Mexican Airports

Latin American Equity Research
Mexico City, May 28, 2008
Sector Report
Mexico Aerospace & Transportation
AIRPORT REVIEW
Losing Altitude but Not Crashing
Gonzalo Fernndez*
Mexico: Banco Santander S.A. (5255) 5269-1931 gofernandez@santander.com.mx
MAY 2008
Vivian Salomn*
Mexico: Banco Santander S.A. (5255) 5257-8172 vsalomon@santander.com.mx
In this report, we are introducing YE2009 target prices for the Mexican airport groups Asur, GAP, and OMA, and reiterating our Buy ratings on all three stocks. We are adjusting our estimates and valuations for the sector to take into account the difficult environment the airline industry is facing due to the significant hike in jet fuel prices. Nevertheless, after the sharp drop in stock prices in the sector, we believe that most of the negatives are already priced in, and we continue to see value in the sector over the medium term. We include an overview of the airline industry in Mexico in order to address the potential effect that the high oil prices are having on legacy, regional, and low-cost carrier, as well as airport operators. As a result of the significant increase in fuel costs, which has created significant cost pressures over the past few months, Mexican and international airlines have been forced to adjust routes and frequencies. There has been a significant reduction in traffic for Mexican airport operators, and, therefore, we are adjusting our estimates accordingly. We have lowered our estimate for 2008 traffic growth for the three publicly traded airport operators from 10.7% to 6.8%. The stock prices of the publicly traded Mexican airport operators have been one of the worst-performing groups in the Mexican market, with OMA losing 23%, GAP 25% and Asur down 18%. The average FV/EBITDA multiple for the sector has dropped from 10.0 times in November 2007 to 7.5 times currently. As a result, after adjusting our outlook for traffic to the new environment, we are setting a YE2009 target price of US$68.00 per ADR for Asur, US$26.00 for OMA, and US$47.00 for GAP, and reiterating our Buy ratings as our new target prices indicate potential upside of 35%, 34%, and 40%, respectively. Compared with international airport operators, the sector in Mexico is trading at a significant 58% discount in terms of 2009E FV/EBITDA and 25% in terms of 2009E P/E. In our opinion, even though we still see some weakness in the sector near term from lower-than-expected traffic growth (though we believe the downside is limited), we continue to see value in the sector due to high margins and strong free cash flow generation. In this report, we also present an analysis of the current situation in the Mexican airline industry. In our opinion, traditional carriers Aeromexico and Mexicana will likely need to make adjustments to their routes and costs, and probably require additional capital to compensate for higher costs. Nevertheless, given their market share and international presence, they should be able to weather the current turbulence, in our view. Newly created low-cost carriers such as Volaris and Interjet could do well, in our opinion, due to the low average age and high efficiency of their fleets. If required, these companies could access additional capital from their majority shareholders. Viva Aerobus, Alma, and Avolar could face more difficulties, in our view, because their aircraft are older and less efficient. Finally, as the regional carriers created before 2006, such as Aviacsa, they have the oldest fleets, we believe that they could be the most vulnerable. In our opinion, we are likely to see adjustments in their operations, such as fewer flights and routes, and even route cancellations, keeping only the most profitable operations, with the stronger airlines likely taking the routes given up by the weaker ones. This, in our opinion, could cause a temporary drop in air traffic. After analyzing their exposure to different airlines and passenger segments, Asur is the most defensive group in the sector, in our opinion. GAP and OMA could face more difficulties due to their higher exposure to regional carriers. However, we find attractive upside potential for all three stocks. Universe of Coverage (U.S. Dollars in Millionsa)
Company Asur GAP OMA Average
a
Ticker ASR PAC OMAB
Rec. Buy Buy Buy
Price May-23 50.24 33.65 19.38
Target Upside/ Price Down 68.00 35% 47.00 40% 26.00 34%
Net Earnings 2008E 2009E 2010E 101 115 123 135 139 151 66 64 69
2008E 14.9 13.9 14.6 14.4
P/E 2009E 13.1 13.6 15.0 13.7
2010E 12.3 12.5 13.9 12.8
FV/EBITDA 2008E 2009E 2009E 7.1 6.1 5.5 7.8 7.0 6.5 7.5 6.6 6.0 7.5 6.6 6.1
Mkt. Cap 1,507 1,888 963
Except per share/ADR amounts. Sources: Company reports and Santander estimates.
Important disclosures/certifications are in the Important Disclosures section of this report.

U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918. * Employed by a non-US affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under NASD rules.
Losing Altitude - but Not Crashing
TABLE OF CONTENTS
Airport Review ........................................................................................................................ 1 Recommendations, Target Prices, and EBITDA Estimates..................................................... 3 Investment Case....................................................................................................................... 4 Comparative Valuation Table .................................................................................................. 6 Asur........................................................................................................................................ 15 GAP ....................................................................................................................................... 23 OMA ...................................................................................................................................... 31 Important Disclosures ............................................................................................................ 39 Important Disclosures (Continued)........................................................................................ 41
Sector Research Team

Analyst Name Gonzalo Fernndez Vivian Salomn Country Mexico Mexico Email gofernandez@santander.com.mx vsalomon@santander.com.mx Telephone (5255) 5269-1931 (5255) 5257 8172

U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918
RECOMMENDATIONS, TARGET PRICES, AND EBITDA ESTIMATES

Company Asur GAP OMA Inv Code From To Buy Buy Buy Buy Buy Buy Target Price From To (08YE) (09YE) 70.00 60.00 32.00 68.00 47.00 26.00 From 184 241 115 2008E To 180 236 107 % -2.3 -1.7 -6.6 From 193 263 129 2009E To 197 257 119 % 1.9 -2.2 -7.7 From 2010E To 207 276 127 %
All data in US$. Sources: Company reports and Santander estimates.
Figure 1. Mexico Select Economic Projections, 2007-2010E

2007 Real GDP (%) CPI Inflation (%) US$ Exchange Rate (Year-End) US$ Exchange Rate (Average) Interest Rate (Year-End) Interest Rate (Average) Fiscal Balance (% of GDP) Current Account Balance (% of GDP) International Reserves (US$ Bn) Total External Debt (% of GDP)
NA not available. Source: Santander historicals and forecasts.
2008E 3.0% 4.4% 10.70 10.66 7.8% 7.6% 0.0% -1.5% 78.0 12.1%
2009E 3.6% 3.8% 11.04 10.90 7.5% 7.5% 0.0% -1.6% 82.9 11.5%
2010E NA 3.5% 11.47 11.45 NA NA NA NA NA NA
3.3% 3.8% 10.92 10.93 7.4% 7.2% 0.0% -1.2% 76.5 12.8%

U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) 583-4629/ (212) 350-3918.
INVESTMENT CASE
The price of WTI oil has increased from US$60 per barrel to US$133 per barrel and jet fuel from US$80 per barrel to US$160 per barrel over the past 12 months, having a significant negative impact on airlines and air travel, as fuel represents close to 30% of an airlines operating costs.
Figure 2. Jet Fuel and Crude Oil Price ($/barrel), Jan 2003-May 2008
Source: IATA.
This negative impact has forced Mexican airlines to adjust their operations by reducing flight frequencies and routes in order to maintain only the most profitable operations. As a result, traffic growth for the three publicly-traded Mexican airport operators declined from 17.4% in full-year 2007 to 13.6% in 1Q08 and 0.8% in the month of April. The strength in 1Q08 and the slowdown in April are partially explained by the calendar effect of Easter week, which fell in March this year rather than April, as in 2007. Nevertheless, weak traffic reports in April have increased concerns regarding the outlook for the sector, resulting in significant adjustments in stock prices. As a result, we are reducing our estimated average traffic growth for Mexican airports from 11% YoY previously to 7% for 2008 and 2009, in line with the historical average (see Figure 3 on the following page). Despite a more conservative scenario, based on our new YE2009 target prices, the three stocks we cover in the sector offer an average potential upside of 27% plus an average dividend yield of 4% per year. As a result, we are maintaining our Buy recommendations on these three stocks, although we do not rule out further price volatility in the near term.
Figure 3. Passenger Traffic Growth
40.0% 30.0% 20.0% 10.0% 0.0% -10.0% Feb-07 Mar-07 Oct-07 Feb-08 Nov-07 Dec-07 May-07 Sep-07 Mar-08 Jan-07 Jun-07 Apr-07 Jan-08 Jul-07 Aug-07 Apr-08
Asur
Source: Company reports.
GAP
OMA

Figure 4. Total Domestic and International Passengers (Thousand of Passengers)

46,110 CAGR 5.8% CAGR 4.7% 26,404 17,119 27,830 18,280 CAGR 8.3% 29,807 48,725
35,237 32,855
37,834
39,412
38,282
37,256
39,276
43,523
22,128
23,404
25,473
25,760
25,048
24,051
24,846
18,918
10,727
11,833
12,361
13,652
13,234
13,205
14,430
1997
1998
1999 Domestic
2000
2001
2002 International
2003
2004
2005 TOTAL
2006
Source: Mexican Ministry of Communications and Transport.
VALUATION
As a result of the abovementioned adjustment in the sector, the average 2008E FV/EBITDA has dropped from 10.0 times in November 2007 (the date of our last report) to 7.5 times at present.
Figure 5. FV/EBITDA Forward Multiples, Nov. 2006-Apr. 2008
13.2 12.2 11.2 10.2 9.2 8.2 7.2 6.2 Oct-07 Mar-07 Feb-07 May-07 Nov-07 Dec-07 Nov-06 Dec-06 Sep-07 Mar-08 Feb-08 Jun-07 Jul-07 Jan-07 Jan-08 Apr-07 Aug-07 Apr-08
GAP
Source: Santander estimates.
OMA
ASUR
Average

COMPARATIVE VALUATION TABLE

When compared with international airport operators, the sector in Mexico is trading at a significant 58% discount in terms of 2009E FV/EBITDA and 25% in terms of P/E 2009E. This confirms our view that the market in Mexico has overreacted to the current situation, and that the stocks still offer attractive valuation levels.
Figure 6. Comparative Valuation of Mexican and International Airport Operators
Airport Copenhagen Auckland Beijing Vienna Malaysia Fraport Shangai Macquaire Airports International Average Asur GAP OMA Mexico Average Mexico vs. International Ticker KBHL DC AIA NZ 694 HK FLU AV MAHB MK FRA GR 600009 CH MAP AU ASR PAC OMAB Price US$ 23-May Mkt Cap 444.40 3,487.6 1.80 2,195.5 1.04 1,634.1 120.33 2,526.9 0.93 1,026.4 68.98 6,315.6 3.29 6,337.5 3.07 5,272.0 28,795.6 50.24 1,507.2 33.65 1,887.8 19.38 962.7 4,357.6 2008E 11.5 13.9 4.4 10.0 5.2 9.3 21.0 15.3 11.6 7.1 7.8 7.5 7.5 -35.7% FV/EBITDA 2009E 10.9 12.7 3.3 9.3 4.7 9.0 17.6 13.9 15.8 6.1 7.0 6.6 6.6 -57.9% 2010E 10.5 11.8 2.7 8.5 4.5 8.6 14.4 12.4 8.7 5.5 6.5 6.0 6.1 -30.5% 2008E 19.1 29.1 16.0 17.6 11.9 20.5 27.3 12.9 20.3 14.9 13.9 14.6 14.4 -28.9% PE 2009E 20.2 24.9 15.1 17.1 9.8 20.9 22.4 10.1 18.4 13.1 13.6 15.0 13.7 -25.4% 2010E 19.3 22.8 8.7 15.1 9.4 22.1 19.2 7.8 16.7 12.3 12.5 13.9 12.8 -24.0%
All data in US$. Sources: Company reports, Santander estimates, and Bloomberg estimates for international airports.
ATTRACTIVE DIVIDEND YIELDS

