What a day to sell an airport. Markets are in turmoil, infrastructure funds are under siege and credit is nowhere to be found.
Then this from BAA CEO Colin Matthews:
We have decided to begin the process of selling Gatwick Airport immediately. Gatwick is one of Europe’s premier airports, the busiest single-runway airport in the world, and it was used by 35 million passengers last year.
Since FT Alphaville last wrote about the world’s biggest airport operator a number of new potential buyers have stepped into the ring – notably Richard Branson, whose Virgin Atlantic already has a significant presence at Gatwick as well as at BAA’s biggest money-generator, Heathrow. Valuations of about £2-3bn for Gatwick are still being punted by the likes of Branson, despite regulators’ £1.6bn asset base valuation.
£2bn does indeed seem a bit high given current market turmoil and some of the challenges facing a future Gatwick owner.
The UK government has talked about further investment in Gatwick’s capacity – ahead of a third runway at Heathrow even. Add to that uncertainty as to what will happen with the rules that regulate the charges the airport is allowed to levy; Plus the likelihood of a future decline in passenger numbers (the bankruptcy of tour-operator of XL would have already removed about 3 per cent of total airport capacity) and you’ve got a nice risky investment. Which is exactly what infrastructure assets, with their steady cash flows, aren’t supposed to be.
Market developments may have removed some potential buyers, putting further downward pressure on a price. We’re guessing London City is out of the running, given that it’s partly-owned by AIG. Macquarie seems to be having its own troubles this morning.
That might just clear the way for another buyer to snap up a decent deal. If you’ve got a robust business plan that has been stress-tested to the max (for recession, a wave of airline bankruptcies, etc.) and confidence in your ability to generate a good return, now might be the time to buy. At less than £2bn, though. And if you can get the funding.
Related links:
BAA schadenfreude – FT Alphaville
Breaking up BAA: What price an airport? – FT Alphaville