Following a quiet couple of years, there are some new opportunities starting to emerge for the major airport investment groups
After a frenzy of privatisations and acquisitions in the late 1990s, the airport sector has remained relatively subdued over the past couple of years. Yet as the air transport crisis begins to lift, there are signs that activity is going to build again over the next year or so.
The pick of the new opportunities is likely to be the proposed privatisation of A‚roports de Paris (ADP), the operator of the two main Paris airports, Charles de Gaulle and Orly, which ranks among the world's largest top five groups. Investors are also keeping an eye on Spain, hoping that the pro-privatisation government will take the country's airport operator AENA to market. It too has healthy profit margins and revenues of close to $1.6 billion. Amsterdam Schiphol is also pencilled for privatisation, while plans to float Tokyo Narita appear to be gaining momentum.
Although Europe represents some of the most interesting opportunities, there could even be growth available in the USA for airport groups keen to expand. Although USairport ownership has remained firmly in the hands of city and state, the expectation is for opportunities in the form of management contracts as airports seek to unlock the potential from the relatively underdeveloped retail side of their business.
But airport investment opportunities come with health warnings attached. A single decision from the regulator can radically affect the value of a purchase almost overnight. The experience of Fraport in the Philippines is one such a cautionary tale.
In October the German group was forced to write down its investment in Manila's Ninoy Aquino in October after the incoming Philippines government tore up a build-operate-transfer contract for the third terminal at the airport and imposed an amended version. Fraport is now hoping to claw back as much as possible through an appeal to the World Bank's centre for investment disputes.
Financial exposure
The experience seems to have convinced Fraport to steer clear of financial exposure on its international investments. Chairman Wilhelm Bender says his company will now avoid financial investments and concentrate on service, management and consulting contracts. "The basis for every foreign investment is shattered if the validity of official contracts and the reliability of the state cannot be trusted when a change in government occurs," he says.
Even established players are not immune from regulatory threats. The UK's BAA, the world's largest airport operator and Europe's first big privatisation, is awaiting a potentially life-changing white paper, due before year-end, which will set out the blueprint for the country's future airport development. UKcarriers have taken the opportunity to call for greater competition in the London area, where BAA operates all three of the largest airports.
A report by the UK Parliament called for the BAA "monopoly" to be broken up, although one airport analyst believes that the government will leave its options open: "This would effectively be a warning shot across the bows of BAA."
France's ADP, meanwhile, is being prepared for privatisation with Credit Agricole and Morgan Stanley being appointed as advisers. Paris plans to turn ADP into a limited company as it gears up for a share offering in 2005.
French construction group Vinci refuses to comment on media reports linking it to ADP, but would be well placed given its close involvement with ADP in managing airports in places such as Cambodia, Africa and Liege in Belgium. Vinci has been attempting to build up its airport interests in recent years but had to abort an attempted hostile takeover of the UK's TBI after the aviation downturn following 11 September.
Spain's AENAis generating equal interest. The right-of-centre Spanish government indicated in 2000 its willingness to privatise the airport activities of AENA, with the group's air traffic management arm left in government hands. Analysts are hopeful that this will be back on, following the travails of the last few years in the aviation industry.
The Dutch government's plans to privatise Amsterdam Schiphol is yet another example of a project that has been in the pipeline for years without moving forward, and would now clearly need the Air France/KLM partnership to clarify its intentions for the Dutch hub before progress can be made.
Dominic Edridge, financial analyst at Commerzbank, says investors are wary of operators that are based around a single hub and heavily reliant on a secondary flag carrier. For example, Unique, the operator of Zurich Airport, was badly exposed by the collapse of Swissair, with few other interests to fall back on other than a few investments in Chile.
Vienna too, which is reliant on Austrian Airlines, has been seeking to widen its international portfolio. Although it has had some disappointments along the way, having to pull out of planned investments in Iran and Spain, it is planning to be one of the lead partners in the new Berlin Brandenburg Airport at Schoenefeld. This will replace Berlin Tegel and Templehof to become the main airport for the German capital, but has been dogged by delays and disputes between the government and potential investors.
Hochtief AirPort, a division of the giant German construction group, is lining up alongside Vienna to play a leading role in the project, although the final make-up of a consortium to operate the airport has yet to take shape as investors await for the government to decide on the final shape of the project. "The stop-start nature of this development has annoyed a lot of people," says Edridge.
The development of Berlin is very much tied into the low-cost sector, given the relatively low proportion of business traffic at the capital, and the decision by easyJet to establish a hub at the German capital.
Indeed, the low-cost sector is increasingly attracting the attention of airport investors. BAA and Fraport already have a foot in the sector through London Stansted and Frankfurt Hahn, while Vienna has made clear its interest in Bratislava in Slovakia, which is positioning itself as a low-cost alternative to the Austrian hub.
Low-cost network
The UK-based Wiggins Group has been developing a network of regional low-cost airports through its Plane Station concept, with bases in the UK (London Manston), as well as continental Europe and the USA, where it has recently signed a management contract with Melbourne Airport in Florida. The latter believes that direct flights between Melbourne and Manston and Lahr Black Forest Airport in Germany are a possibility. However, the Wiggins Group has been shrouded in uncertainty for much of this year as talks on a possible "reverse takeover" continue with an unnamed partner - a process that saw its shares suspended on the London stock exchange.
TBI has also specialised in low-cost airports, but has been quiet on the acquisition front since 2001 when it took a majority stake in London Luton, home of easyJet. Chief financial officer Caroline Price says the group has not seen any airport investments that fit its requirements of overall management control and the potential for TBI to "make a difference" through increasing passenger numbers, reducing costs or increasing retail earnings. For instance, she says that TBI decided not to bid for a 40% stake in Malta International Airport last year, as it was already a well-run airport, and has also turned down opportunities in the UK at Norwich and Teesside.
The two most active players in international airport investment in recent years, Macquarie Airports and Hochtief AirPort, have also had a quiet year as they bed down major investments. Hochtief was the lead partner in the consortium running the new Athens International Airport on a build-operate-transfer basis, while Macquarie is the lead player at Sydney Kingsford Smith. Hochtief recently sold 5% of its 15% share in Sydney to Macquarie. The two sides say this is in accordance with Hochtief's plan to reduce its stake in Sydney over a period of time.
Edridge notes that construction businesses such as Hochtief and Vinci have tended to look for project-based investments rather than long-term operating contracts. "Airport groups tend to be more focused on the day-to-day running of airports. There is a difference in attitude," he says.
However, both infrastructure groups and the major airport operators are likely to be there with cash to spend as new opportunities arise in the years ahead.
Source: Airline Business
