The market for airports has undergone a number of interesting changes recently. Airport pricing has returned to levels last seen before the Lehman Brothers’ collapse in 2007, with the exception of three Brazilian airports (Guarulhos, Viracopos and Brasilia).
These changes can be seen in the chart below, which shows pricing trends/valuation multiples in major airport transactions since the first airport privatisation (BAA) in the 1980s.
Source: Aviation Strategy
CAPA estimates that there are currently 450 airports worldwide with some form of private-sector participation either in management or ownership. Airports remain attractive assets to a wide range of investors, and governments worldwide are increasingly turning to the private sector to raise money for the public purse and to assist in the funding of new infrastructure.
Over the nearly 30 years that airports have been traded, investors have become increasingly sophisticated and diverse. As investors have become more sophisticated, governments have too. Governments now approach privatisation deals with greater caution and often make provision for early termination of deals that do not work out as expected.
The perception that airports are homogeneous attractive assets is no longer the case. It is clear that making acceptable financial returns from smaller airports (often below 3-5 million passengers per annum) is very difficult. However, the number of investors in airports continues to grow both in terms of numbers and type. Today’s market is dominated by pension funds and sovereign wealth funds, which now compete with increasing success with infrastructure funds and trade buyers.
2011, 2012 and year to date
Several airport transactions have failed to be completed in the past few years.
In 2011 the Spanish Government announced the cancellation of the process for the concession of Madrid and Barcelona airports. The process was halted at the end of 2011, just before the general election, with concerns over investor appetite and the amount of sale proceeds that would be raised.
In Italy, SEA (Milan Airports) recently had a second attempt at privatisation. The first attempt was in 2006, when it sought to attract a trade buyer for 33% of its own equity in a private auction. That failed after it became apparent that the City Of Milan would retain too much equity and power and because of troubles at Alitalia. Then, in 2012, an IPO was called off after only 30-40% of the shares were subscribed. SEA had planned to sell off a 23.8% stake. The airport was offering 58.5 million shares, with 85% reserved for institutional investors. Previously, the City had sold 29.75% of the capital of SEA to Italy’s Fondi italiani per le infrastrutture(F2i), which had earlier bought Naples Airport from BAA.
After failing to sell Chicago’s Midway International Airport in 2009 following the global financial crisis, a second attempt also failed this month. In September 2013, Mayor Rahm Emanuel halted plans to lease Midway Airport to private investors, as bidders failed to match the expectations of the Mayor. It is believed only one firm bid was received from an investor group that included Australian investment bank Macquarie and Ferrovial. A second group, a partnership of Australian infrastructure investor Industry Funds Management and UK airport operator Manchester Airports Group PLC, had been vying for the Midway lease but had not submitted a final bid. The airport had been expected to be worth about US$2 billion.
Despite these failures, a significant number of airport transactions have been completed recently. In general airport EV/EBITDA multiples began to recover from post-Lehman lows in the rough range of around 15-16 times earnings. In 2012 major airport transactions occurred in Portugal, the UK, the US and Brazil.
ANA Airports of Portugal was acquired by Vinci Airports with a 50-year concession. Vinci Airports reportedly outbid amongst others Fraport, Global Infrastructure Partners, Ferrovial, Flughafen Zurich, and Odebrecht (Brazil). The ANA concession deal was valued at €3.1 billion, which valued ANA at 15 times EV/EBITDA.
The Spanish construction firm Abertis sold its shareholdings in Belfast International, Stockholm Skavsta and Orlando Sanford airports to ADC&HAS, along with the airports business in Central and South America that it inherited when it acquired TBI. Previously, Abertis had disposed of Cardiff Airport to the Welsh Government. Following the sale of these assets, Abertis retains just a stake in Grupo Aeroportuario del Pacífico in Mexico and the concession for Montego Bay Airport in Jamaica.
