Aena S.M.E., S.A. (AENA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Aena First Half 2020 Results Presentation. [Operator Instructions] I must advise you that this conference is being recorded today, and I would now like to hand over the conference to your speaker, Emilio Rotondo. Please go ahead.

Hi. Good morning to everybody, and welcome to our first half of 2020 results presentation. This presentation will be led by our Chairman and CEO, Mr. Maurici Lucena; by our CFO, José Leo; and myself, Emilio Rotondo. Now I'll let the floor to our Chairman, Mr. Lucena.

Hello, everybody. I want to stress many comments on the very exceptional situation. So I will start with Slide 4 of my presentation. In this bar graph, you can see that what I was just saying, that we are really facing, as Aena, an extremely challenging situation. And this is reflected very directly into the figures regarding passenger traffic and revenues and so on. But specifically, passenger traffic, including Spain, Luton and Brazil, decreased in the first half of 2020 to a little bit more of 50 million passengers. In the Spanish network, the decrease was 66%; in Luton, 64%; and in Brazil, 47%. This traffic evolution has led to total consolidated revenues to decrease by 47%, our EBITDA by 82%, and we have produced, therefore, a net loss of EUR 171 million. These are really figures that we could not expect at all before the outbreak of coronavirus. And I think that they are self-eloquent of the situation, the very worrying situation. Operating cash flow decreased to a little bit more of EUR 300 million. The net financial debt decreased slightly to a little bit more of EUR 6.66 billion. And the ratio of net financial debt-to-EBITDA holds at 3.6. We can move now to Slide 5. You can see here that airport revenues fell by 60%. And I think that the next point is important. Commercial revenues fell by just 20.5%. And this is because in accordance with IFRS 16, we have accounted the minimum annual guaranteed rents accrued during the state of the alarm period for an amount of almost EUR 200 million. But having said that, I want to be very clear and I guess that you all know this already that these rents that we have accrued, we have taken into account for financial purposes. These rents, as I was saying, will be one of the -- are deemed one of the component parts of the ongoing negotiations that we are maintaining with different commercial operators, which name basis, I will explain in further detail on Slide #7. Now we can move to the next slide, Slide 6. I think that we have a motive to be proud of the capacity that Aena has demonstrated in terms of cost and cash savings. Regarding the cost saving plan, the actual savings that we reached during the whole second quarter amounted to 170 -- excuse me, EUR 157 million, which means an average monthly saving of EUR 52 million, which was well above our initial estimate. And regarding investments, which means cash, Aena temporarily halted its investment program, as you know, and the actual savings in this area amounted to, during the whole quarter, to EUR 175 million, which was also above our initial targets. During June, as we -- as you all know as well, we have resumed our investment plan. And I think that we will be very precisely in line with our revised target in terms of investment, which will amount to a little bit more of EUR 350 million for the overall 2020, for the overall current year. Now we can move to Slide 7 in which we take a closer look at the negotiations with the commercial operators. I want just to stress 3 main issues. Firstly, the negotiations will be carried out or are being carried out on a case-by-case basis. So it means that we are not, of course, accepting any pressures in terms of the attempt to join forces by other parties. And we are currently -- we are currently carrying out this case-by-case negotiations with every commercial provider, every commercial operator. Secondly, the negotiations are taking into account different important factors, minimum annual guaranteed rents, the very famous MAGs, the duration of the contract, et cetera. And precisely, this -- I connect this with the third factor I want to stress. And precisely, in order to maximize the value of these contracts for Aena, the current negotiations are envisaging various adaptations of the contractual terms to the post-COVID-19 reality in relation precisely to the MAG, to the duration of the contracts, et cetera. Now we can move to Slide #8. In relation with additional financing, we announced -- or we have continuously announced the new loans, the new loans that we were agreeing. And during this last quarter, Aena has signed loans for a total amount of a little bit more of EUR 2.32 billion with several financial institutions. I must say that we really, honestly, didn't have any difficulty in reaching these agreements with financial institutions because I guess that everybody trust the solidity of the company. And on the other hand, you know that the general shareholders' meeting is scheduled for the end of October. And finally, you know that the Board has proposed to this General Shareholders' Meeting not to distribute a dividend on 2019 results. Now we are ready to move to Slide #9. This is another important novelty related to the very hard reality of the COVID situation. In compliance with accounting standards, Aena has carried out valuations of its assets to determine whether there had been any impairment. And the main conclusions of these valuations are the following. First, neither the Spanish airport or the Luton assets have to be impaired. And secondly, we have recognized impairment in 3 assets: In Murcia, in the so-called Murcia Region International Airport, EUR 47.7 million; in Brazil, EUR 72.9 million; and in Colombia, EUR 3.5 million. These impairments represent additional pretax losses for an amount of EUR 123 million. But as you know and it's important to stress this reality, these impairments have no cash impact. Additionally, for the activity in Brazil, the consolidated accounts, not the P&L, the accounts, the Aena accounts, also reflect a negative impact of a little bit more of EUR 130 million due to the conversion differences of the euro and the real, the Brazilian real. And if you want more details on the assumptions, the assumptions