”), 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. Major Shareholders and Related-Party Transactions.”

 

SETA’s current shareholders are:

 

·                                          CONOISA, which owns 99.9% of SETA (see “Item 5. Operating and Financial Review and Prospects—Recent Developments—Change in Ownership of SETA”).  CONOISA is a subsidiary of Empresas ICA.  CONOISA also directly owns Series B shares representing 1.9% of our total capital stock.  Based on data from the Mexican Chamber of the Construction Industry (Cámara Mexicana de la Industria de la Construcción) and the Mexican National Institute of Statistics and Geography, Empresas ICA, the parent of CONOISA, is the largest engineering, procurement and construction company in Mexico and the largest provider in Mexico of construction services to both public- and private-sector clients.

 

·                                          Empresas ICA, which owns 0.01% of SETA. Empresas ICA’s principal line of business is industrial, urban, and housing construction.  Empresas ICA has increased its participation in construction-related businesses both in Mexico and in foreign markets, such as infrastructure operations and mining services.  In addition, Empresas ICA is involved in the development and marketing of real estate, the construction, maintenance and operation of highways, social infrastructure and tunnels and in the management and operation of water supply systems and solid waste disposal systems.  Empresas ICA is listed on the Mexican Stock Exchange.

 

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 2016 amounted to approximately Ps.117,987 thousand.  This agreement is more fully described in “Item 7. Major Shareholders and Related-Party Transactions.”

 

Initial Public Offering

 

On November 29, 2006, a Mexican trust established by Nacional Financiera, S.N.C., or NAFIN (a Mexican national credit institution and development bank owned and controlled by the Mexican Government), acting pursuant to the instructions of the Ministry of Communications and Transportation, sold 48.02% of our outstanding capital stock through a global public offering of shares in the form of ADSs and Series B shares, concurrently in the United States and Mexico.  The net proceeds from the sale of the shares totaled approximately U.S.$432.2 million and were paid to the Mexican government.