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AIRPORT PROFILES Last modified on April 19, 2018

Global investor

AviAlliance managing directors, Holger Linkweiler and Gerhard Schroeder, talk to Joe Bates about the company’s investment strategy and plans to grow and expand its global airport portfolio.

Having invested in airports for over 20 years, acquiring a string of assets across the globe, Düsseldorf-based AviAlliance (formerly HOCHTIEF AirPort) is a familiar name in the aviation market with a reputation for being in it for the long-haul.

Today, it holds a controlling 55.44% stake in the consortium responsible for operating Hungary’s Budapest Franz Liszt Airport and significant shareholdings in Athens International Airport (40%), Düsseldorf Airport (30%), Hamburg Airport (49%) and San Juan’s Luis Muñoz Marín International Airport in Puerto Rico courtesy of it owning 40% of operator Aerostar Airport Holdings.

Between them the airport’s handled 85.7 million passengers in 2017, and just as importantly, all are profitable.

Budapest Airport

Budapest has certainly proved to be one of the company’s biggest success stories in terms of its growth and development, despite the February 2012 bankruptcy of Hungarian national flag carrier, Malév, which for a short time threatened to derail the gateway’s progress under the ownership of AviAlliance.

There’s no denying that the demise of Malév initially had an adverse impact on the airport, where AviAlliance has been involved since 2007, but such has been its recovery since that it handled a record 13.1 million passengers (+14.5%) in 2017, and AviAlliance’s investment in improving its facilities hasn’t stopped.

Arguably the jewel in the crown of its Budapest Airport investments to date has been BUD SkyCourt, the showpiece link between Terminals 2A and 2B, which brought new levels of comfort, convenience and retail/F&B choice for passengers when it opened in 2011.

The airport is currently in the midst of a five-year, €160 million development programme called BUD 2020 that to date has involved renovating Runway I, the installation of a new instrument landing system (ILS) and the opening of a new 145-room hotel.

They will be followed by the unveiling of a new 10,000sqm pier for non-Schengen flights at Terminal 2B this summer.

Other recent new additions under the umbrella of BUD 2020 include the 2017 opening of dedicated 16,000sqm facilities for DHL and TNT as part of a plan to develop the gateway as a cargo hub.

Located next to Terminal 1, the new facilities provide centralised cargo operations and ensure that the airport is equipped to handle up to 250,000 tonnes of freight per year.

AviAlliance managing director, Gerhard Schroeder, is in no doubt that Budapest’s Central European location ensures that it is perfectly placed to develop as a major shipment point for handling freight travelling between Europe and Asia.

He reveals that the airport company will have invested €500 million on upgrading the gateway by the time BUD 2020 is completed, although is quick to note that the rapid rise in traffic over the last five years, soaring customer service ratings and growing route network more than justifies the faith it has placed in the gateway.

“Have we been surprised by Budapest’s success? Not really, as we were fully aware of the airport’s potential, but the success it enjoys today is the result of a lot of sweat and hard work as the project was quite complex,” says Schroeder, noting that the airport has a great management team.

“We had to transform the way the airport operated and replace aging infrastructure with new state-of-the-art facilities. We improved security, introduced a new customer service culture and had to redevelop the airport’s route network after Malév went bankrupt.

“Our efforts have helped turn things around. The airport’s passenger ratings in ACI’s ASQ survey have consistently risen and are now at an all-time high. It has won Skytrax’s award for the Best Airport in Eastern Europe for four years in a row, traffic numbers are at record levels and the financials are good.”

Luis Muñoz Marín International Airport

There are also big hopes for the company’s most recent investment, Puerto Rico’s Luis Muñoz Marín International Airport (SJU), which AviAlliance’s fellow managing director, Holger Linkweiler, believes will prove to be a very successful acquisition in the medium term.

Linkweiler notes that he says this because the airport, and much of Puerto Rico, is still recovering from the impact of Hurricane Maria, which flattened homes and damaged much of the island’s infrastructure when it swept through last September.

Talking about Hurricane Maria, Linkweiler says: “Thanks to the dedication and professionalism of the airport’s management team and staff, Luis Muñoz Marín International Airport was back in service after just 24 hours. This allowed it to immediately become the logistical platform for the US authorities to co-ordinate the urgently needed support for the region.

“We are grateful for their efforts as Hurricane Maria had a heavy and frightening impact on Puerto Rico.”

He goes on: “We are on a reconstruction mode at present, as is much of the island, so we don’t expect an increase in passengers this year. But, from 2019 and in the longer term, we expect much better things as we have invested in a good airport in unincorporated US territory.

“The airport’s existing facilities allow for a lot of growth. Puerto Rico is already a popular destination for cruise ships and we believe that it has a lot of O&D potential.”

More than eight million passengers passed through the airport last year, which was a disappointing but understandable drop on 2016 considering the damage caused by Hurricane Maria.

Athens International Airport

When SJU recovers from its current difficulties it is likely to join another AviAlliance airport that it is doing well today after suffering a few hardships of its own – Athens International Airport (ATH).

ATH had to deal with the decline of national flag carrier, Olympic Airlines, and the Greek economic crisis, which reduced the country’s GDP by more than 25%.

However, today the airport is doing well. It welcomed 21.7 million passengers (+8.6%) in 2017, its fourth successive year of traffic growth, and continues to benefit from what Linkweiler describes as “the difficult situation” in North Africa and Turkey.

Indeed, AviAlliance is interested in increasing its investment in ATH by acquiring the Greek government’s 30% stake in the gateway. The tender, which is part of the Greek privatisation programme, is expected to start this year, based on the extension of the airport concession by another 20 years to 2046.

ATH was the first major greenfield airport in the world to be built as a public-private partnership (PPP) project when it opened for business in early 2001.