that include these impairment tests, you can find these main assumptions used in note 7 of the consolidated financial statements. And finally, in this slide, I want to stress that the 2027 recovery scenario is based on an extremely pessimistic view. By no means it's our base case scenario. Of course, when you -- when you define and elaborate an impairment test, you use the most pessimistic view because you are supposed to introduce the maximum stress possible. So this is why we have used this 2027 recovery scenario. In other words, the management of the company, and I personally, we not -- we don't attribute high to low probability -- excuse me, a high probability to this scenario. In other words, I personally attribute very low probability to this 2027 recovery scenario. Now we can continue. We -- I kindly ask you to move to Slide #10, Luton. In Luton, we have had similar evolution to the rest of the airports. And I want to underline 4 measures that we have taken to mitigate the very hard impact of the COVID situation: First, the closure of most operational areas in the terminal building during the worst days of the COVID; second, adjustments to staff costs, other operating expenses and the postponement of CapEx; third, suspension of the dividend; and fourth, a request, a formal request of the activation of the special force majeure procedure. And I'm happy to inform you that discussions are ongoing with the Luton Council. And when we have news in this respect, we will inform as soon as possible. And finally concerning Luton. At the end of June, Luton did not comply with the maximum net debt-to-EBITDA ratio included as a covenant in almost every financial agreement of the airport. So in application of accounting rules, the long-term debt has been reclassified as current debt. However, I'm very confident that we will very soon obtain waiver. And so we can, again, reclassify the debt. Now we move, please, to Slide 11. Let's move to Brazil. In Brazil, Aena has taken very similar measures. Firstly, a significant reduction in opening hours, a review of the external service contracts and the use of the liquidity relief measures established by the Brazilian authorities. Secondly, we are currently in, I think, in productive conversations with ANAC, the Brazilian airport regulator, for an extraordinary revision to restore the economic financial balance of the concession contract. And that would be everything that I wanted to underline concerning Brazil. Now we can move to Slide 13, the outlook for 2020. Well, I think that it's not only Aena, but almost every peer in the airport business has -- is now going through very serious difficulties in terms of our forecasts. The visibility remains very low. I would say that facts change almost every week when not every day. So I think that the most prudent approach concerning the outlook for 2020 and for the coming years is to just reflect the international forecasting of many organizations, such as Eurocontrol, IATA, ACI and so on. And these international aeronautical organizations, they estimate that the decrease in the number of passengers in Europe for 2020 will be in a specific point in the range, minus 45%, minus 70%. Specifically in Spain, 2020 will be between minus 57% and 67%. And more specifically, if we look at the IATA forecast that this organization, this international organization published back in mid-May, IATA considers that at the European level, recovery will be -- or would be slower than in the rest of the world, due mainly to economic weakness and could not arrive this recovery until at least 2024. So just to make it clear, these are the ranges we have used in Aena, within Aena for our asset valuation, for the purposes of the impairment tests that I mentioned a few minutes ago. And concretely, this means that for the current year, for 2020, the traffic decline scenarios range, it is between minus 57% and minus 67% compared to 2019. For 2021, so next year, the traffic decline scenarios range of minus 50%, excuse me, and minus 25%. And the recovery -- finally, the recovery to 2019 levels, the -- let's call it the happy year, the gone happy year, 2019, this recovery is expected to take place sometime between 2024 and 2027. Again, this 2027 represents the worst-case scenario, which is, in my opinion, appropriate when you elaborate an impairment test. But it's by no means our base scenario. And of course, it's not my personal view on the recovery -- on the recovery that effectively will take place, in my opinion, very soon compared to 2027. I would not dare to estimate a specific year, but I'm sure that it will be sooner than 2027. And finally, the last slide, Slide 14. In relation with Aena's covenants, Aena -- I want to say it very clear as well, Aena -- this is what our CFO, José Leo, reminds us continuously. Aena has outstanding loans with the European Investment Bank, with ICO, the Spanish ICO, with Unicaja and FMS for a total amount of EUR 6.06 billion. And these loans include the following covenants: Net financial debt/EBITDA must be less than or equal to 7; secondly, EBITDA-to-finance expenses must be higher than or equal to 3. Currently, at the end of June, these financial ratios for Aena, they are within the permitted range. Although, honestly, it is possible, it is likely that at the end of the year, at the end of December, these ratios could be not in compliance. But the good news is that the company has already started a previous dialogue with financial entities. And I'm very confident that if that was -- if this was the case, we could comfortably obtain the approval of a temporary waiver. Finally, it is worth mentioning that according to a Royal Decree approved in June, Aena has the right, formally recognized, to recover the costs incurred as a consequence of the collaboration with the Spanish health authorities. And if these costs cannot be recovered within the framework of the current DORA 2017-'21, this cost could be recovered, duly capitalized, in any of the subsequent DORA periods. In this case, the rate will not be subject -- or the charges will not be subject to the cap recognized by the law of 0% because this cap could be recognized but this Royal Decree could be removed. With this slide and this comment, I finish my presentation. Now we can move on to the Q&A session. Thank you.

