Airport privatisation: The ‘R’ word (renationalisation) hangs over the world’s privatised airports

BAA/Ferrovial's UK airports for example, and particularly London Heathrow, were for many years subjected to a 'rubber walls' policy under the listed BAA company that eschewed investment in favour of make-do, which both invited and received strong criticism from the press and which undoubtedly contributed to the decision by the Competition Commission (CC) to break up that empire.

It is to what is now Heathrow Airport Holdings' (HAA) credit that latterly (with less debt hanging over it and the Olympic Games consigned to history along with Gatwick, Stansted and Edinburgh airports), it is well on its way to turning Heathrow into what it should be - a genuine intercontinental gateway and hub airport on a par with the likes of Singapore, Dubai, Beijing and, nearer home, Paris Charles de Gaulle, Amsterdam and Frankfurt airports.

Indeed, as HAA is quick to point out, GBP11 billion has now been invested in Heathrow, along with a further GBP3 billion that will help deliver the new Terminal 2 in 2014 and a 10-point plan to enhance efficiency, access, punctuality and connections.

Governments and politics have destabilised several airports

Renationalisation was apparently never seriously entertained in the CC's agenda for BAA, but CAPA's Airport Investor Monthly took the view that it was probably not entirely dismissed either. In the event there were plenty of bidders for the three airports that were sold, anyway. But the UK is not entirely averse to renationalisation. It went part way down that path with a couple of banks when they threatened to implode the economy (Royal Bank of Scotland is 81% owned by the public and every UK taxpayer now stands to receive some free shares in it before the next general election). In the transport sector it renationalised the East Coast Rail Line, which was operated by National Express (see later) when it got into financial difficulties, as the wonderfully named 'Directly Operated Railways'.

The government threatened to do the same following a farcical franchise renewal exercise for the West Coast Line in 2012 and at the same time the opposition Labour Party declared it would bring the entire national rail network back under public ownership in order to halt big fare increases and prevent private companies siphoning off huge profits, if it gets back in power.

In other examples, the Newburgh (Stewart International) Airport in New York State was taken back into public ownership in 2006, just seven years into a 99-year lease, with lack of investment by the lessee, National Express, cited as one of the reasons. Port Authority of New York and New Jersey immediately committed USD500 million over 10 years to rehabilitate the facility but it kept on losing air service and money all the same.

The various transactions that took Budapest Airport from public sector ownership into majority custody of firstly BAA then Hochtief Concessions were hampered by the lingering threat of renationalisation by the conservative, nationalist party Fidesz, which was in opposition at the time of the first transaction. Fidesz made clear it would consider renationalising the airport if it came to power in elections in 2006. When previously in power between 1998 and 2002 Fidesz had cancelled a contract to build a terminal with Canada's Airport Development Corporation (now HAS & ADC), handing it to the airport management instead. That decision cost the Hungarian Government approximately USD83 million, after it lost a lawsuit in Oct-2006. Fidesz did not win the 2006 election but it is back in power now, since 2010.

It would not be stretching the point too far to suggest these threats at least contributed to the uncertainty that has hindered Budapest's challenge to be the premier regional airport in central Europe, in favour of Vienna Airport, just up the Danube, and which handled almost three times as many passengers in 2012 despite that being a record year for Budapest.

A similar degree of government-fed uncertainty surrounded other airport transactions in the mid-2000s, to their detriment. Take for example the case of the partial privatisation (66% shareholding) of Slovakia's Bratislava and Kosice airports in 2005, which degenerated into a fiasco with the Slovakian government changing its mind at the last minute. Initially, 49 investors submitted EOIs; a not unusual figure at the height of the economic boom, and they included the likes of Abertis (see later); Flughafen Wien (like Budapest, also just up the Danube from Bratislava), Vinci and TAV. Also like Budapest, Bratislava wanted to be a major central European airport and the government wanted to promote the long-term growth of Kosice Airport as a regional base for eastern Slovakia, northeast Hungary, and parts of Poland and Ukraine.

Some of those potential investors subsequently backed away and there was a challenge to the original government recommendation; but it still seemed like a win-win until suddenly the government cancelled the Bratislava sale altogether on the grounds that it would eliminate competition and create a regional monopoly. The new Slovakian Prime Minister, with refreshing candour, declared the sale had been 'a big mistake' and that the airports 'belong to the Slovak Republic'. However, the Kosice deal did eventually go through.

Just so as to emphasise that these examples are not entirely historical, a more recent case of renationalisation can be found in the Maldives, where in 2012 a World Bank-brokered deal for a 25-year concession to operate and upgrade Male Airport that was won by a consortium of India's GMR and Malaysia Airports Berhad was declared invalid by the President on the basis that an "unauthorised" airport development fee was being applied. At least there were no overt investment issues aired in this case though a threat to "strategic interests" was mentioned.

The fallout for the government is that it is now uninterested in any further privatisation of the airport, while GMR, licking its wounds, is reported to be concerned about minimising political risks of international airport projects in the future.

The Bolivian privatisation about-face is the most worrying

But it is the sudden Bolivian rejection of the private management and operation of airports in its territory that has really set the cat amongst the pigeons.

