Grupo Aeroportuario del Pacifico SAB de CV (PAC) 2015 Q2 法說會逐字稿

Good morning. My name is [Alsa Bucket], and I will be your conference operator. At this time, I would like to welcome everyone to the GAP 2015 earnings conference call. (Operator Instructions)

Thank you. I will now turn the conference call over to Maria Barona of i-advize Corporate Communications. Ma'am, please go ahead.

Thank you and welcome to Grupo Aeroportuario del Pacifico's second-quarter conference call. Today from the Company we have Mr. Fernando Bosque, Chief Executive Officer; Mr. Saul Villarreal, Chief Financial Officer; as well as Ms. Paulina Sanchez, Investor Relations Manager.

Please be advised that any forward-looking statements may be made during this call. These do not account for future economic circumstances, industry conditions, the Company's future performance or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report issued last week.

At this point, I would like to turn the call over to Mr. Bosque for his opening remarks. Mr. Bosque, please begin, sir.

Good day to our audience today, and thank you for your participation in our quarterly call. GAP is certainly glad to have this opportunity to address the market today and discuss our various (inaudible) that we believe is one of the most exciting areas for the Company, as well as the Mexican aviation industry.

That said, let me review why we believe that the Mexican air segment of today is one of the growth potential, and GAAP is positioned perfectly to benefit from this boom.

The domestic market in Mexico has seen a significant boost during the first half of 2015. Several factors have contributed to this increase. The most important one being a strong US dollar, which make domestic destination more attractive and affordable for Mexican tourism.

On the other hand, the recent decline in global oil prices has led to a significant reduction in airline operation growth, causing lower traffic ticket prices as well as higher deals. Domestic carriers have also played an important role in this development as every major line has announced that they are expected to receive new aircraft during 2015, a year in which we are expecting 10.5% growth in the number of available seats.

It is also worth mentioning that industrial growth has driven a percentage of traffic numbers up at several of GAP airports. For example, the Bajio [Predione] as you well know, as well as the Aguascalientes Tijuana hotel airports comprise the most significant cluster of industrial development in the country, a factor that explains the 20% increase in passenger traffic at those airports.

The government is also contributing their part with progress to the bilateral agreement with the US and Canada. This new agreement would be fully enforced on January 2016.

The changes stemming from the new agreement is fundamental for GAP's long-term growth, as well as of the lines. The bilateral agreement would mean that the market will determine the number of competitors in these regions. Thus, opening up competition is significant, and this will generate more travel, competitive pricing, high (inaudible) retention for airlines seeking to grow in the markets, also creating culture agreements among the airlines. All of these benefiting the passenger, the industry and as a result also benefiting GAP. This is what we have been preparing as we continue to prepare for with the airport expansion and renovation, which I will go into in a few minutes.

In terms of traffic review, for the second quarter of 2015, GAP experienced an increase of 129,000 total passengers, mainly driven by higher traffic in Guadalajara, Puerto Vallarta and Guanajuato in that order, which generally represents [77%] of the increase. In terms of domestic passenger traffic, this figure increased by 353,000 passengers. When international passenger traffic grows by 145,000, representing an overall increase of around 7% compared to the same period of the previous year.

Montego Bay, on the other hand, is [potentially] an increase of 5% passenger traffic for the quarter, representing 48,000 additional passengers.

It is worth mentioning that during the quarter 10 new routes opened benefiting GAP's network. Few -- five new services from Guadalajara: Mexicali via Aeromexico, Los Angeles via American Airlines, Dallas, Fort Worth, Houston and Guatemala by Volaris. Tijuana signs a new connection to Durango with Volaris. In Los Cabos they were two new routes: Baltimore by Southwest and Houston by Spirit.

And finally, Southwest began to fly from Orange County California to Puerto Vallarta. As you can see, there was a lot of activity across quite a few of our airports during this quarter with new client announcement for the rest of the year.

The international market through our network is expected to also benefit from several new routes during the second half of the year, the most important ones being Guadalajara to New York and San Jose, Costa Rica by Volaris. On the other hand, our tourist destinations are also seeing significant new development with the following new services, including Puerto Vallarta from Orange County by Alaska Airlines. Southwest will continue its expansion in Puerto Vallarta with new services from Houston and Denver. And Los Cabos, we can now fly from Houston by Southwest, as well as a new service from Orange County via Alaska Airlines.