In 2013, after an earlier failed attempt, Hochtief AirPort GmbH was sold to Canada's Public Sector Investment Board's PSP Investments for a reported €1.5 billion. PSP has acquired minority stakes in the following airports as a consequence: Athens, Budapest, Dusseldorf, Hamburg, Sydney and Tirana.
Other major transactions in 2012 included the sale by Heathrow Airport Holdings (formerly BAA) of London Stansted Airport. There was a lower level of investor appetite for Stansted than with the ANA transaction, perhaps as a result of the dominance of low-cost airlines (particularly Ryanair) at the airport and the recent history of declining passenger numbers. The winning consortium was Manchester Airports Group (MAG) in tandem with Australia’s Industry Funds Management, which acquired a 35% stake in MAG when its bid was successful. The unsuccessful suitors were the Australian investment bank Macquarie, the Hong Kong-based Cheung Kong Holdings (which dropped out at an early stage), US private equity firm TPG and a consortium comprising New Zealand’s HRL Morrison (Infratil), the New Zealand Superannuation Fund and the Retail Employees' Superannuation Trust of Australia.
2012 also saw changes in the equity ownership of London’s two largest airports, Heathrow and Gatwick. As Ferrovial seeks to reduce its debt it has sold down its shareholding in Heathrow Airport Holdings Ltd, by selling stakes to Qatar Holding, the Middle East sovereign wealth fund, and to CIC International, an arm of China’s leading sovereign wealth fund. With the completion of both deals Ferrovial’s stake in Heathrow fell from 49% to just 33.7%.
At Gatwick Airport, Global Infrastructure Partners (GIP) has reduced its stake to 42% following the purchase of shares by various Middle East, US, Korean and Australian funds. Also in the UK, the 49% stake held in Newcastle Airport by Copenhagen Airports was sold to the fund managed by AMP Capital Investors of Australia.
Also in 2012, Edinburgh Airport was sold to Global Infrastructure Partners for £807 million. The losing bidder was a JP Morgan-led consortium that included Korea’s Incheon International Airport Corporation and TIAA-Cref, the leading US retirement provider for people who work in the academic, research, medical and cultural fields. The EV/EBITDA multiple was 16 times earnings, which reflects the airport’s strong growth profile, balanced traffic mix and expansion potential.
In February 2012 in the US, investment firms Highstar Capital and Grupo Aeroportuario del Sureste SAB de CV agreed to pay US$2.6 billion for a 40-year lease of Luis Muñoz Marín International Airport in San Juan, Puerto Rico.
In 2012, Brazil’s Guarulhos, Brasilia and Viracopos sales were completed. The consortium that won Guarulhos, with bids of 16.2 billion reais, was led by Invepar, owned by Petros, the Brazilian oil company’s pension fund, and Banco do Brasil, the country's biggest bank. Both firms are state-controlled. BNDES, the state development bank, primarily financed the deal. Another consortium member was ACSA, the private South African airport operator. A consortium led by Triunfo Participacoes e Investimentos SA and Egis, the French firm with interests in airports in Africa, won the licence to operate Viracopos airport in Campinas after bidding 3.8 billion reais. The Inframérica consortium consisting of Engevic and Corporación América won the bid for Brasilia paying 4.5 billion reais. The consortium has a 51% stake in the licence, while Brazil’s state-run airport operator Infraero will retain a 49% stake.
The prices paid for these Brazilian airports (over 30 times EV/EBITDA), was considerably out of line with airport multiples achieved elsewhere. This reflects perhaps the keenness of local infrastructure firms to enter the airport space and the possible high growth rates that these airports might be able to generate.
The difficulty in owning and managing smaller airports was reflected in two regional airport transactions in the UK. First, Manchester Airport Group sold its 82.7% shareholding in the struggling Humberside Airport to the Eastern Group, which operates Eastern Airways, for a sum believed to be £2.3 million, which represents a heavy loss on the price it paid plus the subsequent investment it had made there.
