Ladies and gentlemen, thank you for standing by, and welcome to Aena Nine Months 2020 Results Presentation. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, and now I would like to hand the conference over to your speaker today, Emilio Rotondo. Please go ahead.
Hi, good morning to everyone, and welcome to this presentation of Nine Months 2020 Results. Here we are, José Leo, CFO of Aena, and myself, Emilio Rotondo. Well, I'll leave the floor to José to start with the presentation. Thank you.
Good morning, everyone, and welcome to the Quarter 3, 2020 Results Presentation. I will focus on the key highlights, and then I will leave Emilio to deal with the business trends. As usual, we are showing the main parameters to show the performance over the quarter and till the end of September. The passenger numbers fell by 68.7%. As you can see in the graph, the size of the drop is different for the different airports in the group, with the Spanish network being the most severely affected, with a fall close to 70%, whilst the Brazilian group is the one which is facing the mildest decline. That translates into a revenue fall of close to 50%. As you will see later, the relatively smaller decline in revenues is driven by the commercial revenue side of the business.
In terms of EBITDA, a very significant reduction, 75.9%, but still a healthy and positive EUR 560 million EBITDA given the circumstances. At the net result level, we run losses with the nine-month loss totaling EUR 107.6 million. Finally, the operating cash flows go down by 83% as well, and the consequence of that is that the net financial debt-to-EBITDA ratio reaches 5.5 times, which is more than double the usual level of this ratio. We will comment on that later on as well. Moving on to slide number five, I will walk you through the main highlights, the main topics for discussion this quarter. Starting with the traffic, I won't make any more comments on that. This is just reiterating what you have seen in the previous graph.
What probably is relevant to you is to understand what are the latest trends, what's going on around us, and how we see the future evolution. First of all, the expectation when submitting to the market the second quarter results was that the summer will show progressive, however moderate, but progressive recovery, with every month showing better figures than the previous one. That was the case in July and largely for August as well, but from the end of August onwards, that trend was completely broken by the second wave of the pandemic and the different restrictions, different actions taken by different governments, particularly across Europe, in response to that second wave. So from the end of August, what we have seen is worst performance in traffic than we expected, and a performance which is worse than the performance we experienced in August itself.
We are running now at around 17% to 20% of the traffic for the same month in 2019, and I'm not, let's say, sharing with you any insider information. This is something that you can see almost with the naked eye. That means that we expect the rest of the 2020, the rest of the months of 2020, to show clearly underwhelming performance, and that will lead us to a year-end figure that probably will be not very far from the existing one, so a total decline of around 70%, give or take, and furthermore, that means that there is no sign of recovery in the short term, and there is no visibility at all as to when we can expect that recovery to kick off.
It's very dependent on health considerations, on health and medical developments, vaccines availability, remedies availability, and as a result of that, we don't feel strong enough to anticipate when that recovery can show up. In the meantime, what is clear is that the international agencies that used to follow, that are following this evolution, are reviewing their expectations now. For instance, the ACI Europe figures or expectations for 2021 that were recently reviewed, I believe it was the 10th of October, are going south. So they are now pointing out the worst case than the pessimistic case that could involve potential declines in 2021 vis-à-vis 2019 of up to 63%. So 63%, of course, that's the pessimistic case. I'm sure that hopefully that won't be the case.
But what I mean is that they are stretching the range of the scenarios to a point that 2021, in some cases, could be potentially as bad as 2020 has been. Of course, on the optimistic side of the spectrum, I think they are mentioning something like, from memory, 37% to 38% decline. So my point here is the point I'm trying to make is that we don't feel we can share with you any meaningful view of 2021 at this stage, and we don't see any visibility as to when the recovery can start. But of course, we will share with you any information that we believe is credible and meaningful if and when we have that information available. The next relevant point here in this slide is the commercial revenue performance.
The decrease in the commercial revenue is 19% year on year, and that's because we are accounting for the minimum annual guaranteed rent revenue in full. That is the way it should be, taking into account two things. First of all, the way the IFRS 16 leases apply, as long as you have contractual commitments, contractual obligations written with your commercial operators, they have to honor those commitments. And we have reviewed those contracts long and hard and very deeply. So that's the right way of accounting for these revenues. Of course, there are two other considerations you have to make when accounting for those amounts. Consideration number one is whether or not the application of a different accounting standard, which is the IFRS 9, financial assets, that requires the assessment in terms of any receivable, in terms of, let's say, any impairment, any credit risks associated to that.
Clearly, you have to provide for that if and when you are aware of that. Frankly, so far, the credit risks implications in terms of provisions to cover these revenues are relatively small. Of course, they are higher than previous year, and you can see that in the P&L, but they are not material. So there is no reason to provide for those amounts. There is no reason to consider any material credit risks associated to that. Then second consideration is whether or not those minimum guaranteed rents can be, might be affected by any commercial negotiation, any new commercial deal we can make with the lessees, with the operators, and of course, that will be the case in any case when we achieve an agreement, when we close a deal, but so far, no deal has been achieved with any of the operators. We are in discussions.
We are in negotiations. Negotiations are ongoing. I think they are productive. I think in many cases, the positions are increasingly closed. But so far, we haven't agreed or we haven't signed any single commercial deal. So there is no reason to treat the annual guaranteed rents, minimum annual guaranteed rents, in any other way that we have treated them in these accounts we are submitting today. Then we can move on to the next slide. In terms of cost savings, I think we have been successful. We are satisfied with the outcome of the cost-cutting plan. In the second quarter, we have achieved savings of EUR 127 million, clearly less than the previous quarter for obvious reasons that we can discuss later on. But we are keeping this plan in place. Clearly, it is being adapted or is being adjusted as the traffic recovers.
But for the same token, if there is any setback in terms of the recovery, we will make sure that we keep the tension in the business and we keep saving to the extent that is commensurate with the reality of the activity of the business on the ground. The investment plan, as you know, was restarted and is ongoing. We keep investing. We believe this is the right decision for the time being. In terms of financing and liquidity, just to let you know that we hold cash and credit facilities available for EUR 2.4 billion. And finally, for my section of the presentation, in terms of the debt covenants, as we already announced back in July, we expect to breach the net debt-to-EBITDA ratio at the end of the year. We have been in discussions with the banks, and the discussions are we are making progress.
