The most-read article on the Aviation Economics website last year was a summary of current and future airport privatisation projects. Tim Coombs, Managing Director of Aviation Economics, updates this for 2014 with a review of recent transactions and a look forward to 2015.
2014 has seen the usual mix of equity transactions that are airport privatisations (IPOs) and secondary trading in airports i.e. airport equity stakes that are already held by private investors. In time, as more and more airports enter private ownership, it is reasonable to expect that the balance between IPO and secondary sales will change. For now the market is increasingly driven by secondary sales rather than primary sales. In Europe, many of the deals are secondary sales with investors looking to either to exit the market or, as refinancing needs emerge, looking to sell individual assets.
Whilst the market for IPOs in Europe has largely dried up (with the exception of the AENA sale – see below), and the IPO process in the US fails to ignite, in emerging markets there is still a demand for government run IPOs driven largely by the need to leverage private capital (and operational expertise) for major infrastructure investment.
Investor appetite for airport assets in 2014 has remained very strong. Infrastructure funds certainly have raised funds that are as yet to be invested and an important question is whether this “wall of money” has led to a ramp up in valuations beyond recent historic ranges. Our view is that while the market is highly competitive, that the prices being paid for airport assets are a long way short of the over-heated EV/EBITDA multiples that were being paid prior to the global financial crisis of 2008.
A theme that appears to be emerging in Europe is an alignment of operational expertise with funding providers. Examples of this includes; Ardian and AENA, MAG and IFM, and ADC&HAS and OMERS. It would seem logical to expect this trend to continue - both through formal alliances and groupings as well as deal-specific or market-specific consortia.
However in more growth orientated markets where major capital investment is more significant, such as in Brazil and Turkey, there is likely to be more of a bias to construction-orientated consortia.
Airport investments are not always successful
Whilst the appetite for airport equity has been very strong in 2014, it would be remiss to not to point out that there continues to be investments that have failed to meet investor expectations. As ever these difficult investments are generally to be found in airports which have low volumes of traffic.
In Europe examples of such investments include:
- The Canadian Vantage Group’s exit from management and investment in Liverpool, Robin Hood Airport Doncaster Sheffield and Durham Tees Valley airports
- The sale of Cardiff and Glasgow Prestwick airports to the public sector
- The sale of Manston Airport in southeast England to Lothian Shelf 710 Ltd, and its subsequent closure
- The insolvency filing of Luebeck Airport in Germany, it having been taken over by an entrepreneur only 16 months previously
- Blackpool Airport which faces closure, having been acquired by Balfour Beatty in 2008
Deals being completed in 2014
Dalaman Airport, Turkey
The winning bidder for the concession to run Dalaman Airport was YDA/ATM which bid €705m (plus 18% VAT). ATM Airport Construction and Management, Inc. is a joint stock company established by three companies namely YDA-TURKUAZ. Dalaman Airport handled over 4m passengers in 2013.
TAV Airport Holdings was the successful bidder to win the 20-year concession to manage Turkey’s sixth busiest airport, Milas Bodrum, which handled 3.6m passengers in 2013. The company will manage the international terminal from October 2015 and is awaiting confirmation on its starting date at the domestic terminal. The €717m (plus 18% VAT) deal adds a fifth airport to TAVs Turkish portfolio, which already includes Istanbul Atatürk, Ankara Esenboga, Izmir Adnan Menderes and Antalya Gazipasa airports.
TAV won an auction against three other consortia – incumbent operator Astaldi, YDA Construction and a Fraport-led group. The structure of the deal was TAV providing an equity investment of 30% and the remaining 70% debt financing. TAV also operates several overseas airports, including Tbilisi and Batumi airports in Georgia, Monastir and Enfidha-Hamammet airports in Tunisia, Skopje and Ohrid airports in Macedonia, Medinah Airport in Saudi Arabia and Zagreb in Croatia.
Bristol Airport, UK
Another sale expected to be completed shortly is the sale of the 50% stake held in Bristol Airport by Macquarie to the other current 50% shareholder, Ontario Teachers’ Pension Plan, giving the Canadian company control of UK’s ninth busiest airport. Although the companies did not disclose financial terms of the deal, it is rumoured that Ontario Teachers’ have acquired the Macquarie stake for around £250m. Bristol Airport posted a pre-tax profit of £25.8m in 2013.
The Chilean government has announced its intention to ask for bids to operate and developing Santiago’s Arturo Merino Benitez International Airport. The current concession concludes at the end of 2015. The successful consortium will be required to construct a new international terminal in return for a 15-year concession.
Fraport AG and a consortium headed by the Slovenian Sovereign Holding (SDH) were the winning bidders for the purchase of Ljubljana Airport (Aerodrom Ljubljana) in the capital city of Slovenia. Under the agreement, Fraport AG will pay €177.1m for a 75.5% in Aerodrom Ljubljana d.d. The acquisition will be financed from current liquid funds. As part of the privatization process, Fraport intends to acquire 100 percent of the Ljubljana airport company and, thus, will submit a takeover bid to the remaining shareholders, in accordance with legal and statutory requirements. In 2013, Ljubljana Airport handled 1.3m passengers.