[Operator Instructions] And our first question comes from the line of Elodie Rall from JPMorgan.

So my first question is on the commercial segment. I just wanted to understand why you did recognize the MAGs and the profit associated to the MAGs, given they might not materialize. I mean you explained to us that at the moment, it is in negotiation. So just willing to understand why you recognized that in the second quarter. And also, I wanted to understand if the negotiation regarding those MAGs are purely for the time of the state of alarm, or if the negotiation will also change the agreement that you had for after and future years in those contracts? So that's my first question, please. My second question is on summer bookings. I was interested to see what you're seeing for the remainder of the summer. And if you are expecting any change, given the new U.K. quarantine for Spanish travelers. And my last question is on guidance. I understand you're not giving any guidance. You provided us with insights from IATA and other international institutions. But -- and '27 is unrealistic. But what is your central scenario at Aena specifically? Is it 2024 to go back to the 2019 recovery? What do you think is really realistic here?

This is Maurici Lucena speaking again. I will just cover the question relating -- that relates to our negotiations with the commercial operators. And the rest of the questions will be answered by our CFO, by José Leo. I think that the answer to your question concerning the commercial operators is very straightforward. We are negotiating with them not only the remuneration or the MAGs that affect the period of the state of alarm, the state of alarm period. We are negotiating with them the whole contract in the sense that we assume that the reality post-COVID, I think that so far is at least this is what we assume for the coming months very far away from the previous situation. And one important factor that I did not mention in my previous intervention is that we expect that the commercial operators, in the context -- within the context of these negotiations, they also show us their will to keep their contracts in place. And if they can assure us that they want to keep their contracts in place for a reasonable period of time, this automatically introduces more flexibility in terms of the past MAGs, the current MAGs and the future MAGs. So in other words, we are negotiating the whole period of the contracts, not only the state of alarm. Thanks. And I now hand the floor over to José.

If I can come back to the Q2, specifically the second quarter, is it realistic to think that what you have registered will stay? I mean why did you register a full amount? I thought you said that you were likely to weigh that for the...

No, no. It's not that I forgot this very important question. But this question will be answered by Jose.

Well, I recognize it's a little bit exotic. Let me be very open in that. Furthermore, you know our approach in quarter 1 was to -- not to accrue for these minimum guarantee rents. The reality is that we have had a dialogue with the auditors. We have been reviewing very deeply the application of IFRS 16 to these particular rents. And the conclusion was a little bit counterintuitive. And if you have to account for that, otherwise, you can end up with a qualified opinion or whatever you call it, when you are dealing with [Audio Gap]

We are experiencing some technical issues. The conference will rebegin as soon as possible. [Technical Difficulty]

Can I carry on? Hello? Sorry, Elodie. I don't know when -- when we dropped.

We were -- you were starting to explain why in Q2, you have accounted for the MAGs in Q1.

