COMMENT: Airports for sale?

The ruling by Britain’s Supreme Court that it will not revoke the Competition Commission's judgement that BAA must sell Stansted and one of either Edinburgh or Glasgow airports (subject to a final re-appraisal) opens up some interesting scenarios.  BAA is owned by ADI which comprises of Ferrovial of Spain (56%), CDPQ, a major Quebec pension fund (26%) and GCI, the Government of Singapore Investment Corporation (18%).

Assuming the sale goes ahead what are the airports worth and will they be sold individually or as a pair?  Secondly, who might wish to buy them?  And thirdly, what is required by way of investment?

Taking the issue of value, this is very much tied up with who the purchaser might be, and whether that buyer is prepared to make a huge gamble.  As things stand, for the life of this Parliament, there will be no runway expansion in South East England.  All could change in the future.  The Stansted owner might easily dust down the existing plans for a second runway at some future point.  The sale presumably would include land purchased (and held) for this expansion. 

Stansted is currently running at well under 20m passengers per annum and could easily add 50% more passengers taking it up to a 30m throughput without any expansion.  In the case of the Scottish airports a great deal depends on which one of the two is disposed of, and that airport’s development possibilities bearing in mind serious competition from its former sibling.  Glasgow for years dominated due to its limited success with long haul flights, but Edinburgh has prospered since devolution and now has the larger throughput and is presumably the more profitable.

Gatwick was sold as airports struggled in the recession, for £1.5bn, to Global Infrastructure Partners (GIP), a fund backed by Credit Suisse and GE.  Shareholders who have since bought stakes in the airport include Abu Dhabi Investment Authority, National Pension Service of Korea, California state fund Calpers and Future Fund of Australia, leaving GIP with 42%.

GIP was also the purchaser of London City Airport (LCY) in 2006 for £750m, this time at the top of the market.  Compare the numbers.  Gatwick’s passenger throughput in 2010 was 31.3m and London City 2.78m.  Gatwick is currently having £1bn spent on it, whilst the investment at LCY is notional, although important in the way it is being done.

Assuming all does go ahead one would take for granted that the purchaser(s) of the airports will be the buyer with the largest bid, ADI only interested in obtaining as high a price as possible. 

The AERBT view is simplistic in that the question of railway access is vital for the future of all three airports.

In the case of Gatwick its train station is essential to the well being of the operation, which has been recognised by GIP, with investment at the present time, and some ambitious plans at a later date.  With LCY pleas by the prospective airlines for the evolving DLR to be incorporated into the initial plans by Mowlem, the airport developers, were ignored with distain, the building group later (embarrassingly) departing with a fire sale price.  The new owners persuaded Government that the DLR should be re-routed, today 50% of passengers arriving by that route.

Stansted has a railway line, but it is a single track spur off the secondary London to Cambridge tracks.  Nicknamed the “Stansted Slow”, the Stansted Express belies its name and stops twice, takes at least 45 minutes from Liverpool Street, and is expensive.  It is not the sort of service that will attract airlines. 

BAA has virtually ignored any development of a modern train service into London.  For Stansted to prosper, with one or two runways, there is a great need for a fast (monorail?) link to Central London.  The same goes for Scotland too.  Both the airports have rail link plans, with tracks running parallel with the runway at Edinburgh and a tramway actually under construction.  The Scottish Government in 2009, highly controversially, cancelled plans for a train service to the centre Glasgow.  They need resurrecting.

Let us hope that the Monopolies Commission's deliberations finally put an end to the legal fracas, and that those involved with the management of the airports can get on with investing money on the future and not literally wasting it via the bottomless pit from which only the lawyers benefit. 

Malcolm Ginsberg
Editor in Chief

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