Over the coming weeks, we have every expectation that we will get the temporary waiver from the banks. And with no other comments, Emilio will deal with the. Yes. If we move to the next slide, that would be the traffic data. Well, on top of what José has already mentioned, maybe highlight that Luton Airport has had a performance quite similar to what we have seen in Spain. July and August was better than the Spanish network, but once these restrictions and new quarantines were announced, well, mainly in the U.K., the traffic went down, and nowadays we are in similar figures to what we are seeing here in the Spanish network. Meanwhile, in Brazil, the performance is better than in Luton and in Spain. As you may see, up to September, the traffic went down just by 53%, and in October, traffic is performing better than that ratio.
We believe that the traffic performance in Brazil would certainly be better than what we are seeing in the Spanish network and in Luton. Also, highlight, if we go to and we focus on the Spanish network, highlight that the domestic traffic is performing better than international. I think that, well, for obvious reasons, also in terms of the international traffic, the European Union traffic is performing also better than long-haul traffic due to all the, as I've mentioned, the restrictions and limitations we are seeing from traveling from other countries outside the European Union. Moving to the next slide, Slide 9, the performance by business lines. The aeronautical revenue, well, the aeronautical P&L is showing the performance on traffic. In fact, if we see in terms of revenue, revenues fell by almost 64%.
It's slightly lower than the traffic, mainly due to a lower amount of incentives this year and also a higher amount in parking fees. In terms of expenses, you see that the expenses just has gone down by just 6.6%. This is because we have almost EUR 28 million, in fact, EUR 27.5 million of extraordinary expenses related to COVID-19. And we also have included the impairment test of Murcia Airport of roughly EUR 48 million. If we take out these two figures, the expenses would be down by 12%, which is a figure similar to what we are seeing in the commercial line.
That's also the reason why we see an EBITDA margin that goes down by 9% versus the EBITDA of commercial that keeps and remains 81%, not only because of the cut of expenses, but also because of the revenues coming from the accounting of the minimum annual guarantees that have been already mentioned by José. The international area is also impacted by the traffic performance of Luton and Brazil, and on the EBITDA level, also by the EUR 73 million impairment test impact on Brazil run last quarter that is impacting on the EBITDA, and that's the reason why it goes down to -EUR 62.2 million. In fact, Brazil, during the last quarter, had a very slight and small positive impact. Real estate services going down by 14% in revenues, 7% in expenses, and 19% in EBITDA is an activity that is a lot less impacted by the traffic performance.
Let's say it's more independent on that part. Moving to the Slide number 10, the commercial business. Just highlight maybe two ideas here. First of all, that the activities that have minimum annual guarantees, namely duty-free food and beverage specialty shops mainly, have a lot lower impact in revenues than the rest of the activities just because of these minimum annual guarantees that have been accounted during the period. That is also seen in this table that the amount of minimum annual guarantees is EUR 456 million, and also leads to an average commercial revenue per passenger of EUR 11.72 per pax, which clearly is impacted by these minimum annual guarantees and the lower number of passengers managed during the period versus last year. On the international holdings, I think the most important ideas have already been mentioned.
Luton impacted by the traffic performance, also the worst traffic performance we are seeing now in October that has impacted both revenue and EBITDA. In this case, as you remember from June results, we don't have any impairment test impact. In the case of Brazil, we have a lower impact coming from the traffic performance, just -53% in terms of passengers. As it's clear, last year we didn't have any of these concessions. We are not accounting for any revenues on EBITDA, which is coming in this year 2020, and EBITDA being impacted by the EUR 73 million impairment test run in June. In terms of the Colombian assets and the Mexican assets, well, the main performance comes from the traffic evolution, and well, we end the presentation in this slide, and we move now to the Q&A session, so please, if you're ready, you can open the line.
Thank you.
Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Please stand by while we compile the Q&A queue. It will only take a few moments. And once again, please, if you wish to ask a question, press star one on your telephone and wait for your name to be announced. And the first question comes from the line of Nicolò Pessina from Mediobanca. Please go ahead.
Yes. Good afternoon, everyone. First question is on the regulation. I'd like to know if you can give us an update on the talks with the regulator about DORA 2. In particular, will you discuss the review as planned in the next month? And if so, what should we expect in terms of tariff and CapEx evolution? Second question on the K factor. Looking at the reported per-passenger numbers, it seems like regulated aviation revenues are overperforming, but stronger growth of domestic traffic would suggest the opposite. So can you give us an idea of the deviation in the regulated revenues and what should we expect for the K factor in 2022? And last question on the renegotiation of the commercial contracts. I understand that you haven't reached any final agreement yet.
I wonder if it's in line with your expectations and if you can confirm that the renegotiations will be NPV neutral for the company. Thank you.
Please go ahead.
Yeah. Hi, Nicolò. Well, starting with the question on the DORA 2. The DORA 2 process is expected to be followed in accordance with the regulations and the law, which means that we have to submit our proposal by the end of the year. There will be consultations over the first quarter of 2021, consultations with the airlines supervised by the regulator and the supervisor, the Dirección General de Aviación Civil and the Comisión de Competencia. And then there will be, as you may expect, let's say, different views and discussions around it. But I think it's premature to say where this discussion will lead us. It's premature, first of all, because if normally this is a process that requires a number of iterations, this year this is probably going to be more so.
The starting point is always the passenger forecast, and I'm sure that will be a key element for the discussion. So I would stop short of telling you where this can end up. What is true is that the passenger forecast will be, in any case, completely different and significantly lower in terms of passenger numbers than it would have been one year ago. Secondly, that the investment plan is, no doubt, will be less ambitious. Well, ambitious is probably not the right word. It will be commensurate with the reality of the traffic. So it's likely that the EUR 1 billion per year plan that we had in mind and we discussed with yourselves a number of times won't be any more on the table.
Some of the key projects that were contemplated in that plan will go ahead because sooner or later they will be required, but probably the timing will be different. The phasing will be different. And very little else I can tell you because there is no even draft of any paper yet. So we are now in the process of pulling together information and submitting the plan by the end of the year. In the meantime, what is ongoing is the discussion or the consultation on the 2021 tariffs, and that's ongoing and progressing. And with regard to the question on the K factor for 2022, clearly the K factor in 2020, which is the relevant one for the 2022 tariff setting, is going the other way around. It's showing concentration. The yield in 2020 is undergoing concentration rather than dilution.