Okay. In the second half of the year, the accounting -- let's assume that all the contracts in place are renegotiated and agreed. The treatment of these new contracts from the IFRS 16 at some point, once again, can be counterintuitive in the sense of moving our revenues and our revenue recognition policy into a sort of linear approach. That is, as you can imagine, a little bit -- is a little bit counterintuitive in the sense that doesn't follow the cash. So we need to really think about it. The IFRS 16 vagaries are -- probably you are aware of that or some of you listening today are aware of that, are making the revenue recognition not necessarily consistent with the cash evolution. In summary, you can end up with the first years of the agreement, having a better revenue figure than you would expect, if you follow the cash. And the later part of the contract, not showing the same level of revenues that you would expect if you follow the cash. For us, any renegotiation of the contracts will be driven by one very important point. We want to keep the value of the contract in place. We will try to manage the different component parts to come to agreements where, ultimately, we will retain the value, substantially the value, and the tenants will have a better life from the point of view of the cash -- the stress on their cash. And that's the objective. So that would be like reprofiling the revenues. But IFRS 16 could play against that from the accounting standpoint. That's one of the reasons we are not providing guidance. That if you look at cash, which really matters, to cut a long story short, if we come to an agreement with everybody, we will likely not get paid for the minimum guarantee rents over the state of alarm period. And we will reprofile the MAGs to allow the tenants to face less -- a lesser level of stress over 2020 and 2021. And then the revenues ramping up, and obviously, probably over a longer period of time than originally expected in the contract. I hope that helps. Obviously, it's complex. I don't want to get into the detail because that's commercially sensitive. But I think the framework, hopefully, is well understood. Okay, with regard to forward bookings, clearly, as the Chairman and CEO said, things are changing not every week, but every day. Our view over July and August was very promising. I always said that anything involving a recovery over the summer, about 30% of the 2019 traffic would be good news. We were heading for that. Over the last days in July, clearly, operations were about 50% of the 2019 passengers -- I mean the last days of July, I don't mean the July month overall. And the number of passengers were about 30% of the 2019 figures, that would be good in terms of the overall summer picture. Clearly, that is changing as a result of, mainly, the U.K. decision to require a quarantine period for everybody returning to the U.K. from Spain. So today, it is difficult to predict the impact of that. We know that, that decision is probably going to be removed over the coming 2 or 3 weeks. But still, we don't know how that uncertainty could scare, if you like, some of the travel plans of some of the passengers. I hope that helps. And in terms of guidance, we are doing our best, bearing in mind the current circumstances. First of all, there is not such a thing as a forecast for 2020 or 2021. What we used to call as a forward forecast doesn't apply nowadays. So what we can do is to manage prospects, ranges of prospects, and that's what we are doing. And we have our own numbers, but they are not something you can call definitive. What we are doing is just pulling information from different sources, pulling that information together and making decisions as to which ranges of potential outcomes, between optimistic and pessimistic outcomes, our outlooks we can use and we believe are reasonable. Those are exactly the ones that the Chairman described so half an hour ago. And that means that for 2020, ranges between minus 57% and minus 67% on 2019 makes sense to us. What is a medium point of the range? I don't know. Obviously, mathematically, I know, but I don't mean that. What I don't know is what is the most likely outcome, I don't know.

Can I just follow-up, if that makes sense to you before the new quarantine announced in the U.K.? Or if you think now there could be downside risk to that 67% high end, I mean, low end of the guidance for this year, given the new information from the U.K.?

Obviously, everything can get worst and worst. But today, even with that decision, I think we can still accommodate that inside the range.

Our following question comes from the line of Siobhan Lynch from Deutsche Bank.

Just 3 quick ones from me, please. The first one, just to follow-up on Elodie's question. Could you give us any kind of information on the current trends you're seeing specifically on domestic travel, if that's performing particularly well and if that could potentially offset some of the U.K. situation? And then, I guess, 2 questions on cost-saving expectations. As in relation to the second half of 2020, I see you made some quite material savings on other operating expenses and on subcontracted work in the first half. With the assets now, I guess, reopening, how much of those cost savings can you continue in the second half? And can you put any kind of ballpark range on that, please? And then, I guess, just looking to 2021 and thereafter, again I appreciate that you don't have a clear view on traffic as we just kind of discussed. But if we were to say traffic was still, I guess, materially 20%, 30% below 2019 levels or more next year, how much of those cost savings could you carry forward again then into 2021?