Because of their capacity to generate strong free cash flow, Mexican airport operators are among the highest dividend payers in the Mexican public sector. With the sharp adjustment in stock prices over the past months, dividend yields have become even more attractive. GAP will pay the second tranche of its 2008 dividend of M$2.00 per share (M$1.54 per share paid on May 26, 2008 and M$0.46 per share to be paid on October 31), which represents a yield of 5.6% at current prices. For 2009, we estimate a cash dividend of M$2.10 per share, indicating a 5.7% yield at current prices. OMA will pay quarterly cash dividends of M$0.27 per share on July 15, October 15, and January 15, 2009 and April 15 2009. We estimate a total dividend of M$1.10 per share for 2009, with dividend yields of 4.6% for 2008 and 4.2% estimated for 2009, based on current prices.. Finally, Asur will pay a cash dividend of M$2.00 per share on May 30, which represents a yield of 3.8%, and we estimate a dividend of M$1.60 for 2009 with a 2.9% yield, based on current prices. All dividends are after taxes.
INDUSTRY OVERVIEW
As we have mentioned in previous reports, the transformation of the Mexican airline industry began in 2006 with the privatization of Mexicana and the launch of six low-cost carriers (LCCs), followed by the privatization of Aeromexico in 2007. Before 2006, the industry was comprised of two legacy carriers that were owned by the government (Aeromexico and Mexicana), along with a few regional carriers such as Aviacsa. As a result of these changes, air fares decreased and competition increased, resulting in domestic traffic growing 7.1% YoY in 2006 and 18.3% YoY in 2007. Low-cost carriers have been consistently increasing their market share, reaching a market share of 34.3% in 1Q08,
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largely at the expense of the legacy and regional carriers. The most representative of the latter, Aviacsa, has maintained a consistent market share of 14%. However, this carrier has been the most affected by the recent hike in fuel prices, aggressively reducing frequencies and routes in 1Q08, which led to a drop in its market share to 9.3%. According to conversations with the management of airport operators, these routes have been gradually taken over by other carriers.
Figure 7. Market Share in Domestic Traffic in Mexico, 2004-1Q08
Grupo Aeromexico Grupo Mexicana Low-Cost Carriers* Aviacsa 2004 2005 2006 2007 1Q07 1Q08 05/04* 06/05* 07/06* 1Q08/1Q07 39.0% 36.9% 32.9% 28.6% 31.0% 26.5% - 2.10 - 4.00 - 4.32 4.59 28.3% 27.8% 27.0% 24.1% 23.5% 22.1% -0.5 -0.8 - 2.93 1.47 0.0% 0.3% 12.9% 26.1% 20.4% 34.3% 0.3 12.6 13.2 13.90 13.9% 14.7% 14.0% 11.7% 14.1% 9.3% 0.81 - 0.73 - 2.30 4.81
Source: Mexican Transportation Ministry. LCC include Interjet, ALMA, Avolar, Volaris, and VivaAerobus.
Despite rising fuel prices, the impact on each airline mainly depends on the fuel efficiency of its fleet, which is largely determined by the fleets age. According to IATA, fuel efficiency has improved significantly in the industry since 2002, due to the increasing percentage of newer and more fuel efficient aircraft in the fleets.
Figure 8. Fuel Consumption per Passenger (Gallon)
40 38
-17%
36 34 32 30 28 26
-7%
Source: IATA December 2007.
Figure 9. Fuel Expenses % of Total Expenses

35 30
+164%
25
-10%
20 15 10 5 2 001 2 003 2 005 2 007 2 E 009 2 E 011 1 995 1 997
Source: IATA, December 2007.

20E 09
21E 01
20 01
20 03
20 05
19 95
19 97
20 07
Figure 10. Fuel Consumption: Tons/Hour

Airlines Aviacsa, Avolar, VivaAerobus and Magnicharters Mexicana, Interjet, Volaris Aeromexico Aeromexico Connect Alma
Aircraft B737-200 /B737-300 A319, A320 B737-700 / B737-800 EMBRAER 145EP Bombardier CRJ
Ton/Hour 2.8 2.0 2.0 1.3-1.4 1.4
Among the Mexican carriers, regional carrier Aviacsa and low-cost carriers Avolar, and VivaAerobus, together with charter airline, Magnicharters, are the airlines with the highest fuel consumption. The traditional carriers Aeromexico and Mexicana and LCCs Volaris and Interjet are in the mid-range in terms of efficiency, while the companies with the most efficient fleets are Aeromexico Connect (a subsidiary of Aeromexico) and Alma. Other characteristics that impact costs are labor (higher in traditional airlines) and administrative expenses. In our opinion, the current situation in the industry could lead to consolidation, and we believe that Volaris and Interjet would be the most likely acquirers. Because of the low concentration in the domestic market, with more than 14 participants and the highest market share held by Aeromexico and its subsidiary Aeromexico Connect (20%), in our opinion, there is a lot of room for consolidation in the industry as a result of the current difficult climate for the industry. Airlines with strong financial support from their controlling shareholders like Aeromexico (Jose Luis Barraza, Roberto Hernandez and Banamex), Volaris (Carlos Slim and Televisa), and Interjet (Miguel Aleman) could increase capital if required and could be the consolidators of the industry. The financial health of Mexicana is one key issue for the airline industry in Mexico. Mexicana was acquired in 2006 by Grupo Posadas and holds 18% of the domestic market (Mexicana + Click) and 57% of the international market, mainly routes to the U.S. and South America. At present, there is no public information regarding the financial health of Mexicana, and trouble at this airline could have a significant negative impact on the sector. According to recent reports in the Mexican press, Mexicana and Aeromexico are in talks with the unions in order to reduce labor costs, which is critical to their financial health.

Figure 11. Main Airline Fleets in Mexico, 2007

Airline Interjet AIRBUS A-320-214 Aerocalifornia DC-9-32 VivaAerobs BOEING 737-301 BOEING 737-387 Alma BOMBARDIER CL-600-2B19 AEROVIAS DE MEXICO BOEING 737-700 BOEING 737-800 BOEING 757-200 BOEING 767-200 BOEING 767-300 BOEING 777-200 BOEING 787-8 MD-82 MD-83 MD-87 MD-88 AVIACSA BOEING 737-200 BOEING 737-205 BOEING 737-219 BOEING 737-2T4 BOEING 737-301 AVOLAR B737-200 B737-300 B737-500 LINEAS AEREAS AZTECA BOEING 737-300 BOEING 737-700 MEXICANA DE AVIACION AIRBUS A318 AIRBUS A319-100 AIRBUS A320 BOEING 727-200 BOEING 757-200 BOEING 767 Volaris AIRBUS 319-132 AIRBUS 319-133 Aeromexico Connect SAAB 340B EMBRAER 145EP EMBRAER 145LR EMBRAER 145LU EMBRAER 145MP ERJ 190-100LR Click FOKKER AIRCRAFH F28-MK0100
Sources: SCT, Boeing, Airbus and Santander.
Aircraft
2007 11 11 22 22 5 1 4 18 18 74 33 6 2 3 1 4 3 2 10 10 26 14 1 6 2 3 12 4 5 3 8 5 3 66 10 20 31 3 2 17 7 10 38 8 5 7 11 4 3 17 17
Orders
10
13

AIR TRAVEL PRICING SURVEY

Our price survey among the two legacy carriers in Mexico (Aeromexico and Mexicana) and two LCCs (Volaris and Interjet) shows that LCCs continue to offer strong price incentives versus the legacy carriers. Using the Internet, the data was collected for three routes Mexico/Toluca to Cancun, Monterrey and Guadalajara based on a round trip fare and comparing the dates of March 1, March 12 to May 20 and May 21. We separated the airfare and the tax portion of the ticket price in order to evaluate the composition of the full fare. LCCs, compared to traditional airlines, offer fares that were an average of 27% lower on the Mexico to Cancun routes, 28% lower for flights between Mexico and Monterrey, and 31% lower between Mexico and Guadalajara. Surprisingly, despite the difficult environment for airlines, ticket prices continue to fall because of competitive pressures. Nevertheless, we believe that airlines will start to raise prices or add extra fees related to fuel, so that they can pass this additional cost on to the passenger. Mexican airlines, including legacy and LCCs, have started taking measures to reduce fuel consumption, from using lighter materials in their equipment to limiting the number of carry-on bags and the weight of checked baggage in order to reduce the weight in the plane. We expect to see more of these measures in the short term if oil prices remain at current levels or continue to rise. As an example of these measures, on May 27, 2008 Volaris announced an extra fuel charge for passengers in the range of US$35 on the shortest routes to US$50 on the longest one (Mexico Tijuana). In our opinion this charge does not imply a significant increase in the fare and the sensitivity of traffic should be small. We believe that other airlines will apply similar charges over the near term.
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Figure 12. Market Share in Domestic Fights in Mexico

Mexico/Toluca - Cancun Aeromexico Mexicana Average Traditional Interjet Volaris Average LCCs LCCs / Traditional Average Mexico/Toluca - Monterrey Aeromexico Mexicana Average Traditional Interjet Volaris Average LCCs LCCs / Traditional Average Mexico/Toluca - Guadalajara Aeromexico Mexicana Average Traditional Interjet Volaris Average LCCs LCCs / Traditional Average
Source: Santander using company data.
Ticket (P$) 2,698 3,548 3,123 2,266 1,440 1,853 -41% 2,615 Ticket (P$) 1,500 1,390 1,445 832 820 826 -43% 1,197 Ticket (P$) 1,118 1,833 1,476 877 684 781 -47% 1,198
vs. Avg. 3% 36% -13% -45%
Taxes (P$) 770 893 831 634 1,443 1,039 25% 914
vs. Avg. -16% -2% -31% 58%
Total (P$) 3,468 4,441 3,954 2,900 2,883 2,892 -27% 3,423
vs. Avg. 1% 30% 0 -15% -16%
Tax % Total 22% 20% 22% 50%
Pricing Chg % May 19 vs. Mar 7 -9.0% 8.2% -0.1% 4.8% -0.6% 2.0%
vs Avg. 25% 16% -31% -32%
Taxes (P$) 643 626 635 519 825 672 6% 650
vs Avg. -1% -4% -20% 27%
Total (P$) 2,143 2,016 2,080 1,351 1,645 1,498 -28% 1,847
vs Avg. 16% 9% -27% -11%
29% Tax % Total 30% 31% 38% 50% -40.6% -42.9% -41.7% -17.7% 5.5% -6.4% 37% Tax % Total 35% 28% 38% 54% -49.8% -23.0% -36.6% -22.4% 4.4% -10.6% 39%
vs Avg. -7% 53% -27% -43%
Taxes (P$) 596 706 651 547 813 680 4% 663
vs Avg. -10% 6% -17% 23%
Total (P$) 1,714 2,539 2,126 1,424 1,497 1,461 -31% 1,860
vs Avg. -8% 36% -23% -20%
IMPACT ON MEXICAN AIRPORT OPERATORS

The abovementioned adjustments in routes and frequencies in the sector will likely have different effects on the three Mexican airport groups, depending on their exposure to regional carriers or carriers with the oldest fleets, as well as the nature of their passenger traffic (tourism, business, regional, etc). In our opinion, business and tourism traffic should be the most resilient passenger segments.