In terms of the individual development at the airport, I wish to highlight some of the developments. Starting with Guadalajara, the strong increase in passenger traffic of almost 13% experiences during the second quarter of 2015 reflect the consolidation process of the new routes in the domestic and international markets that began during this quarter. With the addition of seven new routes in 2015, the airport has reached an all-time high of 46 nonstop destinations, becoming one of the most important transportation hubs in Mexico.

Moving on to Puerto Vallarta, double-digit growth at this airport continued during the second quarter as a result of a growing number of destinations and progresses. The Vallarta to (inaudible) destination is experiencing a growth of 140,000 new available seats, which represent an increase of 16% for the quarter.

In the Bajio region, difficulty) both Aguascalientes and Guanajuato continued to demonstrate the most solid percentage point increase for the Company. As I just discussed, it was the significant penetration of the new industrial and commercial development in the region that is mainly impacting passenger traffic at this airport in a positive manner, and we expect these to continue through the rest of the year.

And finally in Los Cabos, we have seen a stabilization in the negative 9% during the first half of the year in terms of the international passenger, which is an amazing recovery since the hurricane devastated this city last September. Lodging is already back to 86%. And when tourist levels are not what they are, they continue to expand every month followed by hotel and airline promotion, advertising, and the Los Cabos is back. That is the slogans that are targeting consumer domestically and abroad.

Additionally, the Los Cabos hotel association has announced 100,000 new hotel rooms in the coming months in hope of raising the recovery of hotel capacity to up to 95% of hurricane capacity by the end of the year.

And let's not forget Tijuana where traffic figures look very positive, but in June there was an almost 14% growth in passenger traffic, and for the second quarter of the year, December rose 6% or 66,000 new passengers.

It is important to mention that this effort has benefited from the peso/dollar exchange rate since airplane ticket prices are more attractive from Tijuana then from Southern California airports. And so the financial outreach is settled to [negotiate] September, December of this year. This will be a boost that we look forward to seeing in 2016.

In terms of the commercial highlights, duty-free in Puerto Vallarta experienced an impressive performance with an almost 30% increase in (technical difficulty). This was a result of focusing (technical difficulty).

Excuse me, ladies and gentlemen.

What?

He's on the line, Fernando. You can continue.

I will restart with the duty free. Duty free in Puerto Vallarta experienced an impressive --

Are we having issues with the call? (multiple speakers)

-- performance with an almost 30% increase during the second quarter of the year. This was the result or focus in effort during 2014 (technical difficulty)

Excuse me, ladies and gentlemen, and thank you for your patience in holding. Please hold while we reconnect our speaker line.

Excuse me, ladies and gentlemen, and thank you for you patience in holding. We now have our speakers back in conference. Speakers, please proceed.

I'm not sure at what point was the call, but I will try to restart with our VIP lounge level. That continued growing in terms of usage. During the second quarter, GAP served 56,000 passengers, an increase of 29% compared to 2014. For the full year, we are expecting to reach a total of 247,000 passengers served through the network.

This is especially interesting since only two new lounges opened during the last two months in the Mexican operation, which is a total of seven lounges. Therefore, their culture of passenger use in the VIP services is evolving successfully.

During the third quarter, we expect to see an effect of the opening of a new launch of our West Aguascalientes, as well as in Guanajuato during the fourth quarter. We are now also recognizing the effect of certain leases for VIP services at Montego Bay, generating more than 51% additional revenue for the Company.

At Montego Bay airport, I also want to mention that we have two lounges currently operating as well, and for 2014 we'll receive 211,000 guests. In advertising now both digital and traditionally (inaudible) in two of our Mexican airports and increased 19% compared to second-quarter 2014. We expect to maintain this double-digit growth for the entire 2015.

Additionally we are developing a new revenue model from a client, our expectation at Montego Bay as well.

With regard to our markets, our (inaudible) of convenience stores increased sales by 137% as we reached 15 stores at seven airports compared to nine stores during 2014. We are expecting at the end of the year 19 aeromarkets: two more in Guadalajara, one more in Hermosillo and Los Cabos airports.

We are making a special [airport] to improve both the quality and profitability of the ground transportation systems. At Guadalajara, we have adjusted our parking rates in order to be more competitive. The effect of this change will materialize during the second half of 2015.