Until the end of September, we have accumulated EUR 95 million of yield concentration that we will have to return back. We will have to give back to the airlines through the tariffs in 2022, and that's not a surprise. When you have very little traffic, the decrease in operations is less than the decline in traffic, and there are some other elements of the airport charges that are still in place. The consequence is that the revenue per passenger you achieve exceeds the one which is allowed by the regulation, so it's the natural consequence of that, so there is no surprise on that. With regard to the commercial discussions, they are progressing, but clearly they are not easy. The conversations are difficult, and there is a need to settle the dust, and that takes time.
But I feel that both sides, generally speaking, because this is a case-by-case situation, you cannot take a general view on that. Every operator is different, and every one of them has their own interests and their own views, but generally speaking, the discussions are productive, and I expect over the coming weeks, but frankly, it's difficult to commit because it takes two to tango. I expect that we will be reaching agreements, and of course, as a result of those agreements, some of the elements of the contracts will be tweaked. Whether or not we will achieve the NPV neutral objective, well, it's a tough thing. It's a very tough thing, particularly when today the situation has deteriorated further, so the expectations today are not the expectations three months ago because the pandemic evolution is worse than we expected, and the traffic evolution is worse than we expected.
So that's a challenge, to say the least.
I totally agree. Thanks a lot for all the explanations. Very much appreciated. Thank you.
Thank you so much. And the next question comes from the line of Elodie Rall from J.P. Morgan. Please go ahead.
Oh, hi. Good afternoon, and thanks for taking my questions. First of all, on the MAG quarterly reporting, you have already reported about, I mean, accounted for EUR 456 million, and I think you guided for EUR 800 million for the year. So can you help us understand what we should expect for the last quarter of this year, if it's EUR 200 or EUR 400 million, providing that traffic stays as it is now? I think a little bit of explanation on the quarterly reporting would be helpful. So that's my first question. Second, I'm not sure I got cut a little bit, but I think you talked about tariffs from 2022, but what about tariff discussions for 2021? Last time, I think you said you expected flat tariffs for next year. Is it still your base case? And last question on testing.
What is your view, basically, on implementing the pre-departure COVID test, given that it's being adopted at other airports at the moment? Do you think it could make a difference on traffic? Thanks very much.
Okay, Elodie. Well, starting with the MAG, the EUR 800 million, well, EUR 800 and something million MAG figure was meant to be 100% of the MAG for 2020, for the year as a whole. Clearly, you only account for MAG to the extent that they are not somehow replaced by actual sales, by the variable element of the royalty of the fee. Clearly, in quarter one, we had significant revenues coming from the underlying sale activity. So there is no need to account for the MAG for that particular period of the year. Well, there is an element of MAG, but it's quite limited. So the bulk of the MAG revenue accounting is driven by the quarter two and quarter three lack of activity, so to speak.
If you look at the quarter four, without giving you any particular figure that we can give you later on, if you wish, in a more precise way, you can, give or take, you can look at the same figure that in quarter two, more or less. So clearly, you can reach something in the range of EUR 600 million, but the precise figure can be given to you by the IR team later on. Let's say EUR 600+ million, and that's the amount of MAG that we are likely to end up accounting for, recording, and then invoicing and collecting unless there is an agreement with the different operators to rearrange the contractual terms. With regard to 2021, yes, the discussions are ongoing, and I still believe there will be a flat tariff on that. That's my expectation. We need to wait and see because ultimately that's the regulator's call.
It's not ours, but that's my expectation. And then with regard to the pre-departure COVID test, honestly, I will stop short of making comments on health processes and procedures or health decisions. Of course, we have our view, but the most important part of our view is that we believe there should be consistent and common procedures applied at least by the different European Union countries. What exactly is the solution in medical terms? I'm not going to comment on that. I might have my own view, but that's not relevant to this. But what is important is to make sure that we contribute to build the confidence of the passenger. We contribute to show the passenger that anyone, he or she travels across Europe in particular, they will find the same rules and the same routines.
I know that recently the Council of the European Union released a paper recommending exactly the same, and we are waiting for some instructions that, my understanding, is that they should be developed by EASA and the European body in charge of the pandemics, and I don't remember now the precise name, but so they will be supposedly issuing more detailed instructions, but we keep waiting for that.
Okay. Thanks very much.
Thank you so much. And the next question comes from the line of Cristian Nedelcu from UBS. Please go ahead.
Thank you very much. Thank you for taking my questions. Two from my side, if I may. So first of all, your positive on an operating cash flow level in Q3, and this is before any cash inflows from MAG, but could you help us understand at what level of traffic you would expect to reach free cash flow breakeven, having in mind your current CapEx plans for 2021? So any type of indication there that could help us better measure that? And secondly, a technical question on the MAG. Some of your terminals are closed. Is it fair to assume that in this case, you are not entitled to receive any MAG related to the shops in these terminals? And if that is the case, out of the EUR 600 million of MAG for this year, how much is related to shops in closed terminals? Thank you.
Okay. Cristian, with regard to the first question, no matter how easy you think the mathematics are, I would ask you to wait, and the IR team will give you the precise numbers that I don't have from memory now. What is clear is that we are at the very low level of traffic. We are able to generate positive cash from the operations standpoint, clearly. And that means that let me dwell on that. That means that if the traffic levels remain really subdued over the coming months, the cash burn will be entirely driven by CapEx. I don't mean that we are minded to stop investing, but what I mean is that that can give us much more flexibility than we would have otherwise.
And then the answer to your question on those MAG that were accrued over a period of time in which the facilities were shut down, we have reviewed our contract very in detail, and our conclusion is that we are entitled to invoice and to charge and to collect all the monies regardless of the closure. So that's a contractual right. On the back of that, we are accounting for those revenues. And believe me, that's a discussion, a very, very deep internal discussion and a discussion with the auditors, so that we are doing what is meant to be the right thing under the accounting rules. But of course, that doesn't mean we are, I would say, people-minded to ruin the life of our operators. We are discussing with them different avenues. So we are minded to help them to help us.
But in the meantime, those revenues are legitimately recorded, and we are entitled to recover them in full.
Understood. Thank you very much.
Thank you very much. And the next question comes from the line of Siobhan Lynch from Deutsche Bank. Please go ahead.