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Figure 13. Domestic Airlines - Market Share of Domestic Flights

Mexicana 10% Others 2% Avolar 4% Aviacsa 9% Volaris 6% Interjet 5%
Aerocalifornia 8% VivaAerobus 3%
Alma 10%
Aeromexico 13% Click 8%

Source: Ministry of Communications and Transport.
Aeromexico Connect 17% Aerounion 0% Aeromar 5%
Figure 14. Domestic Airlines - Market Share of International Flights

Interjet 1% Aeromexico Connect Aerounion 6% 1% Click 4%
Aeromexico 26% Mexicana 57%
Others 3%
Source: Ministry of Communications and Transport.
Aviacsa 2%
ASUR
In our opinion, because of the diversification of the airlines it serves, exposure to tourism, and low exposure to regional carriers (Avicacsa only represents 4% of traffic), Asur could be the most defensive airport group in Mexico. Tourism represents 88% of total traffic for Asur and Cancun represents 73% of total traffic. In our opinion, the strength of the euro is a significant advantage for Cancun in terms of tourism from the U.S. and Europe, and this destination is also showing signs of a recovery in tourism from Canada and South America, particularly Brazil. Traffic is well diversified between airlines, thus routes and frequencies
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cancelled could be taken over by other airlines, and charter carriers represent a significant proportion of traffic that could easily be substituted by other operators. Finally, regional traffic for Asur is served by Interjet, which is, in our opinion, among the healthiest LCCs in Mexico.
Figure 15. Airline Participation - Asur vs. Passenger Segment
Mexicana, 9% American Airlines, 6% Aeromexico, 6% Others, 60% Continental, 5% Click, 4% Aviation Support , 3% Aviacin Comercial Especializa da, 3%
Tourist, 88% Regional, 11.8%
Petroservicios de Mexico, 1%
Source: Company Reports
Aviacsa, 4%
GAP
Among Mexican airports, GAP is the most diversified in terms of mix of airports and type of passenger. Nevertheless, LCCs represent a higher percentage of traffic at GAPs airports than at those of Asur and OMA, thus its airports can be more negatively affected by regional and low-cost carriers adjusting their routes and schedules. YTD, the large metropolitan cities represent 47.8% of GAPs total traffic, tourist destinations represent 34.4%, and regional air traffic accounts for 17.8%. Among all operators, GAP has been most affected by the cancellation of routes and frequencies by both regional carriers and LCCs, due to its higher exposure to domestic traffic and regional carriers. In our opinion, GAP could be hardest hit if fuel costs keep rising, further affecting the operation of LCCs and regional airlines that we believe are most sensitive to higher fuel costs. In the month of April, in addition to negative calendar effects, GAP was affected by a decline in operations of airlines such as Aviacsa, Aeromexico, Aeromexico Connect, and Avolar, causing GAPs total traffic to decrease 5.3%. In full-year 2007, Aviacsa represented 7% of GAPs total traffic. In April 2008, total departing flights operated by this airline decreased 32.2% in four of GAPs airports. Problems faced by Aviacsa and Avolar have been related to the cost of fuel, as both airlines have older aircrafts with higher fuel consumption. Aeromexico has been canceling routes in focus on the more profitable routes. In our opinion, some of these cancelled routes could be taken by other operators, thus, we expect to see a recovery in air traffic in the coming months. We expect total traffic for GAP to increase 4.7% YoY in full-year 2008 (4.5% domestic and 5.2% international).

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Figure 16. Airline Participation - GAP vs. Passenger Segment

Delta, 3% Interjet, 3% American, 3% Continental, 4% Alma, 4% Alaska, 4% Connect, 6% Aeromexico, 14% Us Airw ays, 2% Vivaerobus, 1% Mexicana, 14%
Tourist 34%
Regional 18%
Avolar, 7% Aerocalifornia, 7% Aviacsa, 7%

Volaris, 9% Others, 8%
Metropolitan 48%
OMA
OMAs passenger traffic is more concentrated in metropolitan areas, with Monterrey accounting for 44% of its total traffic in the January-April 2008 period. As of 1Q08, 43% of passengers left from or flew to large metropolitan cities, 23% were tourists, 26% were regional passengers, and 8% originated from or flew to border cities. In our opinion, regional and border airports are the most likely to be affected by the cancellation of routes. However, in our opinion, Monterrey could be less affected because it mainly serves business travelers. Aeromexico and Mexicana have the highest market share of passengers at OMAs airports (25.7% and 13.5%, respectively), followed by Aviacsa (11.9%) and VivaAerobus (11.7%). In addition, as Aviacsas hub is in Monterrey, if its route and schedule cancellations continue, traffic will likely continue to decrease at that airport until other airlines take over these routes.
Figure 17. Airline Participation - OMA vs. Passenger Group
Alma, 3.0% Aerocalifornia, 3.6% Continental , 4.5% Interjet, 7.1% Aeromexico Connect, 10.0% Aviacsa, 11.9% Volaris, 2.7%
Border, 8%
Aeromexico, 15.7%
Metropolitan, 43% Regional, 26%
Mexicana +Click, 13.5%
Tourist, 23%
VivaAerobus, 11.7%
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ASUR
The Most Defensive Play
Gonzalo Fernndez*
(5255) 5269-1931 gofernandez@santander.com.mx
BUY
Vivian Salomn*
(5255) 5257-8172 vsalomon@santander.com.mx
(05/23/08) CURRENT PRICE: US$50.24/M$54.41 TARGET PRICE: US$68.00/M$73.00

Whats Changed/Initiation of Coverage
Rating: Price Target: EBITDA Estimates (US$):
Unchanged at Buy Introducing TP2009 US$68.00 08From 184 to 180 million 09 From 193 to 197 million Introducing 10 at 207 million
Investment Thesis: We are introducing a YE2009 target price of US$68.00 per ADR for Asur (M$73.00 per share) and reiterating our Buy rating on the stock (we will no longer refer to our YE2008 target price of US$68.00). We believe that Asur has the most defensive mix of airports, with the highest exposure to tourist destinations and international traffic, which should allow it to better handle the current difficult environment for airlines. Asurs defensive strength has shown in the performance of the stock price and a reduction of the discount versus its peers, which has narrowed to a 7.2% discount compared with an average historical FV/EBITDA discount of 20%. Reasons for Change to Rating/Price Target/Estimates: Asur has been posting the strongest growth in passenger traffic among the Mexican airport operators year to date, for both domestic and international passengers. In our opinion, this is explained by the fact that Asur experienced the positive effect of LCCs later than OMA and GAP. As a result of tougher comparison bases going forward and the current difficulties in the industry, we are estimating a more conservative traffic growth rate of 9.8% in fullyear 2008E and 7.3% in 2009E. Based on this estimate, we are expecting the EBITDA margin to remain flat, estimating an EBITDA growth of 12.7% YoY in 2008 and 11.5% in 2009, in nominal peso terms. In 2009, Asurs tariffs will be revised; we expect that its tariffs will be lower, given the pressures from airlines to reduce tariffs charged by the airports. Valuation and Risks: Our YE2009 target price is based on a discounted free cash flow valuation with a 11.1% discount rate and a 2.5% terminal growth rate and implies a target FV/EBITDA of 8.9 times for 2009E. Despite more conservative estimates, our target price implies a potential upside of 35% from current levels plus an estimated 2.7% dividend yield, compared with our benchmark upside of 14.5% for Mexico. Therefore, we are reiterating our Buy rating on the stock. The main risks for Asur are (1) that it could be barred from bidding for the construction of the airport in the Mayan Riviera, which would compete with Asurs Cancun airport, and (2) the upcoming revision of its 20092013 Master Development Plan in 2008. In our opinion, there are pressures from Mexicos Antitrust Commission to lower aeronautical charges in this revision and forbid Asur from bidding for the Mayan Riviera airport. Other risks would be a lower-than-expected growth in traffic, natural disasters (such as hurricanes), terrorist threats (which could affect the tourism industry), and increases in operating costs and insurance, as well as high oil prices that could impact negatively the operation of airlines.
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Company Statistics
Bloomberg 52-Week Range (US$) 2008E P/E Rel to the IPC Index (x) 2008E P/E Rel to the A&T Sector (x) Mexbol (US$) 3-Yr EBITDA CAGR (2007-10E) Market Capitalization (US$ Mn) Float (%) 3-Mth Avg Daily Vol (US$000) Shares Outst - Mn (ADR 10:1) Net Debt/Equity (x) Book Value per ADR (US$) ASR 44.18 - 62.65 0.92 0.96 2,704.0 9.8% 1,507 70 10.2 300 -0.13 44.30
Estimates and Valuation Ratios

Net Earn (M$ Mn) Current EPS Net Earn (US$ Mn) Current EPADR P/E (x) P/Sales (x) P/CE (x) FV/EBITDA (x) FV/Sales (x) FCF Yield (%) Div per ADR (US$) Div Yield (%)
2007 2008E 2009E 2010E 522.4 1,079.2 1,251.3 1,397.7 1.74 3.60 4.17 4.66
47.9 1.60 31.5 5.9 10.7 8.5 5.2 5.9 0.69 1.4
101.1 3.37 14.9 5.1 9.0 7.1 4.3 7.9 1.90 3.8
115.0 3.83 13.1 4.7 8.8 6.1 3.8 8.8 1.47 2.9
123.0 4.10 12.3 4.5 8.5 5.5 3.4 9.0 1.41 2.8
Sources: Bloomberg, Company reports, and Santander estimates.

Grupo Aeroportuario del Sureste (ASUR) owns a 50-year renewable concession to operate, maintain, and develop nine airports in the southeastern region of Mexico. The concession was initially granted in November 1998 and includes the operation of Cancuns International Airport, Mexicos number-one tourist destination, and the secondbusiest airport in Mexico in terms of passenger traffic. Asurs other airports are in Cozumel, Mrida, Oaxaca, Veracruz, Huatulco, Villahermosa, Tapachula, and Minatitlan.
INVESTMENT THESIS
We are introducing a YE2009 target price of US$68.00 per ADR for Asur (M$73.00 per share), and reiterating our Buy rating on the stock. We believe that Asur has the most defensive mix of airports, with the highest exposure to tourist destinations and international traffic. In 2007, 89.5% of total traffic came from the U.S. and Canada. However the strength of the Euro and the Brazilian real could have a positive impact on tourism to Mexico, and particularly Cancun, which is Asurs main airport. In light of the current difficult environment the airline industry is facing, we are being more conservative in our traffic estimates for Asur, even though it has posted the highest year-to-date growth in both domestic and international traffic among the Mexican operators we cover. We believe that Asur posted impressive year-to-date growth, while others suffered, due to the positive effect of LCCs operating out of Asurs airports. GAP and OMA began experiencing this positive effect more recently. Therefore, we believe that Asur could face tougher comparisons with it competitors starting in 3Q08. We have increased slightly our total traffic growth estimate for 2008 from 9.3% to 9.8% and reduced 2009 from 8.4% to 7.3%. Thus, given the difficult environment that airlines are experiencing, we believe Asur will maintain the highest growth in traffic as compared to its peers, as it has lower concentration on the domestic side. For domestic traffic, we are forecasting a 12.1% growth in 2008E and 7.9% in 2009E, for international traffic we are expecting a 7.9% and 6.8% YoY growth, respectively. The negotiations for the Master Development Plan (new maximum tariff and capex) for the period of 2009-2013 will conclude this year. These negotiations for the maximum tariff should consider all current events that might affect passenger traffic. The process to determine tariffs is based on a discounted free cash flow that takes into account traffic expectations, costs, and mandatory capex and should result in a return consistent with the cost of equity in Mexico. In our opinion, there will be strong pressures from airlines to reduce tariffs consistent with the downward trend in the cost of equity in Mexico. Nevertheless, lower traffic growth expectations should work in favor of Asur. The consideration of the construction of the Riviera Maya airport and Asurs participation in the bidding process should be key issues in the negotiation of the Master Development Plan. As a result, we estimate that aeronautical revenue will grow 7.0% YoY in real terms in 2008 and 4.2% YoY in 2009, below traffic growth due to expectations for lower tariffs. On the other hand, we expect commercial revenue will continue to grow at a steady pace in 2008 and 2009. Considering the additional commercial space at Terminal 3 in Cancun, we estimate commercial revenues per passenger of US$4.63 in 2008 and US$4.73in 2009. We forecast that EBITDA will grow 12.7% in 2008 and 11.5% in 2009, both in nominal terms, assuming flat EBITDA margin in 2008 and an EBITDA margin of 61.9% in 2009. Under the new Mexican accounting standards NIF B10, the monetary position (REPOMO) was eliminated starting January 1st 2008. Mexican Airport operators have high net cash positions. Therefore, they previously posted significant monetary losses. This accounting policy, together with the new fiscal reform, which lowers tax rates for airport operators, should benefit net income. For Asur, we are expecting a net margin of 34.4% in 2008E and 36.1% in 2009E and net income growth of 107% and 15.9% respectively.
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Regarding the Riviera Maya Airport, at the last World Economic Forum on April 23, 2008, the Mexican Minister of Communications and Transportation mentioned that Asur would be allowed to take part in the bidding process. However, the company is still waiting for the Mexican Antitrust Commissions decision on this matter. The tender offer will probably be made by 2H08. We have not included the Riviera Maya Airport in our estimates, as the release of the terms and conditions of the tender has been postponed since last year.
Figure 18. Asur - Operating Summary (Million Passengers and Million Pesos), 2006-2009E
2007 Traffic (Million PAX) Total Traffic Growth Cancun Other Airports Domestic Growth International Growth Millions of Nominal M$ Pesos Total Revenues Real Growth Aeronautical Real Growth Non Aeronautical Real Growth Commercial Commercial Rev per Pass Commercial per Pass US$ Cost of Services Administrative Expenses Technical Assistance Fee Concession Fees Depreciation & Amortization Total Costs and Expenses Operating Profit Operating Margin EBITDA EBITDA Margin Net Fin. Cost Income Before Taxes Taxes Net Income Net Margin
Sources: Company reports and Santander estimates.
2008E
2009E
2010E
16,239 17.8% 11,340 4,899 7,181 24.5% 9,058 13.0% 2,785 19.9% 1,890 14.7% 895 32.5% 744 45.8 4.20 744 104 92 139 541 1,620 1,165 41.8% 1,706 61.3% 15 1,179 657 522 18.8%
17,826 9.8% 12,384 5,442 8,049 12.1% 9,777 7.9% 3,135 7.8% 2,112 7.0% 1,023 9.5% 883 49.5 4.63 838 110 109 157 603 1,816 1,319 42.1% 1,922 61.3% 162 1,480 401 1,079 34.4%
19,134 7.3% 13,224 5,910 8,689 7.9% 10,446 6.8% 3,462 6.4% 2,283 4.2% 1,179 10.98% 999 52.2 4.73 908 114 123 173 621 1,940 1,522 44.0% 2,143 61.9% 193 1,714 463 1,251 36.1%
20,510 7.2% 14,164 6,347 9,278 6.8% 11,232 7.5% 3,826 6.8% 2,508 6.1% 1,318 8.0% 1,116 54.4 4.75 1,005 142 133 191 661 2,132 1,694 44.3% 2,355 61.5% 247 1,941 544 1,398 36.5%
VALUATION
Our YE2009 target price is based on a discounted free cash flow valuation using a 11.1% discount rate and a 2.5% terminal growth rate and implies a target FV/EBITDA of 8.9 times for 2009. Our target price offers a potential upside of 35% from current levels plus an estimated 2.9% dividend yield, thus we are reiterating our Buy rating on the stock. Compared with GAP and OMA, Asur is trading at a discount in terms of 2009E FV/EBITDA of 12.7% and 7.5% respectively. In our opinion, the discount is justified by the potential negative impact associated with the Mayan Riviera airport, Asurs higher exposure to hurricanes, and the renegotiation of its maximum tariffs.