We are also employing new strategies to promote the use of car rental services with better contracts and better customer service locations. Thereby, (inaudible) has to increase by 24% in growth in this unit during the second quarter and 37% considering additional contracts for Montego Bay.

In terms of CapEx, we continue preparing for the expansion of some terminal buildings, particularly in terms of looking towers increasing capacity as well as comfort levels and expanding commercial areas in Guadalajara through 2016/2017; Aguascalientes in 2016; Tijuana 2017; and Hermosillo during 2016; Puerto Vallarta in the current year; and Los Cabos through 2015 to 2016.

Additionally at the end of the year, the cross-border facility of the Tijuana airport will be integrated. For the decade, this will be one of the most significant airport projects undertaken. This facility will provide an additional element of competition for attracting airlines to several domestic and international services to and from the Tijuana airport.

We continue to make important progress in terms of the facilities status pertaining to the development of hotels, office and commercial areas for 2017 in both the Guadalajara and Tijuana airports. These are very exciting vendors for us, and they have proven evidence of our commitment to maximize infrastructure in profitable ways that are also related to the airport industry. We will keep you posted as these projects develop.

With regard to the legal proceeding with Grupo Mexico, we must mention that it was a favorable ruling for GAP, and that will not change. We do not yet have the final resolution from the Supreme Court and are now expecting to receive the final resolution at the end of August. However, we must make clear as a result of the resolution that GAP's bylaws were upheld and continue to be enforced. As a result, we expect that Grupo Mexico will have to sell the excess of shares once that resolution goes into effect, which will in time favorable (inaudible) levels for GAP.

Finally, I just want to mention before I close that the consolidation of Montego Bay since January 1 into the GAP's results is producing very quickly result during this quarter and were stronger than we expected. Without a doubt, the acquisition of these assets was a priority development and one that generates value for GAP and its holders via its important important contribution to financial results for the Company, as well as the strong traffic figure in this airport.

Thank you so much for your attention. I hope I covered everything, but I look forward to your question later so that we can discuss in any other items I might not have covered.

I will now turn the call over to Saul for his part of the presentation.

Thank you, Fernando. Good morning, everyone. I will briefly review the financial highlights for the second quarter of 2015. Aeronautical revenues increased MXN423 million or 43% quarter over quarter, driven (inaudible) by the consolidation of the Montego Bay airport, which contributes MXN255 million. The remaining MXN158 million of the increase came from higher passenger traffic in Mexican airports in the adjustments to aeronautical tariffs corresponding to 2015.

In terms of non-aeronautical revenues, this increase MXN134 million or 38% during the second-quarter 2015 compared to second-quarter 2014. This increase also was driven by the consolidation of the Montego Bay airport, which adds non-aeronautical revenues of MXN82 million.

Revenue from the business lines operated by two parties grew [MXN285] million or 17%. These revenues were derived from (inaudible) companies timeshares for the beverage and duty-free stores, which (inaudible) contributed an increase of MXN34 million or almost 24%.

Revenues from business lines (inaudible) directly operated by this Company increased MXN26 million or 25%, mainly due to revenue from convenience stores advertising and VIP lounges. Services for improvements to concession assets increased 222% to MXN172 million. Year 2015 marks the beginning of the new master development plan for the five-year period ending in 2019. The Montego Bay airport did not perform any improvements to concession assets during this quarter.

It is important to know that aeronautical revenues represent 65% of total revenues. Non-aeronautical 22% and improvements to concession assets 12% during the second quarter of 2015.

In terms of our total operating costs, these increased MXN209 million or 55% compared to second-quarter 2014, mainly due to consolidation of the Montego Bay airport which had operating expenses of MXN186 million in line with our expectations.

In our Mexican airport, the cost of services increased 11% due to an increase of 17% in other operating expenses related to professional services fees and supplies for convenience stores.

We also registered a 22% increase in [millions across] mostly conduct on checked baggage inspection equipment platforms and airport runways. And 8% increase in employee costs mainly from severance payments, as well as MXN3 million increase in other hand, safety, security and insurance costs stemming from the contracting of additional third-party personnel and higher costs of services.

