18 JULY 2011

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Article from BTNews 18 JULY 2011

COMMENT: Would you buy this airport?

Within a very short space of time London’s Stansted Airport (STN) will have to be put up for sale by BAA Ltd. 

How much is it worth and who will buy it?  What is its future?

The timing is not great.

Would you invest in an airport that is 67% dependent on one airline, and in particular, one man?  Ryanair and Michael O’Leary.  easyJet has 23% of passengers and Germanwings is next up at a mere 3% of the total. easyJet says it is setting up at nearby Southend next year. How will that effect the airport and will its routes move, be duplicated or new destinations found?

The US has proved a flop, Air Berlin’s Hannover and Nuremburg flights have relocated to Gatwick (LGW), and Air Asia last week announced a move to the south London airport for December. 

No more than 17.5m passengers are predicted to pass through this year, as against 24m in 2007.

The problem is that it is a good airport and one that is well organised.  Even this weekend, its busiest of the year, everything seems to have happened smoothly. 

Yes there is probably someone who has missed their ‘plane and is complaining to the media, but common sense dictates that you leave for an airport early when you know it is going to be crowded.

Let us look at STN in a more detailed way.  There are many unanswered questions.

When it is sold who will finish up owning the land for the virtually abandoned second runway project? 

The present extended terminal was designed for 30m passengers and can easily handle 35m.  In the short-term little investment is needed.  The road links are adequate.  But is anything going to be done about a high-speed (monorail) link to London?

The loss of Air Asia X (170,000 passengers in 2010) to LGW is more than just an airline relocating from one airport to another (see below).  It is a move than can be carefully monitored.  Only one other carrier flies from London to Kuala Lumpur, Malaysia Airlines (428,000 passengers in 2010) with a twice daily 747 service out of Heathrow (LHR). 

We will not see the results of the move until July 2012 when the Malaysian budget airline would have been operating from the south London operation for half a year.  Will the figures be dramatically up, or stable, or even drop?  When airlines such as ANA and Continental transferred to LHR from LGW the results were dramatic.  In April Air Berlin’s figures at LGW were 31% up on the 12 months' numbers back at STN.  Brilliant marketing or the draw that is the south London airport?  Or a bit of both?

Which brings us back to the question – how much is STN worth?  And how much needs to be spent?  Could a new owner persuade an incumbent government to approve a second runway?  Or even a third or fourth.

At the back end of 2009 BAA Ltd sold LGW to Global Infrastructure Partners (GIP) for £1.51bn, who claim to be spending a billion on upgrading the airport with the new inter-terminal train demonstrating money well invested.  But will GIP go for a second runway in 2020?

In 2006 GIP had paid £726m for London City Airport which had its record year in 2008, at 3.2m passengers.  It has spent money on an extended apron and terminal and is just completing a much enlarged security and airside lounge area.  A railway to the Queen Elizabeth Olympic Park will open shortly.  Maximum movements at LCY have been extended to 120,000 per year, which in practical terms, and using a mixture of Embraer jets and Bombardier turboprops, means a maximum of 8m annual passengers as things stand.

So based on these figures, and not knowing the profit margins involved for either airport, what is the value of STN? 

It has been suggested that GIP paid too much for LCY and not enough for LGW. 

STN is a gamble, but one that could just come off and make the airport a 70m passenger cash cow.  With than in mind something in the £750/900m range is perfectly plausible.  This figure is probably less than BAA want but Stansted is both a puzzle and a challenge.  We think it might just work.

Malcolm Ginsberg

Editor in Chief

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