European airport transactions take off

In times of financial crisis an airport transaction can provide governments with a much-needed and considerable influx of cash. It is any wonder that 2012 has seen so many?

Over the last year Steer Davies Gleave’s airport transactions team has been busy with a variety of projects undertaken in Europe, Africa, North and South America. During this time we have worked on both the buy- and sell-side of transaction projects, as well as undertaking several lenders advisory roles.

While the consulting skills required to provide insightful advice on such projects tend to be transferable from one assignment to another, the reasons for such transactions can be very different.

In the past year, for example, we have seen projects originating from government objectives designed to allow airports to generate access to sources of private capital for airport improvement and development (e.g. San Juan in Puerto Rico, under the FAA’s Pilot Privatisation Program), and those whose intention is to overcome constrained airport capacity through new construction and the introduction of international airport operational management expertise (e.g. Brazil). 2012 has seen two important transactions in the UK (Edinburgh and London Stansted) arising from the forced sale on competition grounds of Ferrovial’s ex-BAA assets.

Looking forward to 2013, what type of airport deals might we see in the European marketplace? The debt crisis in the EU’s Mediterranean nations appears likely to be a principal source of airport transactions, with various governments looking to sell infrastructure assets as a means to obtain funds.

• Portuguese authorities have recently embarked on their sale of airports operator ANA (along with national airline, TAP), as a condition to the €78 billion of rescue funding agreed with the EU and International Monetary Fund in 2011
• The Spanish government is considering the future of AENA, (the privatisation process of the largest airports, Madrid Barajas and Barcelona El Prat having previously been aborted in autumn 2011)
• The Greek government is exploring ways in which it can sell off its airports as a component of a €50 billion asset privatisation programme required over the next decade by the country’s international lenders. Here the immediate focus is on the future of 37 regional airports, including Thessaloniki, although the Greek government also holds a majority stake in Athens International Airport

Each of these programmes feature the potential privatisation of all (or much of) the national network of airports. Each of these national airport systems has flagship assets that will figure highly in the thoughts of investors (Lisbon for Portugal, Madrid and Barcelona for Spain, Athens for Greece). Each is also supported by a selection of other assets of varying shapes, sizes and, most importantly, levels of profitability. For example, in addition stake in Athens International Airport to Lisbon, ANA’s portfolio comprises two medium-sized airports that are likely to be of interest to investors (Porto, Faro) and a variety of island airports ranging in size from Funchal, the regional capital airport for Madeira, to tiny Flores in the Azores.

Finally, each programme takes place against a background of macroeconomic difficulty in countries on the edge of the EU and constraints on the availability of debt finance to fund these deals.

Other transactions may emerge outside government-led processes. Europe has traditionally had an active secondary market, with a regular recycling of already privatelyowned assets. Examples, such as the aborted sale in 2011 of Hochtief’s airports portfolio (which has stakes of varying sizes in Düsseldorf, Hamburg, Athens, Budapest, Tirana and Sydney) are often cited in infrastructure investor circles as assets that may come back to the market in one form or another. Similarly there has been some speculation that BAA’s recent ‘debranding’ may signal a desire to sell off other airports, perhaps eventually leaving London Heathrow as the sole remaining airport in the old BAA portfolio.

How ever the European airport transactions market develops in 2013, Steer Davies Gleave can support investors considering these assets. We offer a full range of commercial due diligence services incorporating market analysis and traffic forecasting, economic regulation of airports, assessment of aeronautical revenues, non-aeronautical revenues and operating costs, and identification of capital investment requirements.