As a result, EBITDA was MXN1,321,000 in second quarter of 2015, which increased 45% compared to second-quarter 2014, mainly due to consolidation of Montego Bay airport contributing with MXN223 million. Our EBITDA margin, excluding the effects of IFRIC 12, will allow us 69.9% for this quarter. The EBITDA margin of Montego Bay was 64% since we registered additional revenues for [MXN20] million while operating expenses were MXN10 million lower.

Also, the position of the peso versus the US dollar brought a benefit in the change straight that contributed to a higher profitability with the consolidation of Montego Bay's results with Mexican airports.

Financial expense for the quarter increased by MXN78 million due to a MXN3 million expense from the Montego Bay airport. For Mexican airports, interest expense paid for capital investment was MXN31 million. Interest expense paid for the acquisition of DCA was MXN9 million, which was partially offset by an increase in interest income of MXN19 million. However, we have a foreign exchange loss of MXN47 million due to the peso depreciation.

Lastly, net income in second-quarter 2015 increased MXN190 million or 44% compared to second-quarter 2014. Earnings before income taxes increased MXN269 million or 37% in the Montego Bay airport contributed with MXN107 million.

Income taxes increased [MXN116] million in the second-quarter 2015, and the Montego Bay airport contributed with MXN39 million, while Mexican airports had a tax increase of MXN43 million and deferred tax spend is up MXN34 million.

Regarding the recovery of the Los Cabos international Airport, we are glad to mention that both terminals are fully operating. Nevertheless, we're still working on the final repairs of the damaged structure.

Lastly, according to the results of second-quarter 2015 and the strong performance of GAP international, we would like to present the new guidance figures that we expect for the end of this year as per the press release issued this morning.

Expected traffic is now 23% to 25% for the full year. Total revenues will be 38% to 40%. EBITDA is now 35% to 37% of increase. EBITDA margins will be at between 68% and 69% and total CapEx at MXN1,540,000.

These are just expectations, and we will update them as we deem it necessary. And with that, I conclude my comments and ask the operator to please open the floor for your questions.

(Operator Instructions) Jean Bruny, BBVA.

I just have a couple of questions for you. First one, you mentioned very clearly what happened with the Supreme Court decision and that you're awaiting the final resolution by the end of the month of August. I just would like to know if you've been speaking with Grupo Mexico directly regarding its stake or something that is still pending?

Second question is on the San Diego airport. You mentioned in time that you may be receiving a down payment for the airport by the end of August. Just would like to know you have any figures in mind and if you can wait some impact from the third-quarter results.

And then lastly, the question was on the other airports. Like two months ago, [ASA] well, it was mentioned in the press that ASA may be divesting some of the airports or privatizing some of the airports. Just would like to know if you have some vision or some view on this. If you have been speaking with them or if you may be interested in some of the airport that maybe is privatized. Thank you very much.

Good morning, Jean. I did not understand very well the second question, but I will start with the last one. The only news that was happier was in the newspaper. There are not any evidence issued by the Secretary of the Communications for us about the rest of any of the airport that they have in [ASA Negu]. Of course, we are interested to know any opportunity and to do our projection and to understand that could be equity to our Company.

In the related to first question related to Grupo Mexico, the answer of your question is really no. We are not in conversation with Grupo Mexico. We are expecting to receive the final resolution to understand better how would be the direction that we have to follow I think as the resolution will have to be followed by more from the group of Mexico. But we are expecting I think it's at the end of August we will know more about that. But we would put all information in our press releases or any other (inaudible) news.

And I think as the you are asking related to Montego Bay about how is a part of the consolidation system, our consolidation I confirm that was mentioned in my presentation that is 1 of January. So all the figures, all the business, done during half of the year now is incorporated to our financial statement.

If you're asking about any kind of a dissolution of the funds to the Company, I think it's all the effect is in the consolidation in the balance sheet and in the P&L.

Actually it was a question on the Santiago to Chile airport that you have your I think the completion is ending by September, and you may be receiving some down payments from that? I just want to know if you have some figures.

Yes, because Santiago to Chile is a minority participation less than 15%. We are expecting the end of the conception period that will be at the end of September. And after that, there are at one year guarantee. So the Company will fly Santiago to Chile, SCL, will continue to respond to any of the responsibilities or guarantees that could be -- appear.

Our understanding after the last meeting is there will be distribution of this part of the cash available that will happen in October. So in the last quarter of the year, GAP will present in our consolidated financials this impact.