Second, in June 2013, Balfour Beatty exited its interests in airports by selling Regional and City Airport Management Ltd (which has stakes in Exeter, Blackpool and City of Derry airports) to the Rigby Group, parent of Patriot Aerospace, which already owned Coventry Airport. This sale was also like to be made at a substantial discount to the original purchase price of these assets.
Perhaps the most significant transaction in 2013 was for the 25-year BOT deal for the new airport in Istanbul. Turkey’s Ministry of Transport and Communication is running the transaction, which will involve the construction of a US$6.5 billion new airport. Phase I of the new airport will comprise three runways and three taxiways, with a 100 million passenger capacity terminal due to be operational by 2018. Ultimately the airport is expected to be able to handle 150 million passengers per annum on six runways, once fully operational. The initial tender in May 2013 attracted 17 bids but only two foreign bidders. The winning bid was made by a consortium of Turkish construction firms - Cengiz, Kolin, Limak, Mapa and Kalyon that offered €22 billion for a 25-year lease.
2013 and beyond
The sale by the Greek Government of its regional airports is partly of a consequence of the bailout of the country by EU members. Eleven consortia initially expressed an interest in the 37 airports and these eleven have been whittled down to a shortlist of seven.
- Aeroports De La Cote d’ Azur
- A joint venture (JV) between Zurich Airport (63%) and JP Avax (a blue chip Greek-Cypriot construction firm) (37%)
- Athens International Airport (AIA)
- Advent International
- JV between Vinci and Ellactor (a Greek construction firm)
- JV between Corporation America (the Argentinean airports operator) and Metka (a subsidiary of Mytilinaios Group, a Greek energy and defence firm)
- JV between Fraport and Kopelouzos Group (a Greek firm active in the energy sector)
In Spain, the government has yet to launch a new process to sell government owned airport assets. It would appear that the government will attempt to sell a minority share (as much as 49%) in 2014, of the whole of AENA instead of selling just Madrid and Barcelona. Such a sale will not be straightforward. AENA faces financial difficulties because of high debt and traffic levels will probably be slow to recover, given the economic conditions in the country and the high levels of unemployment.
In August 2013, AENA acquired, together with France’s AXA Private Equity, the stake held by its Spanish rival, the Barcelona-based Abertis, in the operating concession on London Luton Airport. It would appear that Abertis is seeking to dispose of its airports businesses to concentrate on other elements of its portfolio, the process having been kick-started by the enforced nationalisation of three of its assets in Bolivia).
The majority public sector owner of Frankfurt Hahn airport, the Rhineland-Palatinate State with an 82.5% stake, has declared that it wishes to sell a majority stake in the loss-making airport. Hesse State which owns the remaining 17.5% is expected to retain its stake.
Other possible transactions in the airport sector include Fraport’s acquisition of a stake in Italy’s SAVE, which runs Venice, Treviso and Padua airports in Italy and Charleroi Airport in Belgium.
Turkey’s State Airports Authority (DHMI) said it would organise tenders to lease four airports before the end of 2013. The government plans to transfer operational rights of Dalaman, Bodrum-Milas, Samsun and Nevsehir-Cappadocia airports as part of the government’s efforts to raise funds through private sector involvements.
In Russia, Prime Minister Dmitry Medvedev has expressed support for the transfer of regional airports to private operators, though many of these are loss-making so investor appetite is likely to be limited. The Russian government has also floated the idea in its 2014-2016 privatisation plan, which would see the state’s complete withdrawal from Moscow’s Sheremetyevo and Vnukovo airports. Moscow’s Domodedovo Airport, which is in private ownership, was rumoured to be planning an IPO a few years ago.
In Brazil, the airport privatisation process continues with the sale of Rio de Janeiro and Belo Horizonte airports.
Note: Aviation Economics and/or RDC Aviation had roles either on the buy or sell side of the following transactions mentioned in the article above
- ANA – Portugal
- Belo Horizonte
- London Gatwick
- London Stansted
- Midway (2009)
- Moscow Domodedovo
- Rio de Janeiro
- Sao Paolo – Guarulhos
by Tim Coombs