Okay. With regard to domestic, domestic is doing well. It's doing fine. Actually, out of the total traffic that we can witness these days, 50% is domestic. So, so far, so good. But once again, we have to be very open and very upfront. The news about some difficulties in enhancing the outbreaking parts of Spain will likely also impact decisions made by nationals. But so far, it was good. It was really capturing 50% of the total. So that was very positive. With regard to OpEx in general, clearly, the -- for us -- I made a number of times the same point. Our -- on an ongoing basis, our operating cost build is largely fixed. So we have little flexibility. We have some, but not huge flexibility to deal with ups and downs in traffic, let's say, on a regular ongoing basis. Well, we have proven that in case of a sudden dramatic fall in traffic, we are able to react and to achieve really good savings. That's what has happened over the last 3 months. But honestly, as the traffic recovers, it's very difficult to keep in place a healthy operating leverage scenario. Because to restart, we need to reopen infrastructure pieces. For instance, we opened yesterday terminal 4 -- the satellite terminal 4 in Madrid-Barajas, the terminal 2 in Barcelona. When you open one of those, clearly, no matter how focus you are on efficiencies, the cost increases are more than proportionate than the traffic increases. So that is likely to drag into 2020 and 2021. So from the operating leverage point of view, we will do our best. Clearly, we will keep a very close eye on cost. It's difficult to anticipate how well we can do, but there will be a loss to the operating leverage capacity, and there will be a loss of efficiency, so to speak, inevitably. But -- so everything will be very dependent on volumes. Unless there is a new outbreak and things get really, really bad. Obviously, that will be terrible news. But in that scenario, we would be able, once again, to react and to bring the costs build down dramatically. But on an ongoing basis, we are -- today, it's very difficult to say how the costs will evolve in response to the different traffic scenarios, I have to say.

Our following question comes from the line of Stephanie D'Ath from RBC.

The first one is a follow-up on the operating expense and in particular, the other operating expenses, which were down 64% in the second quarter. So you just said that you had a little bit of flexibility. But it looks to me like, at least on that line, you really managed to bring the cost down significantly during the second quarter. So could you maybe clarify a little bit what's variable with your third-party contractors and what is not, and how come you were able to decrease the amount in the second quarter by that much, especially as, I guess, we were expecting operating income -- operating expenses inflation, probably the renegotiations in the contracts? Secondly, could you please let us know how advanced you are in your discussions on MAGs with the retailers? And what the first outcome is? I guess you must have already a bit of clarity. And could you confirm that you still kind of expect the state of alarm period MAGs to be waived? And how would that be then reported in the following quarters' [ account ]? So how would you be offsetting the revenues you booked currently because of your discussion with the accountants? And then thirdly, on your tariffs. Obviously, the consultation has been delayed to October, as you mentioned. But could you maybe share with us your expectations on tariffs for 2021? And if you still believe that you could end the DORA 2 negotiations in time.

I will answer your last question concerning the tariffs, the 2021 tariffs and the collaboration of DORA 2, the new DORA. Unfortunately, the visibility remains very low. Our plan is to be on track from the foreseen previous schedule. Concerning 2021 tariffs, we will start our dialogue, which is -- which is we are obliged to have this dialogue by law with airlines. We will start, regarding tariffs, this dialogue in October. And of course, if these were ordinary times, in October, we would also be in advanced phase of the discussions and dialogue with airlines and with other parties regarding DORA 2, because DORA 2 should be almost complete in -- at the end of the first quarter, if I'm not -- if I -- if I remind it well. So I'm not worried so much concerning tariffs. I think this -- we will apply the regular mechanisms, and we will have new tariffs approved for -- that will take place, that will begin to be active in March 2021. We will have them as usual, approved at the end of the current year. DORA 2, which is, of course, more important because it covers many more years, I would say that at the present time, my intention -- the intention of the regulator, the Spanish government, is to keep the foreseen schedule untouched. Of course, you have that -- there exists legal clauses that in an extreme situation would allow the regulator to start with DORA 2 a year later. But this is not, at the present time, the case. So we have said publicly that the main expansions and the main modifications of airports that were foreseen for DORA 2 remain in place. But it's obvious, simultaneously, that they could start a little bit later than previously foreseen. For example, to say something 2 years later. This is our impression nowadays. Things are -- as Jose and myself have tried to stress change very quickly on an almost a daily basis. But I'm confident that we will comply with the foreseen schedule also for DORA 2.