Hi. Good afternoon. Thank you for taking my questions. Just a couple from me, please. So firstly, the winter season is now due to be, I guess, weaker than was expected back at the half year. In terms of kind of cost savings and the opening and closing of infrastructure, traffic at some of, I guess, the smaller airports in winter is usually low, but probably going to be much, much lower this time around. Could we see any closure of some of the smaller assets in Spain? And then I guess similar on the bigger airports in Madrid and Barcelona. Could you just run us through the kinds of operations you have currently and if you're channeling passengers through kind of only one or two terminals and just kind of your flex from that perspective on cost savings? And then kind of next question on cost savings.
In Q3, I think we can see that you've made some good progress. I think specifically on other operating expenses, they seem to be down quite a lot for Q3. We don't get the split at the nine months in terms of what's driving that. So any kind of color you could give on that would be great. And then just finally on MAG, is there anything you'd be able to comment on whether the movement towards a kind of per passenger basis of MAG is something that you're considering? Are you negotiating that at all at the moment? And what could that mean in terms of your ability to kind of collect the MAG that you've recognized? Thanks very much.
Starting with the different actions we are taking or we could potentially take on the cost saving side, clearly, we don't rule out anything. Without commenting on any particular measure, any particular decision, we remain vigilant. If there is a need to tackle a really poor scenario, such as the existing traffic levels remaining in place for many months to come, we don't rule out anything at all, from closing facilities to clearly addressing, again, our suppliers to move backwards. I believe that we have proven that we are able to achieve the savings we target. As you are mentioning in your second part of the question, particularly in terms of the other expenses, the other general expenses, which is the universe of costs that we are targeting, we have been targeting mainly more than internal costs or staff costs, as you know.
We have been able to deliver that. We remain absolutely confident that we will be able to do it again. On the other hand, I want to mention that in some of the new tender processes that we are now conducting, we are introducing in the tenders, in the tender conditions, new features, new conditions along the lines of being able to suspend partially or totally the services provided by any particular supplier when the traffic goes down by a certain amount. We are introducing elements of variability. Of course, that will come with a cost because nobody will take more risks for free. That will help us going forward because some of those contracts are being awarded as we speak. Some of them are very, very big ones, like the security contracts.
So as a combination of our, let's say, pre-tested cost-cutting experience plus the new features in the contracts, we believe that we will be in good shape to deal with a very protracted, let's say, worst-case scenario. But hopefully, it won't be the case. I don't know if I'm missing something else on that. Let me know otherwise. And then on the MAG, the discussions on the contractual terms and conditions are dealing with everything. We are not closing the door to anything that can help the operator to commit long-term and to make sure that long-term the conditions are not impacted and they really keep committed to the contract. So short-term, we can contemplate all sorts of solutions, including, I don't deny that, potentially the application of per passenger MAG on the short-term, only on the short-term.
Brilliant. Thank you very much.
Sorry, Siobhan. Just to highlight that in the report we published, the management report on Page 28, you have the detail on the evolution of the different lines under the other operating expenses. In any case, after reading that part, if you have any other doubt, additional doubt, please contact us.
Brilliant. Thank you very much.
Thank you very much. And the next question comes from the line of Arthur Truslove from Credit Suisse. Please go ahead.
Hi. Arthur Truslove from Credit Suisse. First question for me just on the debt covenants. Obviously, you've been sort of consistently optimistic that you will achieve a temporary waiver on those. I guess my question is really, at what point would you become more concerned if you're unable to reach agreement? Second question on the minimum annual guaranteed revenues again. You clearly had EUR 456 million of revenues year to date. Are you able to give us any idea of sort of how much cash you are actually expecting to receive in respect of that? And if you do reach agreement with your concessionaires, is it realistic to believe that you'll then be impairing the receivables that you have put on your balance sheet so far?
And then the third one from me, I think from your management report that you have incurred EUR 28 million of COVID-specific sort of safety and security costs. At what point are you able to start adding those back to the tariffs? Thank you.
Okay. With regard to the waiver, I have every confidence that we will get the waiver in place. Simply, these things take time. Believe me, I don't have any concern about it. It's clear that banks are now dealing with waiver requests, let's say, in every corner of the globe, I will say. So they are busy. But there is no doubt that Aena, if they are agreeing to waivers with much more complicated animals, you can imagine that Aena will have no trouble at all in dealing with the maturities and the debt service. It won't be an exception. So I'm absolutely confident that we will achieve that over the coming weeks. In terms of the MAG, let me tell you, because probably the terminology here is relevant, particularly from the accounting point of view. We are accounting for the MAG, and we expect to collect them in full.
And when we expect to face any problem with collections, any credit risks, in that case, we will impair that particular amount, which is what we have done in quarter three already. But if you look at the figures, the total provisions in the P&L are 15 million EUR, 15.2 million EUR. That means that the result of that impairment exercise is not very material. We will do the same again at the end of the year with any minimum guaranteed rents, which is about to be invoiced and collected. So that will be what you call impairing the receivables. Different story is in those cases in which we reach a commercial agreement, a commercial deal. I wouldn't call that impairment. That will be a restructuring of the contract. And as a result of that, there will be a need to rearrange the accounting of the revenues.
Under IFRS 16, that can be relatively complicated, relatively complicated in the sense that, let's say, for the sake of argument, if we agree as part of a particular deal to waive a certain amount of minimum guaranteed rents, that won't be hitting 100% 2019, sorry, 2020. That will be probably, probably, and I don't want to anticipate any particular information, that would be probably spread across the life of the contract. So that won't be an impairment. That would be a contractual restructuring. And as a result of that, let's say, the accounting will be adjusted accordingly. But this is just, once again, academic. The important point now is we have the right to collect those minimum guaranteed rents. And every month, we will be assessing whether there is a need to impair any of those amounts.
So far, the conclusion is that the need for impairment is limited to a relatively minor amount of rents, and then I'm sure I'm missing something.
COVID expenses.
Okay. The COVID expenses, my understanding is that they will start being clearly, as they are incurred in 2020, they will be affecting the tariffs of the second next year. That will be 2022. So certainly, that will mean that those costs will be contemplated in the DORA 2 discussions. But we are protected by a law in that regard. So we are absolutely relaxed and confident.
