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ECONOMICS Last modified on July 19, 2011

An investor's market?

Joe Bates discovers that airports are back on the radar of some of the world's leading infrastructure investors.

After a relatively quiet couple of years for really big deals in the airport ‘buying game’, it appears as if the dry spell is about to end with investors positively queuing up for a piece of the action.

Indeed, a host of big names have already thrown their hats into the ring or announced their intention to bid for the Madrid-Barajas and Barcelona-El Prat concessions in Spain that are expected to come to the market in the next few months.

The proposed sale of HOCTHIEF AirPort (HTA), which has stakes in six airports – Athens, Budapest, Düsseldorf, Hamburg and Tirana in Europe and Sydney in Australia – is also attracting a lot of attention.

While in Asia, Incheon Airport CEO, CW Lee, told Airport World that “a number of parties” have shown an interest in the planned privatisation of the South Korean airport operator.

The South Korean government has announced plans to offload up to a 49% stake in Incheon International Airport Corporation (IIAC) and is working on plans for an IPO to sell a 15% stake in Incheon Airport by the end of year.

In fact with the exception of the US where airport privatisation has yet to take-off, the rekindled investor interest appears to be truly global.

The anticipated bidding war for Madrid-Barajas and Barcelona-El Prat promises to be the fiercest of all, with Spanish-owned global airport operators Ferrovial Aeropuertos and Abertis both expressing an interest in acquiring their country’s prize airport assets.

Their ‘availability’ follows the Spanish government’s decision to privatise AENA, which is now gathering pace. Indeed, all of its assets have been transferred to a new holding company – Aena Aeropuertos – in readiness for the sale of Madrid Barajas and Barcelona-El Prat airports by year-end.

At the same time it will work on the privatisation of up to 49% of the remainder of Aena’s airport assets, and has called in the Royal Bank of Scotland to advise it on the transaction and co-ordinate the sale.

The Spanish government has also begun the search for an independent body to calculate the complete value of Aena Aeropuertos, which some experts put as high as €30 billion.

The timing of the sale of the 49% stake in Aena Aeropuertos – which will no longer include Madrid-Barajas and Barcelona El-Prat – is, however, not so clear, as it is will depend on investor interest and market conditions.

“If maximising the price for Aena means that the stock market listing takes place in 2012, it’ll be in 2012, or in 2013 or 2014,” notes Juan Lema, president of Aena Aeropuertos.

The new-look Aena Aeropuertos, excluding Madrid-Barajas and Barcelona-El Prat, will comprise a network of 45 airports in Spain that includes the popular holiday destinations of Malaga, Palma de Mallorca, Alicante, Gran Canaria and Tenerife, which are expected to prove particularly attractive to potential investors.

Ferrovial’s anticipated bid for Madrid-Barajas or Barcelona El-Prat will almost certainly be as part of a consortium and could be, in part, financed by the sale of a 10% stake in UK airport operator, BAA.

It is believed to want around $300 million for the stake and US infrastructure firm Alinda Capital Partners and a handful of pension and sovereign wealth funds have shown an interest.

Alinda Capital Partners, which already has a small interest in BAA, is the world’s largest independent infrastructure firm with more than $7 billion in equity commitments to infrastructure investments.

Importantly for Ferrovial, the sale of 10% of its current 55.9% stake in BAA will enable it to take the UK airport operator’s $16 billion debt off of its balance sheet – a move that will please its investors.

Ferrovial also faces what appears to be a losing battle to hang on to Stansted and either Glasgow or Edinburgh airports in the UK, which BAA has been ordered to sell by the UK’s Competitive Commission.

It continues to fight the decision, but with a U-turn now unlikely, it could use the proceeds to fund bids for either Madrid-Barajas or Barcelona-El Prat.

Earlier this year, BAA CEO, Colin Matthews, stated that Stansted would fetch at least $2 billion. Analysts believe Glasgow is worth around $800,000 and Edinburgh nearly $1 billion.

All the world’s leading global airport operators are watching the Stansted situation closely, with the bidding for London’s third biggest gateway after Heathrow and Gatwick likely to be strong.

BAA, of course, sold Gatwick to Global Infrastructure Partners (GIP) for €1.65 billion in late 2009.