Well, with regard to OpEx, hopefully, Stephanie, I understood correctly your questions. I will try my best. And then if you have any doubt, please let me know. When looking at quarter 2, clearly we have delivered a better-than-expected set of numbers in terms of operating costs. That means that we can really flex our cost build down significantly in other operating expenses. Clearly, that hasn't been the case in the cost or other type of costs. But focusing on the main source of costs, which is the third-party services, clearly we have demonstrated that we can do a lot and we can do it very quickly. But what we try to stress before is that in a different scenario, which is a recovery, you have to bring some of those contracts back in place. And when we discontinued some of those contracts, what we did was to force our suppliers to do a number of things, including to put their staff in what you can call a temporary layoff or furlough, definitely what we call an ERTE in Spain, a temporary layoff scheme. When you have to bring those contracts back to life, you have to be very careful. It's not that you can cherry-pick for every particular square meter number of individuals, a number of level of service. No. Clearly, there are quantum leaps. And those quantum leaps, normally, will be growing quicker than the traffic. You cannot accommodate the traffic and the cost every day, every time, every hour. So that's the really challenging bit. Rest assured that we will focus on that. We will be extremely careful and we will be extremely tight in, like, unwinding those costs. But still, we will lose part of this leverage capacity, and we will lose some part of our efficiency. I think that's something that will happen to every business when coming back from the COVID deep dive, if you like. But in our case, we still remain the most efficient airport operator in Europe, in my view. So the resources will come back. The cost will grow again. But we will still deliver a significant level of efficiency, but not the level of efficiencies or the margins that we achieved in 2019. That's still some way away from us. Hopefully, that was what you tried to -- otherwise, let me know. And then with regard to the discussions with the tenants, with the retailers, the discussions are ongoing. We haven't really reached many agreements. We have reached some, but it's early days. We will work very hard over the coming days and weeks. But if you like, let me describe for you the templates of the negotiation without giving up a great deal of detail because, obviously, it's commercially sensitive. What we try to do is to help them to go through 2020 and 2021, without having to face the stress of paying for the current minimum guarantee rent scheme, which is based on time. Just -- you pay a rent for a particular period of time come hell or high water. That's not the case. Well, we believe we need to show how accommodate that minimum guarantee scheme to the reality of the traffic for a while. That's why it could be 2020, 2021. And then the rents will ramp-up, we'll come back to normal. We will extend the contract. We will ensure they are committed long term. And if all that things happen, we will be ready to contemplate waiving, as one of the potential scenarios, the minimum guarantee rents over the State of Alarm period. Clearly, that means that the cash over 2020 and 2021 that we will be receiving will be less than originally expected, and hopefully, the cash over the coming years will grow significantly, potentially dramatically. The issue here, and that's what was -- I was trying to address before. But honestly, I don't want to embroil you into accounting discussions. The accounting though -- the accounting under IFRS 16 don't follow cash, goes its way. And that can create some degree of disconnection between revenues and cash that we frankly don't like. As businessmen, we don't like it. But obviously, we have to abide by the accounting rules. I'm sure, many of you, analysts, research analysts and investors are more keen on cash than you are on revenues, other than I must admit for dividend purposes. Hopefully, that helps.

Our following question comes from the line of Cristian Nedelcu from UBS.

Three, if I may. Firstly, if we look at the retail segment, can you tell us what are the initiatives that you or the duty-free operators of the retail partners are currently taking in order to optimize the retail spend for the second half of this year? Secondly, looking a bit at your cost, looking at your staff cost, what are the milestones that you are assessing there in order to decide if you need to reduce your staff costs versus today's level? So is that a total no-go going forward? Or are there any scenarios where you would consider reducing the staff costs? And lastly, on the regulation. Looking at the WACC, I mean you have the formulas from the DGAC or the CNMC. Do you believe that having in mind these last few months, there are arguments that support a higher WACC? The inputs in those calculations. Are in your favor of leading to a higher regulated WACC and going forward? Thank you.

This is Maurici Lucena. I just want to make an introduction to the WACC issue. But then José Leo will elaborate a little bit more on that. I just want to convey to you the following reflection. I think that the elaboration of the WACC concept for business, such as airports and other regulated business that specifically, especially airports, I say -- I would say that the conception has been modified after the outbreak of COVID-19. This used to be considered a very low risky business. And I think that after the coronavirus, we all should admit that this is a riskier business, at least a little bit riskier than we all assumed previously. So I don't want to specify levels -- concrete levels of the WACC because Jose Leo will do that. I'm just saying that, of course, at least at a conceptual level, the WACC calculated in any situation previous to COVID-19 was, and should be, lower than at the present time. And I think that this is something that we all actors of this industry share. Jose?

