Airlines invest in airports. A growing trend

In the Riga-airBaltic example, the contract was offered following the cancellation of a similar contract with Turkey's TAV and Skonto Buve. airBaltic stated it would seek additional private sector investment to complete the task and in Jun-2010 it signed an MoU with TAV, establishing a 50:50 JV for the development, construction and operation of the new passenger terminal. AirBaltic is becoming a major force, not only in the Baltic countries but also in Scandinavia, and a potential threat to Finnair and Scandinavia, possibly even to several Russian airlines.

Air New Zealand concerned by Auckland Airport investment at Queenstown

Another airline new to airport investment, although it has yet to complete the transaction, is Air New Zealand. In this instance, Air New Zealand is reacting to events, namely the decision by Auckland Airport to take a 24.99% stake in Queenstown Airport Corporation, a move that has been contentious. In Jul-2010, Air New Zealand suggested that, in a consortium or acting alone, it could invest in Queenstown Airport, seemingly in response to Auckland Airport's proposed stake and reflecting concern over pricing issues. A consortium might also include Qantas and/or subsidiary Jetstar. For the moment Air NZ has restricted itself to a legal challenge in conjunction with local councils.

There are other examples in the Asia Pacific region and one of the longest established is Bangkok Airways, the Thai regional airline that built and manages its own airports at Samui, Sukhothai and Trat in order to provide the extra infrastructure capacity that otherwise might not have become available. It believed Airports of Thailand had no interest in them. There has been a level of dissatisfaction in some quarters with Airports of Thailand, which manages the six largest airports but which is focused mainly on Bangkok, over the much-needed second stage of Suvarnabhumi Airport and the integration of that airport with the Don Mueang gateway facility. Therefore there is an opportunity for Bangkok Airways to make further selective investments in vacation or isolated city airports. However, these will probably not include Pattaya Airport, which is to be built separately by a consortium led by local city councils.

Bangkok Airways eyes provincial airports, while Thai is also interested

Bangkok Airways' President has called on the government for a clear-cut policy statement regarding the management of the country's 26 provincial airports, which are managed by the Transport Ministry's Aviation Department. He intimated that Bangkok Airways would be prepared to manage the airports, should a bidding process be conducted. The airline also presented plans to transform Samui Airport, one of the three it operates, into a second international hub after Bangkok's Suvarnabhumi.

However, Bangkok Airways itself is not always in favour where it operates airports. For example the Samui Tourism Promotion Association called on the government to conduct a feasibility study on constructing a second airport on the resort island. It believes the existing airport is unable to cater for the increasing demand of air travellers to the island. This suggests that should the Ministry seek to introduce a tender for any or all of the provincial airports, Bangkok Airways would not automatically win through.

Thai Airways declared in 2006 that it wanted to manage domestic and foreign airports, possibly to become a part owner, and established an airport subsidiary to do so, Thai Airport Management Co. Domestically, the airline confirmed its interest in managing Don Mueang in Bangkok, Thai provincial airports in Krabi and Surat Thani (Ko Samui) and Chumphon, all in the southern province, as well as small and medium-sized airports in countries across Asia, even the Middle East. However, following its failure to agree a USD10 million management contract at the Shah Amanat International airport in Chittagong, Bangladesh, (which was rejected on security grounds) little has been heard of the strategy.

In China, China United Airlines is a small independent airline based at Beijing Nanyuan Airport, an ex-military base and the only commercial airline based there. It is a subsidiary of Shanghai Airlines, which is merging with China Eastern. China United is a majority shareholder in Foshan Airport, on which it made a loss of USD1.5 million since it opened in Nov-2009.

In Russia, the story is a little more complex. The East Line Group, which began life as an airline operator (East Line Airlines), soon discovered in the tough operating environment of Russia that airport operation was preferable and took over the operation of Moscow Airport Domodedovo, which remains the largest and fastest growing airport in Russia.

Jazeera seeks to enhance differentiation with its own terminal

In the Middle East, Jazeera Airways, the Kuwait-based LCC, announced plans to construct a dedicated terminal at Kuwait International Airport at a cost of USD50 million, to help differentiate itself from incumbent national legacy carrier Kuwait Airways and the premium brand Wataniya. Jazeera Airways projects passenger numbers in excess of 8 million p/a by 2012 and states that "the Jazeera Airways custom built dedicated terminal is our response to protect the integrity of our service offerings and offer the passengers a dedicated 'Jazeera Experience' that is second to none and maintain our On Time excellence".

The carrier is believed to have formed a short list of three possible vendors, including German industrial conglomerate Siemens. But the expected completion of the terminal has been pushed back to mid-2012 or end-2012 from end-2011.

Porter's 'sole use' status at Billy Bishop airport under threat

Over in Canada, Porter Aviation Holdings, the parent company of the regional Porter Airlines, has done a similar job to that of Bangkok Airways by taking on the development of its "own" airport on Toronto's island on Lake Ontario, very close to the downtown business district. The airport, now known as Billy Bishop, has become one of Canadian aviation's success stories, but is currently involved in legal challenges to its "sole use" status. Air Canada Jazz was evicted from the airport when Porter Airlines bought it. Porter's operations are supported by business groups and inhabitants of the city in general, but opposed by some local community groups.