Okay. Thank you very much.

Marco Montanez, Vector.

Congratulations on the results, and thank you for the call. Two questions if I may. And according to the most recent guidance for 2015, the expected EBITDA margin is in the range between 68% and 69%, as you said, which is lower than the (inaudible) during the first half of this year, which was slightly above 70%.

The question is, what are the the drivers for this type of accretion, the emerging for the second part of this year? And the second one, what are your expectations for the effective tax rate for the rest of the year? Thank you very much in advance.

Okay. The EBITDA margin we're expecting at 68% or 69% because most of the expenses of (inaudible) in the airports are considered for the second half of the year. So, the revenue is going to be in line with what we are expecting that because of maintenance and several another expenses will be in the second half. Therefore, the EBITDA margin will be a little bit lower than we have now, a little bit lower.

And for your second question about the tax rate, it's very important to understand that GAP in Mexico airports have a corporate tax of 30%. This is a cash tax that we paid for the authority.

In Jamaica we have the 25% of tax grade, and however, our mix of taxes between Jamaica and Mexico, we have the deferred tax rate. So this is a little different because it's a temporal difference between the fiscal value and the accounting values. Therefore, we have a little adjustment lower than 30% of tax rate.

Okay. So thank you very much and very helpful.

You're welcome.

[Sarah Datine], Bank of America.

Hi, this is Sarah. Fernando, Saul, thank you for the call. My question is on Montego Bay. When we see the data for this airport, we see that in 2014 the airports ended the year with an EBITDA margin around 38%, and now we see margins at 66%.

So my question is what you have done in the airport, which is to bring this huge increase increase in profitability. It is more on the revenue side, on the cost side, both sides. So if you could give us more color on the (inaudible) from Montego Bay.

Okay, let me tell you that the figures that we were expecting were lower than we have now with the model, financial model, which we used the purchase of these assets was a conservative scenario. Therefore, now we see that they're higher than we were expecting and our revenue that was higher that we'll be expecting some expenses will be postponed for the last half of the year.

In addition to this, the changed rate that we had used in the model was MXN14.5 per dollar. Now we saw an increase of MXN15.5 per dollar. Therefore, our results were higher that will be expecting at the beginning, and that's why we're changing the guidance for the last -- for the rest of the year.

Stephen Trent, Citibank.

This is actually Kevin Kazneca standing in for Stephen. Just kind of a follow-up question on Montego Bay, your last answer. So are you saying that in the second half of the year, we would expect the EBITDA margin to be way below what is now around like 66%, more close to that 38% because of the extra expenses?

Yes, we are expecting several maintenance in the second half that will be in this airport. That's why the EBITDA margin that we have in the first half of the year is higher than we are expecting, and they will be in the range of 59% and 60% of EBITDA margin.

Okay. Great. Thank you. Very helpful. And then one more question. What is your status on the Guadalajara airport hotel? I think there was some kind of legal action involved related to this project, and can you provide us any update or color on that?

Yes, there are an historical dispute between some of the -- all owners of the land and the authorities. That is something that was less affected three years ago in the construction projects that was temporarily suspended during two weeks.

But currently we are not looking any (inaudible) with that. We are now in the conversation with the authorities at the local level. The state and also federal. In order to obtain the increasing the lands to develop a second runway that could be in our master plan for 2022. So we are not looking that problem to immediate expansion of some of the buildings.

In our master plan, we have now in the latter stage of the project. (inaudible) will be delivered one section will be next August, and the second will be at the end of the year. With that, we will start the construction of and expansion of the domestic terminal, financial, the integration of the Terminal 2 and the Terminal 1 as a satellite. All this work we are not expecting to have any kind legal difficulties due to the construction.

All right. Great. Great color. Thank you very much.

Francisco Suarez, Scotiabank.

Congrats on the results. A follow-up question on Montego Bay. You mentioned that you expect further increases in SG&A as the year progresses, but just to clarify, you mentioned that you might be expecting an EBITDA margin of 59%, if that's correct?

Yes, that's correct. Between 59% and 60% at the end of the year.

That is great. So because that is considerably higher than expected. And a follow-up on that, do you still see potential savings in your operation in Montego Bay because one of the things that you have discussed is that your overall ability that ones you are taking control of the whole operation to unlock potential savings from that operation? I don't know if you have changed your views or we should be seeing this level of profitability going forward for the rest of the years, or do we have actually chances to improve that?