Right. Thanks. Just following up very quickly on the MAG again. So what you're really saying is that there might be a period of time in subsequent years for which the amounts of revenue accrued could be less than the cash that you receive on the basis that you've already accrued some of the revenue in 2020, but you're probably not going to get paid for it for a little while. Is that fair?
No. Do you mean after a commercial agreement has been reached or just because any minimum guaranteed rent?
I mean after a commercial agreement is reached. So when you see recognized the revenue in the second and third quarter, you then reach commercial agreements, which brings that sort of down, if you like. My question then is, given that you're not writing that revenue off, does that then mean that you'll sort of recognize less revenue in respect of 2021 or 2022 or whichever year and then receive more cash at that time?
Yeah. Certainly, this accounting will give rise to a divergence. I don't know whether that will be material or not, but a divergence between revenues and cash, definitely. You know what I mean, no? You know what I mean?
Yeah. Yeah. Absolutely. Yeah. Thank you.
Thank you. That's not helpful, obviously, from an intuitive point of view.
Thank you so much, and the next question comes from the line of Marcin Wojtal from Bank of America. Please go ahead.
Yes. Thank you. So firstly, since the last conference call in Q2, have there been perhaps any discussions with airlines in terms of potentially granting further commercial discounts or incentives to airlines, given the deterioration in traffic outlook? And do you think it could be in the interest of the company to perhaps incentivize traffic in the recovery phase? Number two is on CapEx. It looks like CapEx is now much more normalized. So do you expect traffic for Q4 and for 2021 to be roughly in line with what was in the DORA 1 determination? And thirdly, apologies, just following up on MAG, my understanding was that you receive a significant amount of cash typically for MAG for your partners in Q1. So is that the case?
On that basis, would you expect to have some progress in those negotiations about MAG so that there is better clarity on cash to be received by Q1 2021?
Okay. Thank you, Marcin. Well, your first question is absolutely on time because yesterday, the board of directors approved, and I think today has been published in a number of papers, a change in our incentive scheme. I don't know if you are familiar with the scheme we approved some three months ago, two months ago, where what we were trying clearly, the previous incentive schemes made no sense in the COVID environment. So we approved a scheme involving incentives to operations, regardless of the number of passengers. We were incentivizing the airlines to add capacity, to add aircraft in operation, with a number of thresholds. So we were committing incentives provided they reach a number of thresholds. Okay. That scheme has been in place, was meant to be in place until the 31st of March 2021, covering both the summer 2020 and the winter 2020 season.
The reality is that we have realized that in the current circumstances, that the scheme would be completely useless. While they managed to earn some 15 million EUR in incentives until the end of August, in September, and indeed in October, we were heading for close to nothing. So we changed the scheme, and yesterday, we approved a new scheme in which we are providing incentives to operations with no thresholds, no thresholds at all, to the extent that they get over the 20%. So they put in place more than 20% of the operations of the same month in 2019, they will start earning the incentive. The incentive roughly means that if any airline operating 30% of the total number of operations they run in the same month of 2019 will earn 30% of the incentive.
If they operate 40%, they will earn 40% of the incentive, and then so on and so forth, up to 100% of the incentive, always applying on the landing element of the airport charge. The landing element of the airport charge is roughly 25% of the total airport charges. We believe that's much more consistent with the reality we are living through, and that will be a good help to the airlines. We are very pleased to announce that. Clearly, we didn't include it in the presentation today because it came at the same time. Honestly speaking, we don't expect that to have a material impact. But if it has a very material impact, for instance, if they reach 100% of the operations of 2019, we will be more than happy to celebrate that.
But we are helping in a way that we believe is meeting the needs of the airlines at this moment in time. Then CapEx, well, CapEx, you mentioned something that confused me a little bit. You said that whether we expect traffic in Q4 and 2021 to be.
The question is just, what do you expect for CapEx, for maintenance CapEx for Q4 and 2021? Is it in line with your original projections from the DORA document?
Exactly. Exactly. Remember, back in July, we said that we were restarting the investment plan, and clearly, we wanted to catch up because the plan was halted for three months, so our intention is to catch up and to deliver the entire CapEx commitment for DORA 1 . Clearly, we keep an eye on that. As you can imagine, we need to monitor what's the situation of the traffic. I don't mean we are going to be, I don't know, if you like, coming hell or high water, we are going to keep the same position. If the poor traffic figures remain in place for many, many months, we will see, but for the time being, that's our commitment and our objective, and then in terms of the MAG, we can think of two different scenarios.
Scenario number one, with any operator that by the end of this year or by the time we are due to invoice and charge the MAG, with any operator we haven't reached an agreement, we will send the bill, we will send the invoice, and we will charge the MAG, and we expect to collect them in full. For any operator with which we have achieved an agreement, the agreement will apply, and as part of that agreement, I'm pretty sure, at least partially, the MAG that were due for January next year won't be due anymore, but that will be on a case-by-case basis.
Very clear. Thank you.
Thank you so much. And the next question comes from the line of Patrick Creuset from Goldman Sachs. Please go ahead.
Hi. Good afternoon. Just one question for me, if we can come back to your thinking on the DORA reset. So just to have your thoughts basically on some of the parameters. I mean, do you, for example, see a case to argue for higher cost of capital in the current context, higher cost of equity? Do you actually see a way to possibly even ask for higher aviation fees in the next DORA, despite the cap you have in place until 2026? And do you see potentially also a mechanism to reclaim some of the losses or under-earned during the COVID period, 2020, 2021, basically for the next DORA as a sort of credit?
Okay. You want me to show the cards? Well, no, being serious, I don't think it would be sensible and indeed clever or smart to discuss some of these things because we will need to submit our proposal in due course. Until then, we have time to run scenarios, to review figures, to update our position with the latest information, particularly now that things are evolving very, very rapidly. And so I'm afraid I won't be able to answer any of your questions, but at the same time, I won't rule out anything. What is true, in my view, and this is a general comment, is that the level of risks that this business carries is higher than many people thought some one year ago. So these things should be reflected in the right way.
What's happened?
I'm sorry.
No, I understand. Simply in terms of mechanics, do you actually see a procedural way to get around the cap on raising tax in the next DORA? Because I think that the cap is 2026. So more than just the simple procedure, do you see a way to, for example, get a credit for under-earned or to raise the fees passing the sort of negotiation stand?