Competition is also expected to be red hot for Essen-based HTA, which has been put up for sale by German infrastructure group HOCHTIEF as part of a strategic decision to dispose of its non-core assets to improve its profile with investors.

The Sunday Times newspaper reports that Vinci, Fraport and Gatwick owner, Global Infrastructure Partners (GIP) are all considering bids for HOCHTIEF AirPort.

The UK broadsheet also speculates that HTA will have a sale price of around $1.7 billion.

Changing market
A new entrant to the list of global airport operators is Incheon Airport, which on July 4 acquired a 10% equity stake in Khabarovsk Novy Airport in Russia for an undisclosed sum.

Incheon has previously expressed an interest in acquiring shares in “two or three” international airports in the Asia-Pacific region.

In the meantime, Incheon continues to amass a series of overseas consulting/management contracts, to date winning contracts in Iraq (Erbil), The Philippines (Mactan-Cebu), Khabarovsk Novy (Russia) and Cambodia (Siem Reap).

It has also signed an agreement with China’s HNA Airport Group to provide consulting and operational services to Haikou, Sanya and Lanzhou airports.

A potential re-entrant to the international market over the next 12 months is Aéroports de Montréal (ADM), which is considering reversing a previous business decision to put all overseas expansion on hold.

ADM, through international investment arm Aéroports de Montréal Capital (ADMC), heads the Société d’Exploitation de Vatry Europort (SEVE) consortium responsible for developing Vatry Airport but has failed to add to its international assets since 2002.

“Is ADM going to take its place in the international forum in some form or another? The answer is a resounding yes! How we do it though is still to be determined,” reveals ADM president and CEO, James Cherry.

“It might involve joint ventures with a financial commitment to developing airports or simply involve the provision of support and services.”

Casualties since Airport World’s last A-Z of global airport operators feature in early 2009 include Vienna-based Meinl Airports International (MAI) and Airports International (AI).

Before its demise, MAI – liquidated in April 2009 – had a controlling 67% stake in SOGEAP, operator of Italy’s Parma Giuseppe Verdi Airport and a 24.9% interest in Bydgoszcz Airport in Poland.

While Jersey registered AI, which had at one time held a 10.1% share in TAV but has since disposed of all its operational assets, is in the process of being wound down.

The US market
So what of the US? There is a feeling that it will now wait and see what happens with the privatisation process in Puerto Rico (an unincorporated US territory) before making any decisions.

Having just gained the support of at least 65% of its airlines, a necessary requirement under FAA rules, San Juan’s Luís Muñoz Marin International Airport could technically be partially privatised by the end of the year if investors can be found.

If it is thought that mainland US airports will keep a watching brief on the project, which if it proves a success, could encourage other airport privatisations.

In addition to Luís Muñoz Marin International Airport, three other US airports have had applications to take part in the FAA’s pilot privatisation programme – Chicago Midway, Gwinnett County Briscoe Field Airport and Hendry County Airglades Airport in Florida.

Louis–Armstrong New Orleans International Airport dropped out of the programme in 2010.

Attempts to privatise Chicago Midway fell through at the last minute two years ago, when the winning bidder, the Midway Investment and Development Corporation (MIDco) consortium failed to secure the financial backing required to push the $2.5 billion deal through.

It is unlikely that the City of Chicago will be rushing to try again any time soon, but some observers feel that the recent Los Angeles World Airport (LAWA) decision to invite Expressions of Interest for the possible management of LA/Ontario International Airport demonstrates that the US market is softening to the idea of private airport ownership.

LAWA, operator of Los Angeles International Airport (LAX), has received at least 10 inquiries from interested parties, a response executive director, Gina Marie Lindsay, described as “encouraging”.

Financial rewards
In these difficult economic times, airports are increasingly looking for new sources of revenue to help fund rising operational and security costs and finance future infrastructure development and, for some, becoming a global airport operator has proved to be the answer.

Take Fraport, for example, whose External Activities & Services division – which comprises the company’s business outside of Frankfurt – now generates 20% of its total revenues and nearly 34% of its EBITDA.

Food for thought.

This feature appeared in Airport World 2011 - Issue 3

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