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Asurs defensiveness is evident in its forward multiples, as it is now trading at a 7.2% discount compared to its 20% average in terms of FV/EBITDA and is flat in terms of P/E when compared to its average discount of 26% versus the airport sector.
Figure 19. Asur Free Cash Flow, 2010E-2019E (U.S. Dollars in Millions)
Sales EBITDA Taxes (Cash) Capex Chg in Wk Cap
FCF 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 336 363 390 417 442 469 497 526 553 580 207 224 240 257 273 289 307 326 343 361 7 16 29 31 33 35 37 39 41 43 61 66 71 76 81 86 91 96 101 90 Terminal
3
136
3
139
2
138
8
142
13
146
14
155
15
165
16
175
17
184
17
210 2,452
Figure 20. Asur - Discounted FCF, 2010E-2019E (U.S. Dollars in Millions)

Present Value Firm Value Net Cash 2009E
Equity Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Termi 122 112 101 93 86 83 79 76 72 74 859
1,756 -297
2,053
Curr Price (US$)

09 TP/ADR (10:1)
50.24
68.00
Upside Dividend Yield 09E Total Return
35% 2.9% 38.0%
Figure 21. Asur FV/EBITDA Forward Multiple vs. Historical Average

10 9 8 7 6 5
Oct-06
Feb-06
Feb-07
May-07
Oct-07
Feb-08
ASUR FV/EBITDA
Avg
18

May-08
Mar-06
Dec-06
Nov-07
Dec-07
Jan-06
Jun-06
Jul-06
Jan-07
Jun-07
Jul-07
Sep-06
Apr-06
Apr-07
Jan-08
Aug-06
Aug-07
Apr-08
RISKS TO INVESTMENT THESIS

In its 2007-2012 infrastructure plan, the Mexican government stated its intention to build an airport in the Mayan Riviera region, south of Cancun. According to the government, the airport would be put out for tender offer bids during 1Q08 and would serve tourism in the Mayan Riviera region, which currently is managed through Asurs Cancun airport. Although Asur management has stated its intention to take part in this bidding process, it is our understanding that Mexicos Antitrust Commission is against Asurs participation in order to promote competition. As a result, we expect that Asur will lose some traffic in Cancun after the opening of this new airport scheduled for 2010. Asurs Master Development Plan for the 2009-2013 period is expected to be revised during 2008. The plan will establish maximum aeronautical charges and mandatory capex for the above-mentioned period based on an estimated internal return rate consistent with the cost of capital in Mexico, according to Asurs concession title. In the last revision in 2004, aeronautical charges went up 6%, and the efficiency factor was set at 0.75% per year. Nevertheless, based on the higher-than-expected increase in traffic and a reduction in Mexicos cost of capital, we expect the upcoming revision to be tougher in terms of tariffs. Furthermore, during 3Q07, the Mexican Antitrust Commission published a report stating that aeronautical tariffs in Mexico are among the highest worldwide (a statement which the airport groups do not agree with), and is pushing to increase competition in the sector in Mexico. As a result, we expect a tougher negotiation of aeronautical tariffs estimating a reduction of 3% in 2009 and the maintenance of a 0.75% efficiency factor going forward. Mandatory capex could be lower because major improvements at the airports, including a second runway and a new terminal building, have been made at Cancun over the last few years, and this would allow Asur to reach the minimum return rates determined in the concession title. In addition, Asur should be compensated in some way for the loss in traffic to the new airport close to Cancun. As Cancun is located in a hurricane zone, Asur will continue to be exposed to negative effects caused by future hurricanes. In addition, the company could be affected by changes in tourism preferences, competition from other tourism destinations, problems in the airline industry, and terrorism, among other factors. The impact of low-cost carriers on traffic also is uncertain, as none of them have been operating very long. ASUR management announced in a press release on November 5, 2007, that, due to the flooding in the City of Villahermosa, and throughout approximately 80% of the Mexican state of Tabasco, passenger traffic at Villahermosa airport will be negatively affected. Although the company is currently unable to estimate the full potential impact of this natural disaster on passenger traffic. Villahermosa airport represents 5.4% of total traffic for Asur and, at this point in time, it is difficult to estimate the potential negative impact of this event. It is important to mention that the airport's infrastructure was not damaged by the flooding. Asur also is exposed to terrorist threats that could increase security measures at the airports. In 2006, Asur had to make an extraordinary investment of approximately US$30 million to acquire baggage-screening equipment to comply with tighter international standards. Insurance costs also have increased after the impact of Hurricane Wilma in 2005. Finally, other terrorist threats could increase security measures, implying additional costs or lower revenues for Asur.

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ESTIMATE REVISIONS
Figure 22. Asur Estimate Revisions, 2008E-2010E (U.S. Dollars in Millionsa)
Previous 301 124 41.2% 184 87 2.90 2008E Current 294 124 42.1% 180 101 3.37 Change Previous -2.5% 319 -0.4% 136 0.9% 42.7% -2.3% 193 16.4% 97 16.4% 3.23 2009E Current 318 140 44.0% 197 115 3.83 Change -0.3% 2.8% 1.3% 1.9% 18.6% 18.6% 2010E Introducing 336 149 44.3% 207 123 4.10
Revenue Op. Profit Op. Margin EBITDA Net Income EPADR

a
Except per share data. Sources: Company reports and Santander estimates.
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FINANCIAL STATEMENTS
Figure 23. Asur Income Statement, Balance Sheet, and CF Statement, 2007-2010E (U.S. Dollars in Millions)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 255 255 148 107 50 156 1 (0) 10 (9) 0 108 60 48 0 0 48 2007 1,528 226 176 26 1 23 1,302 537 765 199 27 2 26 343 1,329 1,329 2007 48 94 (2) (21) (61) 58 164 176 % 100% 0% 100% 58% 42% 19% 61% 1% 0% 4% -3% 0% 0% 42% 24% 19% 0% 0% 0% 19% % 100% 15% 12% 2% 0% 1% 85% 35% 50% 0% 13% 2% 0% 0% 2% 0% 22% 0% 87% 87% 0% % 2008E 294 294 170 124 57 180 15 (0) 15 (0) (0) 139 38 101 101 2008E 1,646 301 234 46 21 1,345 592 753 214 26 2 25 188 1,432 1,432 2008E 101 66 (0) (57) (56) 54 180 235 % 100% 0% 100% 58% 42% 19% 61% 5% 0% 5% 0% 0% 0% 47% 13% 34% 0% 0% 0% 34% % 100% 18% 14% 3% 0% 1% 82% 36% 46% 0% 13% 2% 0% 0% 2% 0% 11% 0% 87% 87% 0% % 2009E % 318 100% 0% 318 100% 178 56% 140 44% 57 18% 197 62% 18 6% 0% 17 5% 0% 1 0% (0) 0% 158 50% 43 13% 115 36% 0% 0% 0% 115 36% 2009E % 1,690 100% 364 22% 297 18% 46 3% 0% 21 1% 1,327 78% 626 37% 700 41% 0% 187 11% 11 1% 2 0% 0% 9 1% 0% 176 10% 0% 1,504 89% 1,504 89% 0% 2009E % 115 58 (1) (44) (57) 71 235 297 2010E % 336 100% 0% 336 100% 187 56% 149 44% 58 17% 207 62% 22 6% 0% 22 7% 0% (0) 0% (0) 0% 171 51% 48 14% 123 37% 0% 0% 0% 123 37% 2010E % 1,728 100% 428 25% 359 21% 49 3% 0% 20 1% 1,299 75% 660 38% 639 37% 0% 164 9% 11 1% 2 0% 0% 9 1% 0% 153 9% 0% 1,564 91% 1,564 91% 0% 2010E % 123 58 (3) (42) (61) 74 297 359