I think initially, the only element of cost that could support any scenario of, let's say, exceeding the cap would be the COVID-related costs. The legislation approved some months ago stated very clearly that the cap won't apply to any COVID-related cost recovery process. Beyond that, I frankly struggle to see that change. But I don't think we will need it. Honestly, I don't think we will need it because the driver for everything will be the passenger forecast. And if the passenger forecast is really, really awful, the investment plan should be commensurate with that pretty bad scenario. So I believe it would be probably wrong to preempt that we will need to exceed the cap.
Okay. Thanks very much.
Thank you very much. And once again, please, if you wish to ask a question, press star one on your telephone and wait for your name to be announced. If you want to cancel your request, please press the hash key. And the next question comes from the lines of José Arroyas from Banco Santander. Please go ahead.
Hi, just a couple of questions. First one is on taxation. The Spanish government announced its budget for 2021 yesterday, and there appears to be some confusion on whether there will be new taxes on Spanish corporates, particularly on dividends. Does Aena have an assessment of what this might mean for the company? That's question number one. And question number two on the MAG, if you can give us some flavor as to what categories of retailers are being harder to negotiate with. Is it the food and beverage retailers? Is it the specialty shops? I mean, if you can qualify that, that would be helpful. Thank you.
Okay. Our understanding, our assessment of the changes in taxation is that they will be close to nothing. They will be close to no impact on us. The point you mentioned on the taxation on dividends from subsidiaries, we understand that in practical terms, what will happen is that they won't be anymore. There will be no 100% relief on that, but there will be 95% relief on that. So in practical terms, the impact is not material at all. And the rest of the changes in the taxation landscape are not very relevant to us. So no, the answer is we don't expect at this stage any relevant impact to come up. With regard to retailers, yes, there are some people more difficult than others, but I'm not going to share that with you. I'm afraid, José.
All right. Thank you.
Thank you so much. The next question comes from the line of Stephanie D'Ath from RBC. Please go ahead.
Hi. Good afternoon, and thanks for answering my question. The first one is on retailers. Can you remind us of the average length of the contract and how big the biggest retailer is? And am I right to understand that your negotiation on commercial agreements would therefore cover the remainder of the contract, so therefore probably the years to come? And then a subsidiary question to that is, how long do retailers have to pay MAG between the moment it's billed and if it's a quarter, and what's the time lag between, I guess, the quarter receivable and the payment? Secondly, in terms of 2021, would you still expect to be able to break even or book positive operating cash flow? And what about free cash flow? And then last question is, could you please give us a little bit more of understanding on the third-party contractors?
To which extent can you flex those contracts today? And if I remember well, there's quite a high number of people working at the airports within the infrastructure, which are not contracted by Aena, but by those third-party contractors. To which extent can you just cut those down? Because my understanding was that you had renegotiated a lot of third-party contractors for the years to come, and I would have thought that those contracts were therefore not really renegotiable in the near term. Thank you so much.
Sorry, Stephanie, but I'm likely to ask you to refresh some of your questions because I was unable to. I couldn't cope with the speed, so I'm afraid. But anyway, starting with them, maybe Emilio, can you remind me of some?
The length of the contract and whether it's.
Okay. The length of the contract. I cannot tell you about any average length of the contract. Clearly, there are contracts that are still running for five years, some others for three years, for two years. There is a variety of them. So there is no such thing as an average. For instance, World Duty Free or duty-free contract will run still for five years. Then what I can tell you is that the most important retailers in this business are in no particular order, other than the first one that I'm sure is in the right place, which is World Duty Free Group. But then you have Areas, SSP, Pansfood, Lagardère. So those are Autogrill, so the WHSmith. So those are the main retailers, the main commercial operators.
And indeed, they represent a very material, very significant chunk of the total minimum guaranteed rents revenues that you are seeing today in our accounts. So with no more than 10, 15 retailers or operators, you can cover well in excess of 85% of the minimum guarantees. So those are the most critical ones. But each and every one of them have different views, different interests, different lengths of contracts. So it would be misleading probably to give you a one-size-fits-all answer to that. Then the next one is.
The second one was related to the MAG and the timeline, but I didn't get exactly what you meant. So maybe if you can.
You mean from billing to collection is what you mean, no?
Yes.
30 days. 30 days. Then which else?
2021, what's cash flow, break even, or cash flow?
Okay. The free cash flow break-even levels is something that you mean in terms of traffic, I suppose, is something that it was asked already before, and I committed to provide you with some more color. I don't want to get it wrong. But rest assured, we will share that information with you. Obviously, subject to, because one thing is traffic and the second point is costs. So by sharing that information with you, we will give you a proviso. We will make a proviso as to what is the level of operating cost savings we are contemplating. Otherwise, the scenario would be different for different levels of cost savings. So I would like you to take it as a sort of academic and helpful exercise rather than a forecast of anything.
Flexibility of the contracts of the suppliers.
Okay. With regard to the suppliers, definitely it has been a very challenging process. We have been in tough discussions with them, but I believe that overall has been successful. We have, to put it that way, we haven't faced any legal action, any issue of this kind. So everybody has been very, very committed. Of course, of course. The ERTEs, the furlough scheme in Spain, is always helpful to that aim. But I think my feeling is that we have been working relatively well together. Everybody has suffered his fair share of pain, but I don't feel there are major issues. Some of the contractual agreements that we will be entering into in the future as part of the new tender model will incorporate provisions for this kind of situations, and that will also be helpful.
That will add flexibility to our ability to manage the costs.
Thank you. And maybe just following up on that last point, please, the ERTE scheme. So that basically means that your third-party contractors were able to use the state ERTE scheme in order to still survive, I guess. How long is that state ERTE scheme in place? And once it stops, would you then expect other operating expenses to increase?
Definitely that helped a great deal. This is coming to an end, I believe, some of the businesses.
In the first quarter of 2021. First quarter. I was being helped by Emilio. So by the end of the first quarter of 2021, hopefully by that time we won't need it. But it's true. Without that instrument in place, things will get more complicated. I cannot deny that.
Thank you very much.
Thank you very much. And the next question comes from the line of Andrew Lobbenberg from HSBC. Please go ahead.
Hi. It's Andrew. Sorry. I did come late into the call, so you may have answered this already. But what's the status of the MAG revenues that relate to the period of emergency, which I think is EUR 196 million? Because I think earlier in some questions, you spoke with confidence that other than some very modest impairments, you expected to claim and get paid all of the revenues subject to negotiation. So what's the status with that block of 196, please?