Thank you, chairman. Well, it happens to be the case now that we have had to calculate our cost of capital to run the impairment tests. So you can see in our notes to the financial statements, Note 7, what our current estimate of the cost of capital is. Pretax, that is 8.35%, and that compares to the 6.89% currently in place. That's our honest, professional, technically sound, and by the way, reviewed by a third-party by E&Y, as we described in the accounts and obviously as well reviewed by our auditors, KPMG. So today, we believe our cost of capital for the business is 8.35% pretax. And that means that, as the Chairman said, things are changing, and there is no doubt that the current circumstances are pointed out in that direction. Well, I will move on to the other comments you made, initiatives to enhance the commercial revenues, clearly, there are many -- there are many in terms of improving the use of technology, making people more -- making people's life easier in terms of ordering for some particular goods and things like that over the coming months. But honestly speaking, those kind of things will never be able to fight the wave of the COVID and the changes in the psychology of the passenger. What we have to do over and above everything is to make sure that we provide a healthy and safe environment to passengers. And as long as we achieve that, people will feel that they can do their activities, obviously, with a limitation now, which is the space. The productivity per square meter will be lower for everybody, operationally and commercially. But that's what we have to do. And on top of that, the commercial discussions on the contract negotiations are going to be -- under contract negotiations, sorry, are going to be critical because we are minded to allow the tenants to put in place new initiatives, probably to broaden the range of products they offer or to bring more innovative ideas. So we expect those contracts to develop a collaborative approach and to help the revenues improve. But once again, the most important thing is to provide a safe, healthy environment for passengers. With regard to staff costs, we haven't changed our mind when we faced the most dramatic part of the State of Alarm lockdown. We were determined to keep our staff in place. That's the view of the management today. So nothing has changed.

Our following question comes from the line of José Arroyas from Santander.

Three questions for me, please. First of all, it's on the COVID-19 costs that Aena expects to recoup. I was wondering -- I'm sorry if I missed this, what is the exact amount of costs that we are talking about? And secondly, how Aena plans to recoup this? Is there an exact component in the tariff that explicitly or could explicitly accommodate this? And could you tell us how airlines are going to react to this decision? Second question I had is on DORA 2 on the growth projects that Aena was keen to execute. I think a few weeks ago, we had the Spanish Ministry of Transport quoted in the press as saying that some of these growth initiatives might be pushed out to potentially DORA 3. And I wanted to hear from you if you have developed your thoughts on this potential shifting of investments to DORA 3. And last question, I'm sorry this question is simple to everybody else. I was wondering why Aena decided to carry out an impairment test now only halfway through the year instead of at year-end, which is more common. Thank you.

Thank you, José. I will answer only the question related to DORA 2 and the eventual DORA 3. Well, I interpreted that the Minister said that the foreseen huge projects for DORA 2 could be reviewed in terms of the time line and could be postponed, in the sense that it would be in the program and the plan of DORA 2, but mainly, for example, postponed 2 years, for instance. Whether this is in the range of DORA 2 or DORA 3, I think it's more a matter of this time line. But where we are now in our dialogue with the regulator, in the very preliminary phases of DORA 2 is so far keeping on track our will to develop the main projects already announced publicly, but with a possible or likely postponement of, for instance, 2 years. This is all we can at that moment. And I hope that whether this is within DORA 2 or DORA 3 does not add confusion, because it's just a matter of when you start and when you finish the project that was planned. And now I hand it over to José.

Hi Jose. First of all, I will tell you how much the -- what is the estimate of costs associated to the COVID-19 fight, so to speak, for 2019 -- sorry, for 2020, second half mainly and 2021. 2020 will be something in the region of EUR 60 million. 2021 will be close to EUR 100 million. On top of that, there will be investments as well that, frankly, I don't recall now how much, but we can provide that figure over the coming hours to you. All that costs will be recovered through the mechanism developed in the Royal Decree. The point here is that those costs, won't be subject -- the recovery of those costs won't be subject to any airport charges cap. So the tariffs can go over and above 0 percent in terms of growth in order to recover these costs. That means that we need to wait and see how that plays out once we start the discussions with airlines and the regulator, because that's coming up in different scenarios, a part of that can be recovered in 2021. I don't know if that's technically possible, I don't know. So to be honest, part of that can be recovered of DORA 2, I don't know. And then finally, I'm afraid I disagree with you, José, about the impairment tests. It's the only way around. Impairment tests, mandatorily, by the standard, the International Accounting Standard 36 provides for the obligation to run an impairment test, any time a business appreciates that there are indications or signs of impairment. And you can see today in the front page of some papers, large, huge investment impairment tests being accounted for. So we are not unique. And I believe yesterday, there were -- some of our peers were also announcing that. I'm afraid, you cannot wait. I mean this is for the benefit of everybody, for the benefit of yourself to start with, obviously.

Our following question comes from the line of Marcin Wojtal from Bank of America.

Firstly, I wanted to ask you about the commercial incentives program of EUR 25 million that you are offering to airlines. Can you explain a little bit what was your rationale behind that? And do you think you could be offering -- do you think it could be in your commercial interest perhaps to offer similar programs also later into 2021 to help the traffic recovery? And question number two, and I wanted to come back apologies to the topic of MAG's new rents. And apologies if that has been answered. But in terms of recognition of the MAGs for Q3 and Q4, are you going to be applying the same principle as in Q2? So basically using roughly the pre-COVID MAGs.