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Figure 24. Asur Income Statement, Balance Sheet, and CF Statement, 2007-2010E (Millions of Mexican Pesos)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 2,786 2,786 1,620 1,166 541 1,707 15 (4) 110 (93) 2 1,179 657 522 2 2 522 2007 16,676 2,462 1,926 279 7 250 14,214 5,860 8,354 2,171 299 17 282 3,743 14,506 14,506 2007 522 1,030 (19) (231) (665) 637 1,793 1,926 % 100% 0% 100% 58% 42% 19% 61% 1% 0% 4% -3% 0% 0% 42% 24% 19% 0% 0% 0% 19% % 100% 15% 12% 2% 0% 1% 85% 35% 50% 0% 13% 2% 0% 0% 2% 0% 22% 0% 87% 87% 0% % 2008E 3,135 3,135 1,816 1,319 603 1,922 162 (1) 164 (1) (2) 1,480 401 1,079 1,079 2008E 17,616 3,222 2,505 488 229 14,395 6,337 8,058 2,294 283 19 264 2,011 15,322 15,322 2008E 1,079 707 (7) (600) (600) 579 1,926 2,505 % 100% 0% 100% 58% 42% 19% 61% 5% 0% 5% 0% 0% 0% 47% 13% 34% 0% 0% 0% 34% % 100% 18% 14% 3% 0% 1% 82% 36% 46% 0% 13% 2% 0% 0% 2% 0% 11% 0% 87% 87% 0% % 2009E 3,462 3,462 1,940 1,522 621 2,143 193 185 8 (2) 1,714 463 1,251 1,251 2009E 18,662 4,016 3,275 512 229 14,646 6,914 7,732 2,063 120 19 101 1,944 16,599 16,599 2009E 1,251 629 (8) (480) (622) 770 2,505 3,275 % 100% 0% 100% 56% 44% 18% 62% 6% 0% 5% 0% 0% 0% 50% 13% 36% 0% 0% 0% 36% % 100% 22% 18% 3% 0% 1% 78% 37% 41% 0% 11% 1% 0% 0% 1% 0% 10% 0% 89% 89% 0% % 2010E 3,826 3,826 2,132 1,694 661 2,355 247 249 (2) (2) 1,941 544 1,398 1,398 2010E 19,818 4,915 4,120 566 229 14,902 7,571 7,331 1,879 125 21 104 1,754 17,939 17,939 2010E 1,398 658 (36) (480) (695) 845 3,275 4,120 % 100% 0% 100% 56% 44% 17% 62% 6% 0% 7% 0% 0% 0% 51% 14% 37% 0% 0% 0% 37% % 100% 25% 21% 3% 0% 1% 75% 38% 37% 0% 9% 1% 0% 0% 1% 0% 9% 0% 91% 91% 0% %
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GAP
Is It That Bad?
Gonzalo Fernndez*
BUY
Vivian Salomn*

Whats Changed
Unchanged at Buy Introducing YE2009 TP of US$47.00 08 From 241 to 236 09 From 263 to 257 Introducing 10 at 276
Company Statistics
Bloomberg 52-Week Range (US$) 2008E P/E Rel to the IPC Index (x) 2008E P/E Rel to the A&T Sector (x) Mexbol (US$) 3-Yr EBITDA CAGR (2007-10E) Market Capitalization (US$ Mn) Float (%) 3-Mth Avg Daily Vol (US$000) Shares Outst - Mn (ADR 10:1) Net Debt/Equity (x) Book Value per ADR (US$) PAC 33.65 - 57.63 0.95 0.99 2,704.0 13.5% 1,887.8 85 20.0 56.10 -0.02 45.32

2007 2008E 2009E 2010E 1,402.8 1,446.9 1,517.8 1,720.1 2.50 2.58 2.71 3.07
128.5 2.29 14.7 5.9 15.6 8.4 5.6 3.8 1.89 5.6
135.5 2.41 13.9 5.3 14.0 7.8 5.1 2.0 1.89 5.6
139.2 2.48 13.6 4.9 13.6 7.0 4.7 7.1 1.92 5.7
151.2 2.70 12.5 4.6 12.6 6.5 4.3 6.6 1.90 5.7
Investment Thesis: After lowering our traffic growth estimates for GAP for 2008 from 9.9% to 4.7% and from 7.6% to 5.7% for 2009 due to the difficult environment for airlines, we are setting a YE2009 target price of US$47.00 per ADR/M$52.00 per share (well below our previous target price of US$67 per ADR for YE08). However, we are maintaining our Buy recommendation, based on the potential upside of 37% from current levels implied by our YE09 target price, compared with the our benchmark upside of 14.5% for Mexico. Reasons for Change to Price Target/Estimates: Year to date, GAP has been the Mexican airport group most affected by the re-organization of routes by airlines due to higher fuel costs, as it is more exposed to regional and LCCs with the oldest fleets. As a result, traffic has increased a modest 7.0% YTD, well below our expectations, and traffic in April decreased 5.3% YoY. As a result, we are lowering our estimate of traffic growth for 2008 and 2009 and our estimate for EBITDA from US$241 million to US$236 million and from US$263 to US$257 million, respectively. Nevertheless, in our opinion, after a 25% year-to-date decline in the stock price, Gap is now trading at what we believe is a significant discount to its fair value, and most of the negatives already appear to have been priced in. In our opinion, despite our lower traffic growth expectations, GAP should maintain the highest EBITDA and net margins in the sector and report strong free cash flow generation., which are the main reasons we have a positive outlook for the company and its stock. After the sharp drop in GAPs stock price, it is now trading at a forward FV/EBITDA of 7.6 times for 2008E, or at a 25% discount compared to its historical average, and 33% below our sample of international airport operators. Thus, even though the difficult environment could continue for the sector in the near term, we consider the current price level an attractive entry point. Valuation and Risk: Our YE09 target price is based on a discounted free cash flow (DCF) valuation with a 10.1% discount rate and a 2.5% terminal growth rate, which implies a target FV/EBITDA of 9.9 times for 2009E. On this basis, the stock offers a potential upside of 40% from current prices, plus an estimated 5.7% dividend yield. Risks include: lower-than-expected passenger traffic at GAPs airports; changes in regulations that imply lower tariffs or higher capital expenditure; changes in travel preferences; terrorist or natural disasters that could affect airline traffic; and continued high oil prices that could negatively affect the airlines operations in general.
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Sources: Bloomberg, Company reports, and Santander estimates.

Grupo Aeroportuario del Pacfico (GAP) has a 50-year renewable concession to operate 12 airports in Northwestern Mexico. GAP operates airports in two large metropolitan cities (Guadalajara and Tijuana), four tourist destinations (Puerto Vallarta, Los Cabos, La Paz, and Manzanillo), and six medium-sized cities (Hermosillo, Bajio region, Morelia, Mexicali, Aguascalientes, and Los Mochis). Six of GAPs airports are among the top-ten busiest airports in Mexico in terms of passenger traffic, with Guadalajara being the third-largest (5.6 million passengers in 2007) and Tijuana the fifth-largest (3.5 million). During full-year 2007, GAP handled 23.6 million passengers and generated revenues of approximately M$3.8 billion (US$311 million), reported an EBITDA of M$2.6 billion (US$237 million), and a net income of M$1.4 billion (US$151 million).
INVESTMENT THESIS
Among Mexican airports, GAP is the most diversified in terms of mix of airports and type of passenger. Nevertheless, LCCs and regional carriers represent a higher percentage of traffic at GAPs airports compared with OMA and Asur, and thus, it is more negatively affected by the adjustments made by regional and low-cost carriers. YTD, the large metropolitan cities have accounted for 47.8% of total traffic, tourist destinations 34.4%, and regional 17.8%. GAP has been the most affected by the cancellation of routes and frequencies, both by legacy carriers and LCCs, due to its higher exposure to domestic traffic and regional carriers. In our opinion, GAP could face the most problems if fuel costs continue to rise, affecting the operation of LCCs and the regional airlines that we believe are most sensitive to higher fuel costs. In the month of April, in addition to the negative calendar effect, GAP was affected by a decline in operations of airlines such as Aviacsa, Aeromexico, Aeromexico Connect, and Avolar, leading to a 5.3% decline in GAPs total traffic. In full-year 2007, Aviacsa accounted for 7% of GAPs total traffic, and, in April 2008, the total departing flights operated by this airline decreased 32.2% at GAPs four airports. Problems faced by Aviacsa and Avolar have been related to the cost of fuel, as both airlines have older aircraft that consume more fuel. In our opinion, some of these routes could be taken by other operators, thus we expect a recovery in traffic volumes over the coming months. Aeromexico has also been canceling routes and transferring aircraft, personal and other resources to more profitable routes. We expect total traffic for GAP to increase 4.7% in full-year 2008 (4.5% domestic and 5.2% international). As a consequence of a more conservative passenger traffic growth, we are estimating 5.2% real growth in revenues in 2008, 3.3% growth in EBITDA, and flat net income.
Figure 25. GAP Operating Summary (Thousand of Passengers and Million Pesos)
Domestic Pax Growth International Pax Growth Total Pax Growth Regulated Revenues Real Growth Regulated Rev per Pax Real Growth Commercial Revenues Real Growth Comm Rev per Pax Real Growth US$ per Pax Growth Total Revenues Real Growth
2007 15,737 26.1% 7,828 -2.6% 23,566 14.9% 2,813 13.4% 119.4 -1.3% 664 17.4% 28.2 2.2% 2.58 5.0% 3,477 14.2%
2008E 16,447 4.5% 8,235 5.2% 24,683 4.7% 3,060 4.2% 124.0 -0.5% 759 9.4% 30.7 4.4% 2.87 11.2% 3,818 5.2%
2009E 17,565 6.8% 8,519 3.4% 26,084 5.7% 3,325 4.7% 127.5 -0.9% 883 12.1% 33.9 6.1% 3.07 6.8% 4,208 6.2%
2010E 19,106 8.8% 9,050 6.2% 28,156 7.9% 3,661 6.4% 130.0 -1.5% 1,038 13.5% 36.9 5.2% 3.21 4.8% 4,699 7.9%
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Figure 26. GAP Income Statement (Million Pesos)

Total Revenues Real Growth Operating Costs Cost of Service Technical Asstanse Fee Concession Fees Depreciation & Amortization Total Costs Operating Profit Operating Margin EBITDA EBITDA Margin CIF Other Financial Expense Tax Provision Tax Rate Net Income
2007 3,477 14.2%
2008E 3,818 5.2%
2009E 4,208 6.2%
2010E 4,699 7.9%
841 126 173 754 1,894 1,583 45.5% 2,337 67.2% 97.34 (1.57) 277.58 16.5% 1,402.8
966 141 191 770 2,067 1,751 45.9% 2,521 66.0% 81.21 (2.49) 370.09 20.4% 1,446.9
1,043 155 210 806 2,215 1,994 47.4% 2,800 66.5% 66.42 (2.59) 539.72 26.2% 1,517.8
1,149 178 235 826 2,388 2,311 49.2% 3,137 66.8% 106.75 (2.68) 695.35 28.8% 1,720.1
VALUATION
Our YE2009 target price is based on a discounted free cash flow valuation using a 10.1% discount rate and a 2.5% terminal growth rate. Based on our target price, the stock at current prices offers a potential upside of 40% plus an estimated 5.7% dividend yield; thus, we reiterate our Buy rating on the stock.
Figure 27. GAP Free Cash Flow, 2010E-2019E (U.S. Dollars in Millions)
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 413 446 478 512 543 575 610 640 672 706 276 300 321 344 365 386 410 430 454 476 61 60 58 56 52 55 58 61 64 67 83 75 80 86 91 97 102 108 113 119 8 9 10 10 11 12 12 13 13 25 124 155 173 192 211 224 237 249 263 264 Terminal Value
Sales EBITDA Cash Taxes Capex Working Capital FCF
3,501
Figure 28. GAP - Discounted FCF, 2010E-2019E (U.S. Dollars in Millions)

2010E 112 2,551 -79 2,045 56.1 47.00 33.65 40% 5.7% 46% 2011E 2012E 2013E 2014E 2015E 128 130 131 131 126 2016E 2017E 121 116 2018E 2019E 111 101 Terminal Value 1,343
Present Value Firm Value Net Cash 09 Market Cap Shares Outs. YE09 TP (US$) Current Price Upside Dividend Yield Total Return

25
In our opinion, the tougher than expected environment and lower growth prospects for GAP are already priced in after the sharp correction in the stock price. GAPs forward FV/EBITDA multiple has decreased from 13.0 times by October 2007 to 7.6 times at present, below the average since the IPO of 10.1x. At present, GAP is trading at a 33% discount compared to our universe of international airport operators, while, on the other hand, GAP ranks among the airport operators with the highest EBITDA and net margins and stronger free cash flow generation.
Figure 29. GAP FV/EBITDA Forward Multiple vs. Historical Average
14 13 12 11 10 9 8 7 May-06 Mar-07 May-07 Mar-08 May-08 Oct-06 Feb-06 Nov-06 Feb-07 Oct-07 Jun-06 Jul-06 Jan-07 Jun-07 Jul-07 Nov-07 Dec-07 Sep-06 Apr-06 Aug-07 Jan-08 6 Apr-08
GAP FV/EBITDA
Avg