The status is that we accounted for them as probably you, Andrew, managed to listen before because the contractual rights are there for everything, for every element of the MAG, including the EUR 198 million of MAG over the state of alarm. So our plan is for every operator that by the end of the year or by the time we are due to charge or to send the invoice for any operator with which we haven't reached an agreement, we will send the bill and we will collect the monies. That's the plan. As I said before, the impairment element of that will be. Won't stop us from claiming that, from invoicing and from claiming that. Simply, the impairment element of that will be the way we are due to treat any credit risks in accounting terms. That's all.
So if we feel we should provide for something because there is a risk, there is a credit risk associated, we will provide. But that won't mean we are not going to send the invoice and to pursue the collection. We will do it. Different thing is when we have reached an agreement with a particular operator. In that case, the agreement will supersede the previous contract or will amend the previous contract and potentially will waive part of those minimum guarantees. And then, of course, we won't send the invoice and we won't try to collect that particular element.
Thanks. Does that mean that if we get an agreement with people and you end up waiving a portion of those fees? I know you spoke earlier about moving that impact over the remaining life of the contract. And indeed, if you extend the contract, which is part of your goal, that would make it smaller. But does that mean that we're going to I mean, is there a risk of a write-back of that 196 in the fiscal 2020 result? Or no, you'll stand by that and you'll revert it out over the remaining five years, seven years, whatever you extend to?
There will be a rebate for sure. For every particular contract, this is not the general solution. It's just for every particular contract, when you reach an agreement, I'm pretty sure that there will be a restructuring of the contract. You will need to account for that. There will be a rebate for sure. Importantly, the cash that would otherwise be received in January, February time won't be received anymore.
Yeah.
But that will be on a case-by-case basis. And I cannot anticipate. I understand that this can be a little bit confusing, but believe me, there is no other way around. We cannot account, and we have been discussing that long and hard. And Andrew probably knows that three months ago, I was myself still trying to get my head around. But the reality is that this is the way we should account for that. There is no other way around.
In terms of the adjustments that end up being made, and you spoke of impairment previously, would they be excluded from an EBITDA and would write-back be excluded from EBITDA, or would there be an EBITDA? I'm just wondering about the sensitivities around the covenant. Do you think by year-end, it's all irrelevant because you'll have got the waivers, so it doesn't matter?
No, no. We'll impact the EBITDA for sure.
Andrew, let me clarify in terms of these impairments. I think it's important to know that when you have any collection pending, the first analysis you do is compare it with the guarantees that we have. That's the reason why maybe in terms of the numbers or the risk that we have in order to of that impairment would be the amount or the difference between the amount pending and the guarantees, not the whole amount pending. That's the reason why the numbers we are talking about are maybe lower or smaller than maybe you could expect.
That's a very good point, Emilio. Exactly. Yeah.
Cool. Guys, thanks for your attempt to explain it. I know it's been initially complicated.
Thank you so much, and the next question comes from the line of Arthur Truslove from Credit Suisse. Please go ahead.
Hi. That's just a quick follow-up from me. I mean, obviously, in Q3, you delivered cost savings of just over EUR 40 million a month once again. Is that something that we should assume you're going to achieve through the winter as well? Is that a reasonable assumption? And if not, then what would be more sensible? Thank you.
I believe what we can tell you is that if the traffic levels don't recover beyond the point we are today, that's our target, to be able to save no less than this amount or something in the region of. Yeah. Different thing is if there is a ramp-up, if there is a recovery, I always said that it would be harder to commit to any particular level of cost. Obviously, committing to be extremely, extremely focused on cost, but it's much more difficult to anticipate how costs will evolve in response to a particular percentage of traffic recovery. But to the extent that we remain at the current levels, which, as you know, are really, really poor, of course, we will work hard to get at least that level of savings.
Thank you.
Thank you so much. And the next question comes from the line of Nicolas Mora from Morgan Stanley. Please go ahead.
Yes. Good afternoon, gentlemen. Just a few quick follow-ups. First one on OpEx. I mean, so far, you've done great on the third-party services costs and staff costs that remain a bit sacrosanct. I mean, how long do you see that continuing? It's basically flat year to date. Second one, sorry to come back to the MAG, but just considering the different environments where your clients or the travel retailers, food and beverage concessionaries are, some have done a couple of rights issues already, some just one, some not at all. I mean, are they more interested in cash rebates or on lower fees? Just for us to understand a little bit the risk on basically the cash collection in 2021 and 2022. And on follow-up on that, just noticing that the working cap for the first time is a bit unusually high in terms of outflow in Q3.
What's the expectations for the full year and into next year? Can you give us a ballpark figure of the risk around not collecting the MAG? Are we talking about EUR 100 million shortfall, EUR 400 million, I mean, the whole EUR 800 million? What's your gut feeling from here? Thank you.
You are right that so far the staff cost or the staff element of our cost base has been sacrosanct. I don't think there is a need to change that approach. Now, I shared with you some time ago that, well, there were a number of reasons for that. Of course, some of them have to do with the very limited amount of savings that you can reach through that unless you disbanded a significant part of the organization. Also the fact that at the point in time, it was the right approach to be able to deal with the rest of the challenges in terms of cost savings coming from third parties. No change in our mind. We need to keep vigilant because we don't know where we will be in one year from now.
Hopefully, we will be celebrating the recovery and also the return of a healthy world. With regard to whether I understand that your question about whether they prefer cash or lower fees, you mean from the point of view of the operators, our customers, not ourselves?
Exactly. Yes. Yeah.
I think it's a case-by-case basis. I guess what really matters to them is cash, I guess. But don't forget that these accounting standards that apply to us, they also apply to them. IFRS 16, for instance, can be terribly complicated for some of them. And that can only be cured through fees adjustments. You know what I mean? Because they don't follow cash or the cash don't follow the accounting rule, as we have been discussing before. And probably that generates confusion. But that means that for some of them, adjustments to the fee regime can be very, very relevant in terms of how that will impact the level of debt in their balance sheets and the ratios and so on and so forth. But I guess I might be wrong, honestly, that for them, the cash is king. And then.
And just.
Yeah?
Yes. On the working cap, just for us to fine-tune a bit expectation?
