A break-up of BAA, the world’s biggest airport operator, is looking increasingly likely.
One of the company’s three Scottish airports (probably Glasgow) and at least one London airport look set to go. Prices of around £2-3bn have been mooted for Gatwick, London’s second-biggest airport after the infamous Heathrow. Michael O’Leary, the outspoken CEO of low-cost-carrier Ryanair, told the Telegraph last week he would pay £2bn for the slightly smaller London Stansted.
Though demand for infrastructure assets has remained relatively strong through the credit crunch, potential buyers should be wary. There’ve been rumblings from the UK government about a change in the way the airports are regulated - potentially lowering the fees new operators would be allowed to gauge charge for use of the hubs (as airlines have been demanding for the past few years) or upping requirements for additional investment, particularly at Gatwick.
While BAA owner Ferrovial will likely be concerned with simply finding the highest bidder for its assets (it does have £10bn worth of debt to refinance after all), the UK government will want to find a buyer who can avoid the operational fiascos seen at Heathrow. Experienced airport operators such as Macquarie, Hochtief, Fraport and even London City (owned by American International, Credit Suisse and General Electric) have all been rumoured as potential bidders. This from Goodbody analyst John Goode:
BAA’s defence is that a shortage of runway capacity is the largest barrier to airport competition and that a change in ownership will not accelerate the process of additional runways being built. Ferrovial, the owners of the BAA, is currently refinancing some £10bn of debt used to finance its purchase of the BAA. Consequently, in our view, it’s
appetite for further capital expenditure at all three airports is less than what we imagine competing owners’ would be.
The plummeting fortunes of airlines - battling record oil prices, overcapacity and slower consumer spending, may also dent offer prices. And with airports like Prague, Chicago’s Midway and St. Petersburg’s Pulkovo being privatised, larger infrastructure companies will have a host of aviation assets to choose from.
Related links
BAA airport monopoly at risk - FT
Breaking up BAA - FT comment