Hello, this is Maurici Lucena. I will introduce the issue of the incentive, and Jose will complete it. I just wanted to share with you my microeconomic view on this issue. Because the real origin of the incentive that we designed and that we put in motion was somehow, let's say, microeconomic conceptual view, which is the following: When you look closely from a microeconomic point of view, what really means the landing charges and what really means the passenger charts or charges, you could conclude that the passenger charges are a cost concept for the airlines in which they share the risk with the airport operator. In the sense that the passenger charters they were originally -- they were originally defined and designed by the regulators, and we should bear in mind that this is an economic regulation, which is based on very solid microeconomic principles. It is thought, and it is designed to cover the financial expenses of what goes on within terminals. On the other hand, the landing charges, they are -- could be considered a sort of more fixed cost for the airlines because they are designed to cover financially the runways and so on. So in this sense, we thought that in this very singular situation, the important thing was to try to incentive airlines to move their planes, to move their operations. And if this is your objective, then you should conclude that it is better to keep on sharing with them this, let's say, variable costs related to passenger charges, and you should reduce their fixed costs related to this landing charges. So this is -- I fear that maybe it's a little bit too conceptual and to theoretic. But this is honestly what we reflected. And now Jose will explain the details -- the specific details of the incentives.

Well, I think on the back of that rationale, what we believe is that if we help the airlines to pay for the -- incentivize the airlines to add capacity, they will take care of themselves in order to fill the aircraft. We decided to do that, obviously, because under the current circumstances, to provide only incentives as long as they carry passengers, would be some sort of putting all the risks on them. We decided to implement that over the coming months, until the end of the winter season 2020/2021. There are a number of tranches, probably you are aware of them. Otherwise, we can't provide you with that. They are, all of them, based on reaching certain thresholds. In terms of the number of operations compared with previous years with previous year 2019. And whether or not we will extend that into 2021, we don't know. We will need to assess that when this is about to come to an end, it will depend very much on the circumstances. I would say that as long as the COVID outbreak impact is still sizable, I don't think moving back to the previous scheme would be sensible. Probably the most sensible thing would be to, to keep this new scheme in place, but it's premature to make a decision on that. Then you mentioned the MAGs for Q3 and Q4. Well, the short answer is, I don't know, to be honest. Q3 -- well, first of all, the minimum guarantee rents over the State of Alarm are EUR 200 million. Nothing more, nothing less. Because the State of Alarm is already behind us. So that will not grow. But what is possible is that we can adapt. Let's assume that we agree on the restructuring of a particular contract, that will mean that the first of all, the minimum guarantee rents for the period of time of the State of Alarm could be waived. Secondly, the minimum guarantee rents for the remaining of 2020 could be based on different parameters. They may not be absolute trends, but rather per passenger rents, for instance, that will mean that in revenue, in cash terms, so to speak, the figures will be different. But ironically, we can end up in a situation where under IFRS 16, we still need to account for part of the rents in 2020, that might not be collected until, I don't know, 2022, 2023, 2024. Why? Because the IFRS 16 rules tend to treat this kind of contract renegotiations. Under certain circumstances, in a way that you have to distribute the revenues on a close to linear base. So I don't want to complicate to over complicate today's call on the back of these accounting things. But honestly, over the second half of the year, we need to assess how the accounting will deploy if we restructure the existing contracts. In cash terms, it's pretty clear. It's extremely clear. And then hopefully, you got that sense.

Our following question comes from the line of Andrew Lobbenberg from HSBC.

I wanted to say, thanks so much for being as open and as honest as you can and trying to explain these really complicated things, particularly around the MAG. So let me just say that to start, particularly in response to that last question. I mean if you're saying that IFRS 16 requires you to smooth the value of the MAG over the total life of the contract, which I think is what I understand. Surely, that means that if you reach an agreement with your counterparties, then the EUR 200 million through the State of Alarm will be forgiven. And presumably, the future payment for the next couple of years will be materially less than they would have been. And in the outer years, perhaps they'll be more similar to what they would have been. But in total, the amount of revenue coming in on the MAG would be lower and even spread out over 4 years, 5 years, whatever it may be. The revenue will be materially less. And particularly as you're correcting, again Q2 when you applied the previous MAG, surely, it would be logical for us to expect a fairly significant step down in the MAG payments relative to Q2. Does that sound fair? I've got another couple of questions, but can we talk about that first?