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The catalyst for development

ATH was actually the start of everything for AviAlliance as the original plan was for predecessor, construction company HOCHTIEF, to cash out a few years after the airport’s opening to get the maximum value for its shares.

However, the realisation of the potential of the airport and the wider aviation industry meant that this never happened and AviAlliance today still holds a 40% stake in the Athens International Airport SA consortium responsible for building and operating the airport under the terms of a Build-Operate-Transfer (BOT) contract.

And the decision effectively proved the catalyst for a new business strategy that led to the creation of today’s global airport operator.

“Shortly after construction began on Athens the question was raised whether it would be in the company’s best interests to sell up and get out of the airport business after its opening or migrate more into the operation of airports,” explains Linkweiler.

“It was decided that although we had much to learn about the airport industry, it was a business that appealed to us as it provided plenty of expansion opportunities and would allow the company to diversify its interests away from construction. So, in 1997, HOCHTIEF AirPort was set up, and the rest is history.”

It certainly didn’t waste much time in building up its airport portfolio, quickly adding Düsseldorf in 1998 and Hamburg in 2000 before acquiring a 10.5% stake in the Southern Cross Consortium, the then operator of Sydney Airport in Australia in 2002.

Tirana’s Mother Teresa International Airport followed in 2004 followed by Budapest in 2007, and that was it for a quite a while until the recent acquisition of San Juan’s Luis Muñoz Marín International Airport.

Schroeder notes: “We showed our clear intentions in 1998 as Düsseldorf was the first airport that we invested in where our investment wasn’t linked to a construction contract or it was a given that HOCHTIEF would automatically win any construction contract. They had to tender for the business like everyone else and the most competitive bid would win.

“This business strategy, which still applies to all our acquisitions today, helped establish us as an airport operator and allowed us to bid for concessions where we’d previously been excluded from taking part in as we were viewed as just a construction company.”

Investment criteria and global expansion

So, what criteria/investment potential does an airport need to demonstrate to interest AviAlliance?

“Ideally, airports must be of a decent size, preferably handling at least five million passengers per annum, although this is not a hard and fast rule,” says Linkweiler.

“The second most important factor is that of governance. Do we have aligned interests with the other shareholders and what kind of influence/control would we have?

“We are also looking for assets that would benefit from the AviAlliance group, at least from a knowledge synergy perspective.”

Schroeder admits that the company’s roots and business profile in Europe initially made it easier for the company to invest in airports closer to home than say in Africa or Asia, but notes that it previously had a stake in Sydney Airport, now has interests in Latin-America and is actively looking for expansion opportunities in other continents.

To some extent this more expansive view has coincided with having a new, more global business partner and owner in the shape of PSP Investments – one of Canada’s largest pension investment managers with more than C$140 billion in net assets – which has provided AviAlliance with the financial clout to compete at the very top table.

“Our obligation is to look worldwide for airport assets in countries with a stable political and legal environment,” says Linkweiler.

“We have around 50 staff at our head office in Düsseldorf who are specialists in almost every field. They cover topics ranging from traffic forecasting and the commercial development of non-aviation related facilities to master planning and terminal design.

“This give us the capability to properly asses and evaluate each and every project in-house, no matter how complex, and decide whether the opportunity on offer is something worth pursuing or not.”

Linkweiler adds: “We are not hunting for everything. If we don’t see significant potential for an uplift in traffic or performance, then maybe the project would be better suited for another company that would be satisfied with a purely financial investment.”

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Düsseldorf and Hamburg airports

Having stated its global ambitions, AviAlliance is quick to point out that it is happy with the progress and performance of its ‘home’ based gateways, Düsseldorf and Hamburg in Germany.

So much so, in fact, that €120 million will be invested on future proofing the facilities at Hamburg Airport between now and 2020 and Düsseldorf Airport is seeking planning permission to expand its capacity.

Schroeder says that raising the capacity of Düsseldorf by allowing it to handle more take off and landings will give airport the flexibility it needs to operate in a more “demand-oriented way” to best meet the needs of the region’s 18 million inhabitants.

“We consider this essential to ensure that Düsseldorf Airport can keep pace with international developments and fully meet the connectivity requirements of people and businesses,” he says.

Airport cities

Schroeder states that AviAlliance supports the airport city phenomenon and believes that the best example of this in action at his airports can be seen in Düsseldorf, where the gateway has bought a 23-acre site formerly occupied by the British army and transformed into its own Airport City business park.

Opened in 2007, Airport City is now home to Porsche, Siemens and countless other companies and boasts a number of retail outlets, restaurants and the 500-room Maritim Hotel, which is one of the biggest convention facilities in North Rhine-Westphalia.

Indeed, the popularity of the development means that the original land is now fully occupied, and the airport is currently in the process of developing more land to expand it.

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In it for the long-haul

With over 20 years in the airport business and all of its long-held assets performing well operationally and financially, Linkweiler believes that AviAlliance has shown over the last few decades that it well and truly deserves its reputation for being a long-term investor.

He says: “We always think in the long-term and invest in the long-term as we believe that this is the best way to create value and great airports where people like to fly from.

“We know from experience that projects don’t deliver huge profits from day one, and we also don’t get too down about incidents outside of our control as we know that traffic will always return to a well-run airport.

“I am happy to say that in PSP we have a shareholder that shares this philosophy.”

He pauses for a second, then adds: “You know, there are funds out there in the infrastructure development world that say they are long-term investors and mean three to five years. This is definitely not the case with AviAlliance or PSP, which is a permanently growing fund with a very long-term horizon.”

Ever ambitious, in it for the long-haul, financially backed by one of the world’s biggest pension funds and more than 20 years and counting of experience in the airport industry. AviAlliance makes the airport owner/operator game sound like a breeze!

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