In our opinion, the saturation levels being reached at Mexico City and Toluca airports could represent a bottleneck for the ongoing development of low-cost carriers based at these airports. At present, the Mexican government is working on the expansion of both airports to allow for the further growth of these airlines. And these expansions are expected to be completed during 2008. However, the saturation at these airports could be a positive factor for GAP, as it could encourage other airlines to set up their operational bases at either Tijuana or Guadalajara airports, which are still a long way from reaching saturation levels. Traffic at GAPs airports is not controlled directly by the company and could, therefore, be affected by changes in prevailing economic conditions, particularly in the U.S. and Mexico. Changes in leisure travel preferences, consumer spending, exchange rates, and comparative costs of international tourism could also affect traffic to GAPs tourist destinations. In addition, air travel is highly sensitive to terrorist acts and natural disasters like hurricanes, earthquakes, etc. GAP could also be affected by the economic health of domestic and international airlines, which could be influenced by declining air traffic, increased fare competition, higher fuel prices, labor costs, among other factors. Since the negative effects of September 11, 2001, the worldwide airline industry, including Mexican airlines, has staged a significant financial recovery. However, should the industry be rocked by another wave of financial turbulence, this could result in a reduction in the number of routes flown and flight frequencies, as well as lower air traffic for GAP. In our opinion, the launch of low-cost airlines in Mexico should be a positive for GAP, as the increased competition should lead to an increase in domestic air travel. The lowcost nature of these carriers could put some pressure on the tariffs currently charged by GAP. The continued increases in fuel costs could hurt profitability of both low-cost and regular airlines. This could imply increases in air fares or lower frequencies that could result in lower traffic for GAP.
26

As GAP operates under a concession granted by the Mexican government, its business is regulated. The government sets the maximum tariffs that GAP can charge, as well as a minimum capital expenditure program under a five-year master development plan. A negative revision of GAPs tariffs and capex could impact its financial results and FCF generation going forward. At the end of 2003, the government approved GAPs master development plan for the 2005-2009 period, setting what we believe are favorable terms for GAP. The next revision is scheduled at the end of 2009 and the Mexican Antitrust Commission could put some pressure on Mexican airports to lower their tariffs. A negative outcome in the revision of Asurs MDP during 2008 could set a negative precedent for GAP.
ESTIMATE REVISIONS
Figure 30. GAP Estimate Revisions, 2008E-2010E (U.S. Dollars in Millionsa)
Previous 353 180 51.1% 241 125 2.23 2008E Current 358 164 45.9% 236 135 2.41 Change Previous 1.5% 385 -9.0% 205 -5.3% 53.4% -1.7% 263 8.4% 146 8.4% 2.60 2009E Current 386 183 47.4% 257 139 2.48 Change 0.3% -10.9% -6.0% -2.2% -4.7% -4.7% 2010E Introducing 413 203 49.2% 276 151 2.70

a
Except per ADR data. Sources: Company reports and Santander estimates.

27
Figure 31. GAP Income Statement, Balance Sheet, and CF Statement, 2007-2010E (U.S. Dollars in Millions)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 319 319 174 145 69 214 9 (2) 16 (5) (0) (0) 154 25 129 129 2007 2,522 212 149 62 2,310 291 2,018 107 55 33 8 14 45 7 2,415 2,415 2007 129 48 15 (107) 53 (85) 52 97 149 % 100% 0% 100% 54% 46% 22% 67% 3% -1% 5% -2% 0% 0% 48% 8% 40% 0% 0% 0% 40% % 100% 8% 6% 2% 0% 0% 92% 12% 80% 0% 4% 2% 1% 0% 1% 2% 0% 0% 96% 96% 0% % 2008E 358 358 194 164 72 236 6 (6) 13 (1) (0) 170 35 135 135 2008E 2,679 206 133 73 2,473 145 2,327 136 59 24 13 22 72 6 2,542 2,542 2008E 135 80 (38) (106) 30 (126) (11) 144 133 % 100% 0% 100% 54% 46% 20% 66% 2% -2% 4% 0% 0% 0% 48% 10% 38% 0% 0% 0% 38% % 100% 8% 5% 3% 0% 0% 92% 5% 87% 0% 5% 2% 1% 0% 1% 3% 0% 0% 95% 95% 0% % 2009E % 386 100% 0% 386 100% 203 53% 183 47% 74 19% 257 67% 6 2% (7) -2% 13 3% 0% (0) 0% (0) 0% 189 49% 50 13% 139 36% 0% 0% 0% 139 36% 2009E % 2,748 100% 277 10% 185 7% 92 3% 0% 0% 2,471 90% 204 7% 2,267 82% 0% 168 6% 69 3% 41 1% 13 0% 15 1% 94 3% 6 0% 0% 2,580 94% 2,580 94% 0% 2009E % 139 74 (2) (108) 25 (71) 57 133 185 2010E % 413 100% 0% 413 100% 210 51% 203 49% 73 18% 276 67% 9 2% (5) -1% 16 4% 0% (1) 0% (0) 0% 212 51% 61 15% 151 37% 0% 0% 0% 151 37% 2010E % 2,786 100% 330 12% 228 8% 102 4% 0% 0% 2,457 88% 272 10% 2,185 78% 0% 190 7% 71 3% 43 2% 13 0% 15 1% 114 4% 6 0% 0% 2,596 93% 2,596 93% 0% 2010E % 151 72 (8) (107) 24 (83) 49 185 228
28

Figure 32. GAP Income Statement, Balance Sheet, and CF Statement, 2007-2010E (Millions of Mexican Pesos)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 3,477 3,477 1,894 1,583 754 2,337 97 (20) 179 (59) (2) (2) 1,680 278 1,403 1,403 2007 27,526 2,313 1,632 682 25,213 3,181 22,032 1,165 597 363 86 149 493 75 26,362 26,362 2007 1,403 526 166 (1,172) 579 (932) 571 1,061 1,632 % 100% 0% 100% 54% 46% 22% 67% 3% -1% 5% -2% 0% 0% 48% 8% 40% 0% 0% 0% 40% % 100% 8% 6% 2% 0% 0% 92% 12% 80% 0% 4% 2% 1% 0% 1% 2% 0% 0% 96% 96% 0% % 2008E 3,818 3,818 2,067 1,752 770 2,521 81 (47) 134 (6) (2) 1,817 370 1,447 1,447 2008E 28,662 2,204 1,419 785 26,458 1,556 24,902 1,460 635 262 135 238 766 59 27,202 27,202 2008E 1,447 855 (410) (1,122) 323 (1,340) (247) 1,666 1,419 % 100% 0% 100% 54% 46% 20% 66% 2% -1% 4% 0% 0% 0% 48% 10% 38% 0% 0% 0% 38% % 100% 8% 5% 3% 0% 0% 92% 5% 87% 0% 5% 2% 1% 0% 1% 3% 0% 0% 95% 95% 0% % 2009E 4,208 4,208 2,215 1,994 806 2,800 66 (78) 145 (1) (3) 2,058 540 1,518 1,518 2009E 30,339 3,060 2,046 1,015 27,279 2,251 25,028 1,857 760 450 139 171 1,036 61 28,482 28,482 2009E 1,518 805 (18) (1,178) 270 (770) 627 1,419 2,046 % 100% 0% 100% 53% 47% 19% 67% 2% -2% 3% 0% 0% 0% 49% 13% 36% 0% 0% 0% 36% % 100% 10% 7% 3% 0% 0% 90% 7% 82% 0% 6% 3% 1% 0% 1% 3% 0% 0% 94% 94% 0% % 2010E 4,699 4,699 2,388 2,311 826 3,137 107 (62) 179 (10) (3) 2,415 695 1,720 1,720 2010E 31,965 3,782 2,610 1,172 28,183 3,118 25,065 2,180 810 489 144 177 1,306 63 29,785 29,785 2010E 1,720 815 (89) (1,212) 270 (940) 565 2,046 2,610 % 100% 0% 100% 51% 49% 18% 67% 2% -1% 4% 0% 0% 0% 51% 15% 37% 0% 0% 0% 37% % 100% 12% 8% 4% 0% 0% 88% 10% 78% 0% 7% 3% 2% 0% 1% 4% 0% 0% 93% 93% 0% %

29
NOTES
30

OMA
Reaching Very Attractive Valuation Levels
Gonzalo Fernndez*
BUY
Vivian Salomn*

Whats Changed/Initiation of Coverage
Unchanged at Buy Introducing TP09 US$26.00 08From 105 to 107 09 From 129 to 119 Introducing 10 at 127
Company Statistics
Bloomberg 52-Week Range (US$) 2009E P/E Rel to the IPC Index (x) 2009E P/E Rel to the A&T Sector (x) IPC (US$) 3-Yr EBITDA CAGR (2007-10E) Market Capitalization (US$ Mn) Float (%) 3-Mth Avg Daily Vol (US$000) Shares Outst - Mn (ADR 8:1) Net Debt/Equity (x) Book Value per ADR (US$) OMA 18.00 - 31.00 1.06 1.10 2,704.0 9.3% 962.69 44 5.9 397.40 -0.21 16.32
Investment Thesis: We are introducing a YE2009 target price of US$26.00 per ADR (M$35.00 per share) for OMA, replacing our YE2008 TP of US$32.00 per ADR, and reiterating our Buy rating on the stock. OMAs stock liquidity has been affected since it was removed from the Mexican IPC index in February 2007. This, coupled with rising concerns regarding the airline industry and a slowdown in traffic growth, has resulted in a sharp drop in the stock price. At present, the stock is trading at its IPO price, which is 37% lower than its 52week high on October 18, 2007. Despite using a more conservative scenario, OMA is currently trading at an estimated FV/EBITDA of 7.5x for 2008 and 6.6x for 2009, with a significant discount compared to international airport operators and a potential upside of 34% to our target price Reasons for Change to Rating/Price Target/Estimates: We have lowered our traffic growth estimates for OMA, based on the ongoing pressures faced by the Mexican airline industry because of high fuel costs. We decreased our traffic estimate for 2008 from 12.6% to 6.8%, in line with the companys guidance of 6%-10%, and in 2009 from 8.9% to 7.8%. Nevertheless, YoY, we estimate revenue growth of 8.5% in nominal peso terms on 2008 and 13.2% in 2009, and EBITDA growth of 9.3% in 2008 and 13.4% in 2009, in nominal terms, with margins of 56.6% and 56.7%, respectively.

2007 2008E 2009E 2010E 31 703 699 796 0.08 1.77 1.76 2.00
Valuation and Risks. Our YE2009 target price is based on a DCF valuation, using a 9.7% discount rate and a 2.0% terminal growth rate, and implies a target FV/EBITDA multiple of 9.4 times for 2009. At current prices, the stock offers a potential total return of 34% plus a 4.2% dividend yield, compared to our benchmark upside of 14.5% for Mexico. As a result, we are reiterating our Buy rating on the stock. Risks include: the effect on air traffic at OMAs airports from terrorist acts; natural disasters; and the suspension of flight frequencies and routes. In addition, aeronautical tariffs and mandatory capex are set by the Mexican government and revised every five years. Unexpected changes in these variables could affect our estimates and valuation. Rising oil prices could negatively affect Mexican airlines by reducing frequencies and increasing the number of routes cancelled.
2.9 0.06 NM 5.5 NM 8.2 4.6 -1.4 0.81 4.2
65.8 1.32 14.6 5.0 14.7 7.5 4.2 -2.3 0.89 4.6
64.1 1.29 15.0 4.6 15.1 6.6 3.8 6.8 0.81 4.2
69.2 1.39 13.9 4.4 14.1 6.0 3.5 7.8 0.80 4.1
NM not meaningful. Sources: Bloomberg, Company reports, and Santander estimates.

