Airport Privatisation Study Indicates Resurgence in Airport Investment to Continue in 2007

2006 was a bumper year for airport transactions, with 15 major airports/airport groups privatised or more than one a month. It was the second highest number, according to a new study released by the Centre for Asia Pacific Aviation, since 1998, when 21 transactions occurred.

The activity looks set to continue in 2007, although a greater emphasis on secondary trade sales than first time privatisations is likely, stated David Bentley, the principal author of the Global Airport Privatisation report.

The second (2007) edition of the 100,000 word report, released Wednesday, details all the airport privatisation activity from around the world, with a special focus on the growing role of new entrant investors in driving change in the sector.

According to Mr Bentley, the reasons for the resurgent interest in airport investment are essentially the same as they were originally,  namely that airport privatisation can (in emerging markets):

- Tap domestic and foreign capital markets;
- Provide independent financing of large-scale projects; and
- Reduce the financing requirements of central governments.

In existing markets, privatisation can:

- Help avoid additional debt;
- Transfer risk and/or responsibility in an operation; and
- Introduce efficiencies and thereby improve financial performance.

"More pertinently," said Mr Bentley, "airports offer a more robust profile than airlines. Profitability margins of 10%-60% are routine among airport operators, while most full service/network airlines are very happy indeed to achieve 10% in the very best of times."

"This is because airports can usually anticipate costs better than airlines, are able to benefit from an often monopolistic position in the supply chain and may put to use both the terminal itself and surrounding land for a whole swathe of additional revenue earning opportunities that airlines can only dream of."

However, there are exceptions. Some operators of small regional airports, where growth has come exclusively from the low cost sector, have experienced difficulties financing much needed terminal improvements or expansion when the returns that service the debt could not be achieved. On the other hand, some low cost airlines themselves have consistently achieved margins of up to 30% per quarter, notably Ryanair (Ireland/UK) and Gol (Brazil), though they most certainly do not offer largesse to the airports that host them. 

Most of the credit ratings agencies conclude that airports remain the most stable component in the aviation sector, owing to key credit fundamentals inherent in all airports.

These fundamentals include:

- The essential nature of commercial air service to the world economy;
- The limited competition among airports in metropolitan areas and the barriers to entry (cost, environmental and political);
- The small portion of airline costs that airports represent; 
- The lease agreements or regulatory mechanisms that somewhat insulate airports from much of the volatility associated with the airline industry.

"For all these reasons the investment banks are notable for their (re-)emergence into the airports sector," said Mr Bentley.

The Global Airport Privatisation report (2007 edition) details all the airport privatisation activity from around the world, with a special focus on the growing role of new entrant investors in driving change in the sector. The hot issues covered include:

- The changing nature of the airport investor;
- The new big players in airport investment;
- New methods of financing;
- Airlines investing in airports;
- Low cost airports and terminals;
- Emergence of the Aerotropolis or Airport City;
- Where are the investment opportunities?

These are complemented by a global region-by-region, country-by-country guide to all airport privatisation activity in the last two years and anticipated developments.

The Centre's invaluable management report is appropriate to investors, airport managers, airlines, financiers, investors, construction companies, airport service providers, government officials, and lawyers.

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