As is often the case it is in Europe where some of the more interesting airline/airport ownership issues exist.

At one end of the scale is the fractional ownership business jet operator NetJets Europe, which bought Egelsbach Airport near Frankfurt in 2008. Egelsbach is barred to commercial aircraft. NetJets could repeat the exercise elsewhere though the facilities would only be used by business jets and general aviation if this model continued to be applied.

Gatwick and Stansted generated interest from airline giants

At the other end of the scale are large commercial airlines like Virgin Atlantic Airways, easyJet, Ryanair and TUI. Virgin Atlantic, for example, threw its hat into the ring in early discussions concerning the sale of London Gatwick Airport, as part of a consortium involving easyJet, but did not firm up its bid. Ryanair has also lodged interest in another London area airport - Stansted, its main base. Like Gatwick, which has been sold, Stansted may also be put formally on the market although that possibility has been deferred for another year at least. Ryanair also demonstrated on many occasions that it coveted the opportunity to build and operate the second terminal at Dublin Airport, another major base. It has scaled down services at both airports on the basis of cost and inappropriate government taxes since it failed to convince the authorities of the veracity of its claims and seems now to be focusing on smaller airports in mainland Europe.

One of those airports is Bremen, in Germany, an important "reinvented" regional city with a high degree of aerospace and associated industries. Ryanair clearly thinks highly of Bremen as a base, having invested EUR10 million to convert a redundant facility into its own "Terminal E" in a competitive tender. Ryanair is also reported previously to have offered a development loan to Frankfurt Hahn Airport, its most important German base. It is not yet clear if this marks a new departure for Ryanair or if these will be isolated cases. As with the one-off dividend payment due this year, Ryanair's financial revenues are now more likely to be diverted back into airline acquisition following the revelation it is once again talking to Airbus and Boeing and is forced to deny it has an M&A strategy.

Iberia to invest in airports?

Perhaps the biggest surprise is the announcement emanating from government sources in Paraguay that numbered amongst interested parties in a forthcoming concession deal on Paraguayan airports is Spanish flag carrier Iberia. As indicated in the article 'Birmingham Airport to be sold to Middle East investors?' in this edition of AIM, it is more than likely this was a slip of the tongue by the Minister concerned.

TUI's Coventry story is 'inTUItive'

Finally, the story of the then-German TUI is "intuitive". The British/German TUI Travel was formed in 2007 but its German predecessor, itself one of Europe's largest travel concerns with a large fleet operating charter and scheduled flights, took over UK's Coventry Airport in 2004 at a cost of EUR10 million, which included development costs. It intended to build Coventry into an alternative low-cost airport with very basic facilities for the English Midlands, using its own aircraft and those of subsidiary Hapag Lloyd. Initially, passenger numbers exceeded expectations but it is situated only 20 miles from the primary Birmingham Airport, which subsequently managed to attract Ryanair to open a base. Moreover, TUI could not convince local municipalities to support its infrastructure plans, which were not intended so much to expand the airport as to provide acceptable passenger facilities. Faced with such a rebuttal, TUI sold it to a consortium of Irish and American investors. Eventually it closed down altogether but within the past two months has reopened under the patronage of a local businessman and his company, Patriot Aerospace and commercial flights may resume shortly.

The Global Airport Investors Database - a unique offering

Further information on airport investors is available through the new, comprehensive and highly detailed database report of global airport investors, the Global Airport Investors Database, which has been relaunched with additional content and a lower price of USD1750. The spreadsheet-based report is equally appropriate to single or multiple airport operators; national, regional or local government or private organisations seeking investors in their airport(s); investment banks; pension funds; venture capitalists; private equity funds; hedge funds; sovereign wealth funds; financial intermediaries/deal arrangers; legal firms active in aviation; architectural firms active in aviation; airlines considering investing in airports; other transport sector firms considering investing in airports; and aviation industry suppliers.

The Global Airport Investors Database is an essential tool, listing - in seven columns and more than 300 lines - every significant organisation known to be actively involved in airport financing, together with those that have been, or are dormant presently but expected to return. The column contents are: Company/Country Headquarters; High level corporate contact; Current investments/management contracts; Previous investments/failed or lapsed bids; Future/potential investments/sales; Recent financial results 2009/2010 where available; Website. It is extensively cross-referenced throughout and most of the major deals that have taken place within the last two decades are referred to.

The Global Airport Investors Database is the most comprehensive and powerful tool ever published for those involved with airport financing, easily and rapidly enabling the user to learn exactly:

• who the investors are;
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The Global Airport Investors Database is published by the Centre for Asia Pacific Aviation and continues a series of reports in this area including Global Airport Privatisation (2004/7) researched and written by CAPA's UK Associate and Director of Big Pond Aviation, David Bentley.

The database is NOW AVAILABLE from CAPA. If you would like to view a concise sample of the database before making a purchase decision, please contact us directly: email us today or call +612-9241-3200.

Comments on previous reports:

"David Bentley continues to raise the bar higher each time he writes about airport privatisation" - Paul Behnke, airport industry expert and author

"Overall, this report is a great resource, one that I will keep on my shelf and refer to frequently" - Robert Poole, Director of Transportation, the Reason Foundation, USA