We are not looking at any difficulties to improve our operations of Montego Bay airport. The control was taken very easily in agreement with our partner, Vantage. The operator of this airport now is a Company with a different cost structure because at the end of the contract with the technical assistance also produced an extra use in the cost. So some of the items in the commercial will be improved. There are some contracts. It's expiring during the coming year in the third and fourth quarter, and that will permit to increase more this side of the revenue, the commercial revenues.

The answer is that they're increasing the projection of traffic. It could be now announced that in the newspaper that now we have a (inaudible) access to the West Coast of the state. Two flights from California from Los Angeles to Montego Bay by American Airlines is something that will be improved the number of passengers.

And also, three services per week from Cologne in Germany with (inaudible) also will provide us more traffic from European. So these elements will increase the total expectation in traffic, more revenue, and the reorganization of some of the commercial contracts also provides more expectations.

But, however, the important thing after the first conversation with the Minister of Tourism in Jamaica showing that it was yes approved more license to develop hotels. That means that these new hotels was not part of our analysis during the acquisition process, and also there are very good news related to the opening of a casino in (inaudible) gulf and out on the coast to develop up to 3,000 rooms in this area. So we are completely optimistic about our appreciation would be better than that it was initially planning.

Fantastic. Thank you for this answer. Congrats, again. Thank you.

(Operator Instructions) Bernardo Velez, GBM.

I was hoping you could give us more color on the guidance update and specifically to how much should we expect in terms of revenues and EBITDA for the Mexican concessions, and how should we attribute toward Montego Bay meaning? Do we assume the original guidance for the Mexican concessions?

Of course, our main value in the Company, of course, is the Mexican network. Our expectation is founded by the traffic that we expect in our guidance. The portion of the GAAP has to be in the range of instead to the 5% to 7% as you remember in our original guidance, now we are moving in the range of 8% to 9%. So that's only Mexican network.

So the original was 5% to 7%, and now we're talking 8% to 9%. So two points, more, and that is because I explained in my presentation. Mexico aeronautical sector is very dynamic. One thing is there, the implement of increasing the feeds capacity, but also is the strategy, the marketing strategy is following by their lines that now the ticket is putting in less pile-up than before. So that is originally because the load factor is growing a lot. So these two elements is putting more traffic, more revenue in the Mexican network.

And also out of the revenue, the aeronautical revenue in Mexico also is growing. It's a combination of a master plan approved last year, traffic increases, and also the inflection that currently at this first half of the year is not growing a lot that is putting more maximum tariff.

And in the commercial side, all the development that was referred in the last two years now also is showing how is the potential of the increase. When you combine Mexican network and add in Montego Bay, that is offering these new guidance. The guidance is very impressive, of course, but if you think about that we are adding more than 15% more with the new appreciation, and also because it's an appreciation that is taking 74.5%, that means that we are doing the consolidation of all the traffic, all the revenue, and only at the end in the bottom line, we are producing only by the participation of a Vantage in this small portion of the total fee works.

So how is our expectation that for the current year you have the guidance, and for the future for 2016, our expectation is very, very positive. The traffic is taking more volume and also more capacity in the entire system that provides for all the airports is an important increase. And that is the driver of the value of this Company.

Okay. Thanks a lot, Fernando. And if I can squeeze one more in? Does the technical assistance fee paid to your controlling shareholders also extends to your share in the EBITDA generated in Jamaica?

No, no, no. No, that is because the technical assistance, the contract is related only for the concessions that we have agreed with (inaudible) in the beginning. So the fee is only related to the EBITDA used, so developed in Mexico. Not only in Mexico, in the 12 airports of Mexico.

Okay. Thanks a lot, Fernando.

[Diego Suns], [MetLife].

Thanks for taking the question. Last year, when you completed the (inaudible) segment in the Latin market, the initial idea was to become a recurrent insurer. So I just want to know if you have any plans for the upcoming months to shoot something in Mexico?

Can you repeat it please, Diego?

We can't hear you well, I'm sorry.

Okay. No problem. So last year when the Company issued the bonds in the local market, the initial idea was to become a recurring insurer. So I just wanted to know if there are any specific plans for the coming months to do something in specific construction.