The expectation is that we will be collecting the MAG, we will get all the money back, and then the working capital will evolve accordingly. I cannot tell you what. Honestly, if we feel at any point in time that there is a risk of collection, we will need to reflect that in the accounts through providing for that. That IFRS 9 will force us to provide for that, to create provisions, and then to show that openly to yourselves. So far, we don't believe there is such a risk so far.
No, no. I understand the nuance, but I was more talking about within agreements, you might be, I mean, other retailers are aggressively enticed to sign before you invoice anything by the end of the year. I mean, there's going to be a big part of that focused on cash collection, whether or not they pay 0%, 50%, 100% of what they own.
It will depend on the number of agreements. But you are right. If we agree, let's assume that we agree with everybody before the end of the year that, well, in that case, there will be a significant impact on those collections. I don't deny that. That's exactly what we have been discussing for months already. And I know that can give you some degree of, I don't know, can generate confusion, but it is what it is. If the agreements take place, we will be waiving part of that cash in exchange for longer-term commitments. That's the approach. Because we are conscious of the difficulties for the end of the current times. We don't ignore that situation.
All right. That's clear. Thanks a lot, José.
Thank you so much. The next question comes from the line of Charles Maynadier from Kempen. Please go ahead.
Hi. Good afternoon. This is Charles Maynadier from Kempen & Co. Just actually one last one on my end. And it's not about the MAG, don't worry. More a boring topic, I'll say, on real estate. If you can give us an update on the project, is everything on hold now? And if you expect to resume the process, do you expect to make any changes to yo ur initial plans? So just maybe a quick update on that business segment.
Hi, Charles. I really appreciate you changing directions. Thank you very much. The real estate plan, on one side, it was halted for obvious reasons. We are now thinking, and I'm not telling you that decision has been made finally, but what we see is that the logistics markets are very, very active. There is, if you like, it's a market that is still strong. We have premium locations available. We may well reactivate the plan in 2021. When I say we may well, I don't mean the decision has been made, but clearly focusing on the logistics. That wouldn't make a great deal of difference to the original plans because, frankly, in the first stage of that plan, the offices and hotels played a part, but still it was relatively minor. That wouldn't make a big change to the original plan.
Yeah, yeah, we believe that ironically, so the logistics business is benefiting from the current situation.
Yeah. Thanks, José. And maybe on the follow-up on that logistics, I mean, do you expect to actually be in the operations as well or just rather lease the land? So what's the risk profile you want to take there?
No, the base case model, that doesn't mean we can't take a different role on a case-by-case basis. But the base case model is we wonld contribute. We will create a JV vehicle with a partner, whichever partner wins any particular tender process. And then we will contribute the right to use the land over a number of years, let's say 75 years or whatever, or 50 or 25, depending on the nature of the business that is meant to be run on that land. And we won't contribute any euro at all. The partner will be taking care of the rest of the development investment. Then we will be getting the return out of the global business, not only out of the right to use rent element.
But beyond that, we will be hopefully collecting dividends as a result of the global business, the whole business. Okay. We are running out of time. Probably if, well, we have two more people queuing, but let's deal with those two individuals, and we will close the call if you don't mind.
Absolutely. So the next question comes from the line of Dario Maglione from BNP Paribas. Please go ahead.
Hi. Good afternoon, everyone. Question for me on cost. You mentioned you are renegotiating some of the contracts. What percentage of these contracts are under renegotiation, especially, I guess, with the third-party suppliers? And can we expect this to last for the remaining of the contract, or is it a temporary effect? And also, what rate, what cost savings or increase are you seeing as you renegotiate these contracts? Thank you.
Oh, sorry. Maybe there is some confusion. On one side, we have been in discussions, and in some cases, we have been making decisions with very little discussion with the existing contracts and the existing suppliers over the second quarter, if you remember. March, April, we were imposing, so to speak, or making decisions to reduce the level of service, the level of resources, and obviously the cost associated to that with every single third-party supplier of the main services we are provided with. And that will be the case going forward. We will be adjusting the level of service and the costs to the traffic conditions. That will be it across the board. And then what I said before, and as a result of that, we have achieved the savings that you can see today, the savings that over quarter three has been EUR 127 million.
In the previous quarter, it was something close to EUR 160 million. And then, on the other hand, with new tenders, new tenders that will take place over a number of months and potentially years, we are adjusting some of the terms and conditions of the contractual arrangements, including provisions to deal with significant reductions in traffic. So to be able, from day one, from the outset of any problem, to be able to just adjust the contract down to the new reality without the need to run any discussions. But that will be the case from now on. What is true is that the security contract that we tendered some weeks ago and that are now about to be awarded, they already incorporate that provisions. And that's important because those contracts represent no less than, well, EUR 400 million cost over three years. So they are very significant ones.
Thank you so much. And the last question comes from the line of Stephanie D'Ath from RBC. Please go ahead.
Yes. Thank you. Just a quick follow-up. I understood that from billing to collection, there is 30 days for the retail operators. But what I still didn't get is the time between your recognized MAG and your P&L and the time to send the invoice because I understand some of the invoice related to the state of alarm has not been sent yet. So could you please help me understand how long that takes? And then you were mentioning that you have guarantees from your retailers. I guess those might be depleted over time. So could you maybe specify in more detail how those work? Thank you so much.
All the MAGs are built in January, February the year after they are accrued. So any MAG accrued in 2020, being that in January, February, March, whatever, will be built in January 2021 and then collected one month later. That's the approach. And clearly, in previous years, the amount of MAGs to be built and collected next year was significantly lower than now. And that's the challenge, if you like. And then with regard to the guarantees, they remain in place for the entire life of the contract, and they only decay when the contract comes to an end and all the obligations have been fulfilled. So they are in place all the time, all the time. Obviously, they are not protecting you against everything because if you accumulate debt, what you have to do is just to execute the guarantee and to move on.
But for the time being, they are extremely helpful because when providing for the impairment of any potential impairment, they are there to protect us. Thank you. Well.
Thank you. Thank you so much. That does conclude the Q&A. So please go ahead.
Okay. Then thank you, everybody, for joining us today. Hopefully, you have a, well, Merry Christmas, and we get back in February with full year 2020 results. Thank you. Bye.
Thank you so much. That does conclude our conference for today. Thank you for participating. You may all disconnect.