31
The Mexican Government first granted Grupo Aeroportuario del Centro Norte (OMA) a 50-year renewable concession to operate 13 airports in the year 2000, mainly in the Central and Northern regions of Mexico. OMA classifies its airports into four categories: (1) those serving large metropolitan cities (Monterrey), which accounted for 46% of total traffic in 2007; (2) three tourist destinations on the Pacific coast (Acapulco, Mazatlan and Zihuatanejo), which accounted for 18% of total traffic; (3) seven medium-sized cities in Northern Mexico (Chihuahua, Culiacn, Durango, San Luis Potos, Tampico, Torren, and Zacatecas), with 28% of total traffic; and (4) two cities on the border with the U.S. (Ciudad Juarez and Reynosa), with 8.0% of total traffic. During 2007, OMA airports served 14.3 million passengers and the group generated revenues, EBITDA, and net income of US$174 million, US$97 million, and US$2.9 million, respectively.
INVESTMENT THESIS
We are introducing a YE2009 target price of US$26.00 per ADR (M$35.00 per share) for OMA, replacing our YE2008 TP of US$32.00, and reiterating our Buy rating on the stock. Even though we continue to see a positive long term outlook for Mexicos air travel industry, due to the structural transformation of industry that would produce lower fares and increased air travel, the overall traffic growth rate has slowed down from 2007 rates due to the significant increase in fuel prices that have forced airlines to eliminate some of the less profitable routes and reduce frequencies. Despite a more conservative scenario, we are estimating total revenue for OMA to grow 8.5% in 2008 and 13.2% in 2009, both in nominal terms. Aeronautical revenue growth would be more in line with traffic growth as the incentives that OMA gave to the different airlines have terminated with the exception of VivaAerobus. We expect this airline to start flying internationally, which will increase revenues since international flights have higher tariffs than domestic flights. We expect commercial revenues to increase once Terminal B in Monterrey opens as this terminal will double commercial space at this terminal. We estimate EBITDA margin to remain stable at a range of 56% - 57% and EBITDA growth of 9.3% and 13.4%, in nominal terms, for 2008 and 2009. Despite slower growth, we estimate that OMA could generate an operating cash flow of M$1.3 billion in 2008 and M$1.1 billion in 2009, more than double the estimated capex for those years. As a result, the company should continue with an attractive dividend policy with estimated dividend yields of 4.6% and 4.2% for 2008 and 2009, respectively. OMAs passenger traffic is more concentrated in Metropolitan cities, with Monterrey representing 44% of total traffic in January April 2008. As of 1Q08, 43% of passengers were from large metropolitan cities, 23% are tourists, 26% are regional passengers and 8% to border cities. In our opinion, regional and border airports should be affected in a higher proportion by the cancellation of routes. Nevertheless, in our opinion Monterrey could be less affected because it mainly serves business travelers. Aeromexico (25.7%) and Mexicana (13.5%) have the highest market share of passengers at OMAs airports followed by Aviacsa (11.9%) and VivaAerobus (11.7%). Aviacsa has its hub in Monterrey, so if cancellations continue, traffic will continue to decrease, until other airlines take on those routes.
32

Figure 33. OMA Operating Summary (Million Mexican Pesos)

Domestic Pax Growth International Pax Growth Total Pax Growth Aeronautical Revenue Real Growth Aeronautical Rev per Pax Real Growth Non Aeronautical Revenue Real Growth Non Aero Rev per Pax Real Growth US$ per Pax Growth Total Revenue Real Growth Operating Costs Cost of Service General & Administrative Technical Assistance Fee Concession Fee to Gov't (5%) Depreciation & Amortization Total Operating Costs 2007 11,740 26.8% 2,472 -2.1% 14,275 21.1% 1,547 12.9% 108.4 -6.8% 347 9.7% 24.30 -9.5% 2.23 -7.0% 1,894 12.3% 2008E 12,796 9.0% 2,454 -0.7% 15,250 6.8% 1,700 5.2% 111.4 -1.5% 391 8.0% 25.66 1.1% 2.40 7.7% 2,055 3.9% 2009E 13,900 8.6% 2,536 3.4% 16,436 7.8% 1,880 6.6% 114.4 -1.1% 446 9.9% 27.16 2.0% 2.46 2.6% 2,326 9.0% 2010E 14,962 7.6% 2,671 5.3% 17,633 7.3% 2,073 6.6% 117.6 -0.9% 507 9.7% 28.74 2.2% 2.51 1.8% 2,580 7.2%
Operating Profit Operating Margin EBITDA EBITDA Margin CIF Other Financial Expense Tax Provision Tax Rate Net Income
Source: Company reports and Santander estimates.
420 256 57 98 336 1,168 728 38.4% 1,064 56.2% 96 (8) 785 96.2% 31
468 285 57 102 385 1,297 767 37.3% 1,163 56.6% 115 118 284 28.8% 703
510 315 67 116 427 1,435 1,318 56.7% 1,318 56.7% 109 (10) 278 28.4% 699
568 319 77 129 473 1,565 1,488 57.7% 1,488 57.7% 128 (10) 320 28.6% 796
VALUATION
Our YE 2009 target price is based on a discounted free cash flow valuation using a 9.7% discount rate and a 2.0% terminal growth rate. The stock offers a potential total return of 34% from current prices with a 4.2% dividend yield. As a consequence, we are maintaining our Buy rating on OMA.

33
DCF VALUATION
Figure 34. OMA Free Cash Flow, 2010E-2019E (U.S. Dollars in Millions)
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 221 237 255 272 289 306 324 344 361 376 127 138 148 158 168 178 188 200 209 218 17 22 23 25 26 28 29 31 33 37 36 39 42 45 48 51 55 55 55 55 -1 7 8 8 9 9 10 10 11 11 75 70 75 80 85 90 94 103 111 114 Terminal Value
Sales EBITDA Cash Taxes Capex Working Capital FCF
1,482
Figure 35. OMA - Discounted FCF, 2010E-2019E (U.S. Dollars in Millions)

2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 68 58 57 55 53 52 49 49 48 45 1,120 -173 1,293 963 49.7 26.00 19.38 34% 4.2% 38% Terminal Value 586
Present Value Firm Value Net Cash Equity Value Market Cap Shares Outst. YE09 TP (US$) Current Price Upside Dividend Yield Total Return
OMAs stock price started to decrease considerably after the stock was removed from the Mexican IPC index on February 1, 2007. OMA is now trading at a forward FV/EBITDA multiple of 7.2 times, which represents a discount of 6% vs. GAP, and a premium of 7% vs. Asur. Further, because of the high numbers posted in 2007, this year, OMA is facing a tougher comparison base in terms of traffic growth. The tougher comparison base is combined with the effects of rising fuel prices that have caused the cancellation of several routes and frequencies by legacy and traditional carriers, which affects domestic and international traffic. At present, the stock is trading at its IPO price, having fallen 37% from its 52-week high October 18, 2007. We expect that, even with pressures coming from the domestic airlines, there will be some relief coming from international traffic in 2H08 and in 2009, as OMA is promoting the opening of international routes. OMAs traffic is largely comprised of business travelers, particularly to Monterrey. In our opinion, this airport is unlikely to suffer from this impact, and will continue to contribute around 43% of OMAs total traffic. On the other hand, OMAs tourist and regional airports will continue to be affected by this tougher environment. On the back of this outlook, we are estimating domestic traffic to grow 9.0% in 2008 and 8.6% in 2009, and we expect international traffic to decrease by 0.7% in 2008 and increase by 3.4% in 2009. Total traffic is expected to grow 6.8% and 7.8% in 2008 and 2009, respectively.
34

Figure 36. OMA FV/EBITDA Forward Multiple vs. Historical Average

14 13 12 11 10 9 8 7 6 5
Feb-07
Mar-07
Oct-07
May-07
Mar-08
OMA FV/EBITDA
Avg
ESTIMATE REVISIONS
Figure 37. OMA Estimate Revisions, 2008E-2010E (U.S. Dollars in Millionsa)
Previous 196 87 44.5% 115 56 1.12 2008E Current 193 71 36.7% 107 66 1.32 Change Previous -1.6% 215 -19.0% 100 -7.9% 46.5% -6.6% 129 17.5% 64 18.3% 1.28 2009E Current 210 80 38.3% 119 64 1.29 Change -2.6% -19.8% -8.2% -7.7% 0.4% 1.0% 2010E Introducing 221 87 39.3% 127 69 1.39

a
Except per share data. Sources: Company reports and Santander estimates.

OMA does not control market conditions neither the airlines operating at its airports and could be affected by changes in the economic conditions in the U.S and. Mexico. Changes in leisure travel preferences, consumer spending, exchange rates, and comparative costs of international tourism could also affect traffic to OMAs tourism destinations. In addition, the air travel is highly sensitive to terrorist acts and natural disasters. OMA could also be affected by the economic health of domestic and international airlines, which could be influenced by regulation, traffic, fares competition, fuel prices, labor costs, among other factors. Regional airline Aviacsa accounted for 18% of OMAs total traffic in 2006, and Aerocalifornia 7.0%. In April 2006, the Mexican government suspended Aerocalifornias operations, thus affecting OMA traffic. This airline partially resumed operations in August 2006. In addition, regulators suspended the local airline Aerolineas Azteca for similar reasons in March 2007. OMA estimates a modest impact from this suspension, as Azteca only represented 3.65% of OMAs total traffic in 2006 and 3.7% of aeronautical revenues. There is currently no public information regarding the financial health of and the compliance to security standards by Aviacsa. Potential financial or operational problems associated with this airline could have a significant negative impact on OMA. According to management, Aviacsa is in a healthy financial position and complies with all security standards.
35

May-08
Nov-06
Jan-07
Jun-07
Nov-07
Dec-07
Jan-08
Jul-07
Aug-07
Apr-08
Because of its increased weight on OMA traffic, the development of VivaAerobus could have a significant impact on OMA traffic going forward. Because VivaAerobus started operations in December 2006, there is no assurance about the expected growth of this airline, its financial health, and its capability to comply with security standards. VivaAerobus could also put pressure on the tariffs charged by OMA to this airline and others. Due to the high participation of domestic travelers in its traffic mix, OMA is highly dependent on the two major Mexican airlines (Aeromexico and Mexicana) and some regional airlines. The Mexican government privatized Mexicana in late 2005, and the relationship between OMA and the new private owners following the privatization process remains to be seen. The government also privatized Aeromexico in October 2007. Financial or labor problems such as strikes could have a negative impact on traffic. In the past, airlines have put pressure on the Mexican government to lower the regulated tariffs charged by the airports. OMA could face competition from an alternative airport to Monterrey. In its IPO prospectus, OMA disclosed that Aeropuerto del Norte, a concession granted to a private company, operates close to Monterrey managing private aviation only. However, the State of Nuevo Leon is currently discussing with the aeronautical authorities the possibility of modifying the concession specifications to allow the operation of commercial flights from this airport. If this airport is allowed to operate commercial flights, it could have a negative impact on traffic at OMAs most important airport. The initial response of the Communications Ministry to this requirement was that the two airports are too close together to operate commercial flights and comply with security regulations. In our opinion, the launch of low-cost airlines in Mexico should be a positive factor for OMA, as the increased competition should increase domestic air travel. However, there is no assurance that the launch of these airlines will be completed in 2007, and none that these airlines would fly to OMAs airports. We believe the low-cost nature of these carriers could also put some pressure on the tariffs currently charged by OMA. As OMA operates under a concession granted by the Mexican government, its business is regulated. The government sets the maximum tariffs that OMA can charge, and set a minimum capital expense program in the form of a five-year master development plan. A negative revision of OMAs tariffs and capex could impact both its financial results and FCF generation. The government approved the master development plan for the 2006-2010 period at the end of 2005, setting favorable terms for OMA, in our view. The next revision is scheduled to be set at the end of 2010, however, a negative tariff revision for ASUR in 2008 could set a negative precedent for OMA.
36