Fraport AG out bid other interested parties which it was believed to include VINCI Airports, China Southern Airlines, Munich Airport, Zurich Airport, and the Egis Group.
Greek regional airports
The management of 14 regional airports throughout Greece is set to be sold to private investors before the end of 2014, according to the Hellenic Republic Asset Development Fund (HRADF) schedule. The airports are being sold in two tranches, Tranche A and Tranche B. The airports in Tranche A are Thessaloniki, Chania, Corfu, Zakynthos, Kefalonia, Preveza and Kavala, with an option for Alexandroupolis, Araxos, Kalamata and Nea Aghialos. Tranche B includes the airports of Rhodes, Kos, Skiathos, Mykonos, Santorini, Samos and Mytilene, with an option for Karpathos and Lemnos.
The companies participating in the competition for the airports are French firm Aeroport De La Cote d’Azur, the J&P Avax-Zurich Airport consortium, Athens International Airport, the Fraport-Copelouzos consortium, the Vinci-Ellaktor cartel, the Corporacion America-Metka consortium and the Advent Group. The firms will take over the management for a duration of up to 50 years.
The partial privatisation of Spanish airports operator AENA should see its shares list on the stock market in late November 2014. The Government will retain a 51% stake in AENA. AENA manages 46 Spanish airports, including Madrid, Barcelona, Málaga and Palma de Mallorca. Last year, AENA took control of London’s Luton Airport, in a joint deal with Ardian, the private equity group.
Of the remaining 49% stake of the group, 21% is slated for between two and four core shareholders in a separate auction process. This is likely to rule out some candidates such as infrastructure managers Ferrovial and Abertis which only invest in companies where they hold a majority stake. The other 28% is to be sold to domestic and foreign investors, likely to be primarily financial institutions. It is expected that within that 28%, around 10-15% is earmarked for retail investors (private/individual shareholders).
In term of value, the sale is like to value the entire AENA group with an enterprise valuation of around €16bn. AENA made a profit of €597m in 2013 after a radical restructuring process including staff cuts and after benefiting from some increase in airport charges.
The Spanish Government will use some of its proceeds to reduce AENA's debt, and is expected to net only about €2.2bn from the sale to help reduce the public deficit. The sales process is being run by a large banking consortium including Santander, BBVA, Bank of America, Merrill Lynch, Goldman Sachs and Morgan Stanley have been appointed to run the sale process.
Aberdeen, Glasgow and Southampton, UK
The sale of the residual Heathrow Airport Limited (HAL) airports of Glasgow, Aberdeen and Southampton is nearing completion. HAL has announced that it will sell off the three airports to a consortium of Ferrovial and Macquarie in a deal worth £1.048 billion. The sale, announced in October 2014 is subject to European merger regulations, and is expected to close in 2015. Ferrovial Aeropuertos SAU, a Ferrovial subsidiary, and Macquarie’s Infrastructure Fund 4 have teamed up to purchase the airports. Each firm has a 50% stake in the deal. Ferrovial has a 25% stake in HAL and is its largest shareholder alongside Qatar Holding, Caisse de depot et placement du Quebec, GIC, Alinda Capital Partners, China Investment Corp. and the Universities Superannuation Scheme.
The French state has announced the sale of its 49.9% stake in Toulouse-Blagnac Airport. The stake is expected to raise more than €150m. The airport handles around 7.5m passengers per year, and has an annual turnover of €117m. Final bids are due by the end of October.
Interested parties include VINCI Airports combined with the Caisse des Depots (CDC) and EDF, ADP (Aéroports de Paris) who are partnered with Predica (a subsidiary of Credit Agricole), the Australian fund Macquarie, the investment fund Ardian (formerly Axa Private Equity), the construction group SNC Lavalin Canada, and the German company AviAlliance (formerly HOCHTIEF AirPorts).
Pipeline – 2015 and beyond
Six Indian airports are slated for privatisation. The six airports are Jaipur, Lucknow, Guwahati and Ahmedabad Chennai and Kolkata. The privatisation process in India is not expected to be straightforward due to lack of cooperation from state governments and strong objections from their respective workers' unions. The airports are expected to be privatised under the PPP model which is different from previous models such as those adopted for Delhi and Mumbai airports, as neither the state nor the state owned Airports Authority of India (AAI) are to retain an equity stake.
In June 2014, Japan announced that domestic and foreign bidders will be eligible to compete for the rights to operate hangars and runways at Sendai Airport, the nation's 10th largest airport. The administration led by Prime Minister Shinzo Abe also intends to sell rights to operate facilities at the New Kansai International Airport, built on reclaimed land in Osaka Bay, as part of its debt reduction programme.
Other airport stakes that may be coming to market are Aeroporti di Roma, London City and Athens. If the privatization of Toulouse airport is a success, then both Lyon and Nice are also expected to be sold into private ownership.
Note: Aviation Economics has worked on the following equity transactions in 2014.
- Bodrum Airport
- Dalaman Airport
- Undisclosed European capital city airport
- Undisclosed Mediterranean airport
- Toulouse Airport
- Greek regional airports (Tranche A and B)