Okay, Diego, yes, I understand. It's that the plan was to cover the entire CapEx program for the five years using the debt. So in February, last February was issued MXN2.6 billion, and it was announced that the second tranche will be issued in November, October, November in the range of about MXN1 billion. And also we will continue in the next four years every year in the first quarter, and in the last quarter we will take from the market the portion that we need to continue with the CapEx program that was agreed with the government in December 2014.

But in addition to that Fernando mentioned, I will explain to you that for the acquisition of Montego Bay we don't have any time to issue a bond. It's only for capital expenditures in airports in Mexico. For the acquisition of Montego Bay, we already have a bridge loan that we will be replaced at the beginning of 2016. We are now all the negotiations with the institutional banks in order to have all set for the beginning of 2016.

Okay. Thanks. Just to clarify, the addition of MXN1 billion is to be issued in the next between October and November?

Yes, correct. The last quarter -- and it probably will be before December and it's only to raise money for -- the expansion for the CapEx. But currently we are in the last stage to put in the market the engineering project for Guadalajara and Tijuana and Hermosillo. That is a portion of the money that we will write from the market will be to start a payment of this project.

Fernando is referring to the hotels in these airports.

Okay. Perfect. All right. Thank you.

Okay. Thank you, Diego.

[Miguel Escobito], [GAF].

A few years ago, you declared a dividend which was subsequently confused in the value of the (inaudible) Mexico lawsuit. What has happened to that? We will need (inaudible) or not?

Yes, the resolution of that issue, of course, we will connect it to the resolution of the Supreme Court. One thing that we will obtain the writing resolution that will use that for all the legal procedures plus during the dispute, the negative dispute with Grupo Mexico.

One of that is related to the liquidity production agreed by the (inaudible) shareholders assembly in 2012. So our expectation there will be results during the coming year because now we have the main resolution in the Supreme Court that avoids all the argument that was put by Grupo Mexico over the years in favor to retain this dissolution.

Thank you, very much.

(Operator Instructions) Ricardo Alves, Morgan Stanley.

I have just one question specifically on Los Cabos. We understand the major refurbishment works were concluded in April or so, but the traffic continues to lag a lot the other airports. It lags Guadalajara, Puerto Vallarta, but even compared to Tijuana for example, Los Cabos traffic, for example, has been very weak. So the question is, when can we expect a meaningful pickup in Los Cabos?

Obviously, the September base of last year is very low because of the hurricane. But how is July and August looking like for Los Cabos because we just find it weird for traffic there to be going down in June and April and also made by 5% or so? So just a little bit of color on Los Cabos, thank you.

Yes, it is true that instead the airport facility was full in operation. We are indeed now involving some of the improvement in the commercial (inaudible) Terminal 1 in the domestic side. But in this time, the domestic is running. It is taking more than 5% increase over the previous year. However, the international shows how is the scenario that we have in the destination. Currently, there are only, as I mentioned in my presentation, 86% of the capacity that was previously after the Odile hurricane and the announcement of some of the hotel associations saying that they will be reopened or (inaudible) another 1,500 new rooms.

So the expectation is by the winter in October/November, the expectation is more than 90%, 95% probably of the previous capacity in hotel will be ready to receive the visitor.

In our side in the aeronautical side, I mentioned that they are not really reduction in the services that were scheduled by the airlines. The question is the load factor was reduced because there are these lack of capacity, but they are ready, all their airlines, expecting that for the winter we'll have more demand because there will be more hotels.

So we are not concerned. The performance, the commercial and aeronautical and financial performance of Cabos is very impressive. When you compare Vallarta and Cabos, could we see that Vallarta is growing very fast, and Los Cabos is low in increase. However, the financial revenue and all the strategy that was followed by us is not showing any reduction in our expectation for the performance.

Instead I think it's after less than one year with 86% of the recovery and the destination is very significant when you compare it with any other disaster in the area.

Remember, many of the even impact in the East and the West Coast, including the last 10 years, and it's very impressive that the destination was recovered very quickly.

Thanks very much for the color.

Okay. Thank you, Ricardo.

Thank you at this time we currently have no questions in the queue. It is now my pleasure to turn today's conference call over to Mr. Bosque for any closing remarks.

Thank you so much for your attention today. Please contact us with any further questions or concerns you might have. Have a good day.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.