Figure 38. OMA Income Statement, Balance Sheet, and CF Statement, 2007-2010E (U.S. Dollars in Millions)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 174 174 107 67 31 97 9 (0) 12 (4) 1 (1) 75 72 3 3 2007 837 191 161 24 6 646 29 617 152 37 8 29 230 685 685 2007 3 81 33 (50) (60) 8 153 161 % 100% 0% 100% 62% 38% 18% 56% 5% 0% 7% -2% 1% 0% 43% 41% 2% 0% 0% 0% 2% % 100% 23% 19% 3% 0% 1% 77% 3% 74% 0% 18% 4% 1% 0% 3% 0% 27% 0% 82% 82% 0% % 2008E 193 193 122 71 37 107 11 (0) 11 (0) 11 92 27 66 66 2008E 917 195 155 37 3 722 103 620 138 41 23 18 98 779 779 2008E 66 27 27 (44) (85) (9) 154 155 % 100% 0% 100% 63% 37% 19% 56% 6% 0% 6% 0% 0% 6% 48% 14% 34% 0% 0% 0% 34% % 100% 21% 17% 4% 0% 0% 79% 11% 68% 0% 15% 4% 3% 0% 2% 0% 11% 0% 85% 85% 0% % 2009E % 210 100% 0% 210 100% 129 62% 80 38% 39 18% 119 57% 10 5% 0% 10 5% 0% (0) 0% (1) 0% 89 43% 25 12% 64 31% 0% 0% 0% 64 31% 2009E % 934 100% 216 23% 173 18% 40 4% 0% 3 0% 718 77% 134 14% 585 63% 0% 123 13% 42 5% 25 3% 0% 17 2% 0% 81 9% 0% 811 87% 811 87% 0% 2009E % 64 38 (1) (40) (38) 23 155 173 2010E % 221 100% 0% 221 100% 134 61% 87 39% 40 18% 127 58% 11 5% 0% 12 5% 0% (1) 0% (1) 0% 97 44% 28 13% 69 31% 0% 0% 0% 69 31% 2010E % 947 100% 244 26% 198 21% 43 5% 0% 3 0% 703 74% 162 17% 541 57% 0% 106 11% 43 5% 26 3% 0% 17 2% 0% 62 7% 0% 841 89% 841 89% 0% 2010E % 69 40 (1) (39) (36) 32 173 198

37
Figure 39. OMA Income Statement, Balance Sheet, and CF Statement, 2007-2010E (Millions of Mexican Pesos)
Income Statement Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury 2007 1,897 1,897 1,169 728 336 1,064 96 (2) 129 (42) 12 (8) 817 785 31 31 2007 9,134 2,084 1,757 261 67 7,050 317 6,733 1,660 407 91 316 2,506 7,474 7,474 2007 31 889 365 (544) (658) 84 1,673 1,757 % 100% 0% 100% 62% 38% 18% 56% 5% 0% 7% -2% 1% 0% 43% 41% 2% 0% 0% 0% 2% % 100% 23% 19% 3% 0% 1% 77% 3% 74% 0% 18% 4% 1% 0% 3% 0% 27% 0% 82% 82% 0% % 2008E 2,055 2,055 1,301 754 389 1,143 115 (0) 117 (2) 118 987 284 703 703 2008E 9,816 2,089 1,657 399 33 7,727 1,098 6,630 1,479 435 246 189 1,044 8,337 8,337 2008E 703 281 297 (471) (910) (100) 1,757 1,657 % 100% 0% 100% 63% 37% 19% 56% 6% 0% 6% 0% 0% 6% 48% 14% 34% 0% 0% 0% 34% % 100% 21% 17% 4% 0% 0% 79% 11% 68% 0% 15% 4% 3% 0% 2% 0% 11% 0% 85% 85% 0% % 2009E 2,287 2,287 1,410 877 420 1,297 109 113 (4) (10) 977 278 699 699 2009E 10,313 2,382 1,905 444 33 7,931 1,477 6,454 1,362 466 273 192 897 8,951 8,951 2009E 699 416 (11) (438) (417) 248 1,657 1,905 % 100% 0% 100% 62% 38% 18% 57% 5% 0% 5% 0% 0% 0% 43% 12% 31% 0% 0% 0% 31% % 100% 23% 18% 4% 0% 0% 77% 14% 63% 0% 13% 5% 3% 0% 2% 0% 9% 0% 87% 87% 0% % 2010E % 2,537 100% 0% 2,537 100% 1,539 61% 999 39% 465 18% 1,464 58% 128 5% 0% 136 5% 0% (9) 0% (10) 0% 1,116 44% 320 13% 796 31% 0% 0% 0% 796 31% 2010E % 10,862 100% 2,801 26% 2,275 21% 493 5% - 0% 33 0% 8,061 74% 1,853 17% 6,208 57% - 0% 1,212 11% 499 5% 303 3% - 0% 195 2% - 0% 713 7% - 0% 9,650 89% 9,650 89% - 0% 2010E 796 456 (13) (453) (417) 370 1,905 2,275 %
38

IMPORTANT DISCLOSURES
Asur 12-Month Relative Performance (U.S. Dollars)
125 115 105 95 85 ASUR 75 Oct-07 Feb-08 Nov-07 May-07 Dec-07 Mar-08 Jun-07 Jan-08 Jul-07 May-08
3,500 B $34.00 4/21/05 B $35.00 6/20/05 H $44.00 9/8/05 H $31.00 10/28/05 B $57.00 6/4/07 B $70.00 11/13/07 B $46.00 10/26/06 3,000 2,500 2,000 1,500 1,000 500 J-05 S-05 D-05 M-06 J-06 S-06 D-06 M-07 J-07 S-07 D-07 M-08 Asur ( L Axis)
Source: Santander.
IPC Sep-07 Aug-07 Apr-08
Sources: Bloomberg and Santander.
Asur Three-Year Stock Performance (U.S. Dollars)

66 56 46 36 26 16 6 M-05
Analyst Recommendations and Price Objectives
B $42.00 5/1/06
SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review
IPC (R Axis)

39
IMPORTANT DISCLOSURES
GAP 12-Month Relative Performance (U.S. Dollars)
120 110 100 90 80 70 60 Oct-07 Oct-07 Feb-08 Feb-08 Mar-08 May-07 May-08
3,500 3,000 B $38.00 6/16/06 2,500 2,000 1,500 1,000
GAP
IPC
Nov-07
Dec-07
Dec-07
Jun-07
Sep-07
Jan-08
Jul-07
Jul-07
Apr-08
Aug-07
GAP Three-Year Stock Performance (U.S. Dollars)

66 56 46 36 26 16 H $42.00 12/1/06
Aug-07
Apr-08
B $50.00 4/27/07
B $60.00 11/13/07
6 500 F-06 A-06 J-06 J-06 S-06 O-06 D-06 J-07 M-07 A-07 J-07 J-07 S-07 O-07 D-07 F-08 M-08 GAP ( L Axis)
Source: Santander.
IPC (R Axis)
40

IMPORTANT DISCLOSURES (CONTINUED)

OMA 12-Month Relative Performance (U.S. Dollars)
115 110 105 100 95 90 85 80 75 70 65 60 May-07 Jul-07 Jun-07
OMA
IPC
Oct-07
Oct-07
OMA Three-Year Stock Performance (U.S. Dollars)

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 N-06 Initiation of Coverage* 500 J-07 M-07 M-07 J-07 S-07 N-07 J-08 M-08 OMA (L Axis)
Source: Santander.
May-08
3,500
Feb-08
Feb-08
Nov-07
Dec-07
Dec-07
Sep-07
Mar-08
Jul-07
Jan-08
Apr-08
Aug-07
Aug-07
Apr-08
B $30.00 4/23/07*
B $32.00 11/30/07
3,000 2,500 2,000 1,500 1,000
IPC (R Axis)

41
IMPORTANT DISCLOSURES (CONTINUED)

Key to Investment Codes
% of Companies Covered with This Rating 61.03% % of Companies Provided Investment Banking Services in the Past 12 Months 70.59%
Definition Expected to outperform the local market benchmark by more than 5.0%. Expected to perform within a range of 5.0% above or below the local market benchmark. Underperform/Sell Expected to underperform the local market benchmark by more than 5.0%. Rating Buy Hold The numbers above reflect our Latin American universe as of Friday, May 9, 2008.
33.85% 5.13%
29.41%
For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2008 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment rd th Securities Inc., 45 East 53 Street, 17 Floor (Attn: Research Disclosures), New York, NY 10022 USA.
Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 5.5% of equity risk premium, unless otherwise specified. The benchmark plus or minus the 5.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) 350 3974. This report has been prepared by Santander Investment Securities Inc. (SIS) (a subsidiary of Santander Investment I S.A which is wholly owned by Banco Santander, S.A. ("Santander"), on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This document must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Central Hispano Bolsa, Sociedad de Valores, S.A. (SCH Bolsa), and in the United Kingdom by Banco Santander, S.A., London Branch (Santander London), which is regulated by the Financial Services Authority in the conduct of investment business in the UK. This report is not being issued to private customers. SIS, Santander London, and SCH Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Gonzalo Fernandez and Vivian
Salomon.
Grupo Santander receives non-investment banking revenue from the subject companies, with the exception of Asur and OMA. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Gap. The information contained herein has been compiled from sources believed to be reliable, but, although all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading, we make no representation that it is accurate or complete and it should not be relied upon as such. All opinions and estimates included herein constitute our judgment as at the date of this report and are subject to change without notice. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States. 2008 by Santander Investment Securities Inc. All Rights Reserved.
2008

Mexican Airports

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Mexican Airports

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Latin American Equity Research

Mexico City, May 28, 2008

Ticker ASR PAC OMAB

Rec. Buy Buy Buy

Price May-23 50.24 33.65 19.38

2008E 14.9 13.9 14.6 14.4

P/E 2009E 13.1 13.6 15.0 13.7

2010E 12.3 12.5 13.9 12.8

Mkt. Cap 1,507 1,888 963

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

Sector Research Team

Important disclosures/certifications are in the Important Disclosures section of this report.

RECOMMENDATIONS, TARGET PRICES, AND EBITDA ESTIMATES

All data in US$. Sources: Company reports and Santander estimates.

Figure 1. Mexico Select Economic Projections, 2007-2010E

2010E NA 3.5% 11.47 11.45 NA NA NA NA NA NA

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

Important disclosures/certifications are in the Important Disclosures section of this report.

Figure 4. Total Domestic and International Passengers (Thousand of Passengers)

Source: Mexican Ministry of Communications and Transport.

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

COMPARATIVE VALUATION TABLE

ATTRACTIVE DIVIDEND YIELDS

Important disclosures/certifications are in the Important Disclosures section of this report.

Source: IATA December 2007.

Figure 9. Fuel Expenses % of Total Expenses

Source: IATA, December 2007.

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

Figure 10. Fuel Consumption: Tons/Hour

Ton/Hour 2.8 2.0 2.0 1.3-1.4 1.4

Important disclosures/certifications are in the Important Disclosures section of this report.

Figure 11. Main Airline Fleets in Mexico, 2007

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

AIR TRAVEL PRICING SURVEY

Important disclosures/certifications are in the Important Disclosures section of this report.

Figure 12. Market Share in Domestic Fights in Mexico

vs. Avg. 3% 36% -13% -45%

vs. Avg. -16% -2% -31% 58%

vs. Avg. 1% 30% 0 -15% -16%

Tax % Total 22% 20% 22% 50%

vs Avg. 25% 16% -31% -32%

Taxes (P$) 643 626 635 519 825 672 6% 650

vs Avg. -1% -4% -20% 27%

vs Avg. 16% 9% -27% -11%

vs Avg. -7% 53% -27% -43%

Taxes (P$) 596 706 651 547 813 680 4% 663

vs Avg. -10% 6% -17% 23%

vs Avg. -8% 36% -23% -20%

IMPACT ON MEXICAN AIRPORT OPERATORS

Important disclosures/certifications are in the Important Disclosures section of this report.

Losing Altitude - but Not Crashing

Figure 13. Domestic Airlines - Market Share of Domestic Flights

Aeromexico 13% Click 8%

Aeromexico Connect 17% Aerounion 0% Aeromar 5%

Figure 14. Domestic Airlines - Market Share of International Flights

Aeromexico 26% Mexicana 57%

Important disclosures/certifications are in the Important Disclosures section of this report.

Important disclosures/certifications are in the Important Disclosures section of this report.