8 FEBRUARY 2016

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Article from BTNews 8 FEBRUARY 2016

COMMENT: London City Airport

The posturing has started with the proposed sale of London City Airport by its joint owners New York based Global Infrastructure Partners with 75% and Oaktree Capital the balance.  The reputed asking price is £2bn, the airport purchased for an estimated £750m in 2006.

Ten years ago the airport was moving 2.3m passengers.   In 2016 it will reach towards 5m, still the easiest airport to use in London, the investment over the last ten years easy to see.  Touchdown to DLR station in ten minutes.

Thought to be interested is Cheung Kong Infrastructure Holdings, Atlantia Spa and another three consortia, one of which is led by Macquarie Infrastructure Corp.

First up with concerns over the possibility of a new landlord last week was Willie Walsh, chief executive of British Airways owner IAG, speaking to the  Financial Times.

"If the owners succeed in selling this for £2bn, we cannot see how a buyer will be able to recover or make any return on that investment unless they make a significant increase in airport charges."   Walsh then implied that BA could cancel some routes.

British Airways is in fact two airlines at LCY, main line operating a pair of Airbus A318s, probably at a loss, to New York, and CityFlyer with 18 Embraer E series.  The London City to JFK service could be easily pulled without losing passengers, clients directed on to Aer Lingus frequent Dublin flights with many more US destinations available.  As a flag carrier it has served BA well.

The airport’s second largest carrier, CityJet, has also expressed serious concerns about its viability if new owners hike airline costs to compensate for the price tag. And it is talking to BA as well.

CityJet executive chairman, Pat Byrne, spoke to the  Irish Examiner.  The airline is based in Dublin with its largest centre LCY.  He claimed a deal at £2bn would “bring into question the long-term sustainability of airline operations at London City Airport”.

“The airport is expensive for airlines, both in terms of equipment required to operate within the unique physical constraints of the airport, and also in terms of the airport’s charge per passenger, which is the highest by far of any of London’s six airports.

“The £2bn potential sale price quoted suggests that potential buyers consider the earning potential of the airport to be significantly in excess of where it is today with a return on investment only being possible through increased charges to airlines and their passengers.”

Any increase in airline charges could “ultimately be detrimental to all users of the airport,” he added.

BA and CityJet jointly commissioned a report into the situation by consultants Cambridge Economic Policy Associates (CEPA).

“The initial findings of the report would indicate the concerns BA and CityJet share in respect of likely increased charges are well grounded if the speculated sale price range for the airport is achieved,” Mr Byrne said.

No mention by Mr Byrne of pulling out of the airport but with the carrier expected to receive the first of 21 Sukhoi Superjets later in the spring, and a major SAS contract about to start it is clearly looking at alternatives to London City, its major base.

The word ‘posturing’ was used to introduce this COMMENT.  This must still be the case.  With the airport confident that its planning application will be approved later in the year, and a major gate refurbishment underway, it does seem that compromise will be the result, BA and CityJet still the main airlines.  And for the future a new owner.

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David Bentley, Manchester

If BA is losing money on LCY-JFK services why hasn't Walsh pulled them already? He didn't waste any time pulling MAN-JFK, whether it was justified or not.


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