The first warning came as recently as 08-Feb-2013 when the government rejected a proposed USD36 million nine-year investment deal from SABSA, a subsidiary of Abertis and AENA (both Spanish) for airport upgrades and modernisation that would take place in the final nine years of a 25-year concession. It is unusual to progress so far through a concession before encountering such problems but there was unease about the Bolivian transactions right from the start. Abertis and AENA inherited them from the British firm TBI, which they jointly acquired in Jan-2005, TBI continuing as the operator. (For the record, Abertis/TBI later (2007) acquired Desarrollo de Concesiones Aeroportuarias (DCA), a holding company with stakes in 15 airports in Mexico, Jamaica, Chile and Colombia, giving the group stakes in 29 airports in eight countries where it handled 56 million passengers a year and thus became one of the largest operators in the world with a notable presence in Europe and America).

TBI had, itself, entered the Bolivian market as a result of its own acquisition of Airport Group International (AGI) in 1999, just four years after it acquired its own first airport at Cardiff (see later), where it was based. AGI was at the time one of the world's leading airport owners and operators with interests at (again) 29 airports worldwide; in the USA and Canada, the UK, Australia, Costa Rica, and at the Santa Cruz and La Paz airports in Bolivia. (Cochabamba's Jorge Wilstermann Airport was part of a separate deal).

These are the country's three international airports: La Paz is the capital, Cochabamba the central city, and Santa Cruz an economic stronghold.

TBI's enthusiastic expansion created its own problems

TBI was one of the first relatively small real estate firms to plunge head first into the world of airport investment and management and it did it enthusiastically with gusto, disposing of its property business altogether. It was on a steep learning curve, as TBI's own management admitted at the time, and its enthusiasm came at a price as it grappled with entirely different cultures at the airports it now managed in Latin America, especially in terms of man-management and also where agreed parameters on investment were concerned. Ironically, TBI believed that AGI had lost focus as it was overly centralised and had failed to make the transition from airline services (it was originally a Lockheed company) to airport acquisition and management. In reality it was TBI that had lost its focus.

Taking all this into account it is clear that TBI, later Abertis, had bitten off rather more than it could chew and that the Bolivian experiment had got off on the wrong foot. It might be argued that latter-day investors in places like Russia might heed these warnings, as the management at the Fraport-led vehicle Northern Gateway Consortium can testify.

Quite apart from this false start Bolivia was, and has become more so, quite a difficult place for any western company to do business.

Since the independence fighter Simon Bolivar led the country away from Spanish rule in 1825 much of its subsequent history has consisted of a series of nearly 200 coups and counter-coups. Even since democratic civilian rule was established in 1982 its leaders have faced difficult problems of poverty, social unrest, and illegal drug production. In Dec-2005 the Socialist leader Evo Morales was elected President. Since taking office, his controversial policies have exacerbated racial and economic tensions. In Dec-2009, he easily won re-election, and his party took control of the legislative branch of the government, which will allow him to continue his process of change. In the meantime he remains one of a widely recognised triumvirate of 'New Left' socialist leaders in Latin America along with Venezuela's ailing Hugo Chavez and Rafael Correa in Ecuador that is collective anathema to the USA.

While all this is going on, Bolivia remains one of the poorest and least developed countries in Latin America. Following a disastrous economic crisis during the early 1980s, reforms stimulated economic growth, cut poverty rates and did spur private investment in the 1990s. But in 2005, the government passed a controversial hydrocarbons law that imposed significantly higher royalties and required foreign firms then operating under risk-sharing contracts to surrender all production to the state energy company in exchange for a predetermined service fee. In Jun-2012, the government revoked the tin and zinc mining license of Sinchi Wayra, a subsidiary of a London-listed commodities trader, Glencore.

The warning signs were there for all foreign investors across all sectors. The economic crisis of more recent years appears not to have prompted any new economic reforms and in any case Bolivia was able to get through the global recession relatively unscathed, courtesy of high commodity prices.

Bolivia's unhappy case study

So that is the background to the decision that was taken in Feb-2013 by the Bolivian government to renationalise SABSA. It can be précised as: Entrenched socialist government on a mission of 'change' enjoying a commodity-led economic comfort zone; within an otherwise poor and underdeveloped country; seeking out pesky foreign firms to punish that are in situ courtesy of economic reforms it believes should never have happened in the first place; And which have never really understood the culture.

It is the occidental foreign airports investor's worst nightmare.

SABSA proposed a USD36 million nine-year investment towards airport upgrades and modernisation works that would continue through the final nine years of the 25-year concession but the Minister of Public Works called the amount of the investment "very low", and said, "[SABSA] has not complied with planned investments". Within three weeks of that statement the SABSA airports had been nationalised with the President himself voicing his opinion, which is that the operator failed to invest the agreed amount of USD26.9 million for the 2006-2011 period, having allegedly invested only USD5.8 million during this time.

Mr Morales claimed the operator made an "exorbitant profit" of USD20.6 million during this period, and that he "tried to reach an agreement with representatives of the company, but could not, so it was decided to adopt the decision [to nationalise SABSA]". He is reported to have attempted to negotiate a USD56 million investment plan.

Leading airlines at La Paz El Alto (SABSA) Airport by seat capacity, 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

The Bolivian Government took possession of the 66 million shares in SABSA owned by Abertis and AENA, and said SABSA contracts signed with third parties will remain in place "until an evaluation to determine if they will continue to remain in place or be terminated" is made. Mr Morales also said "we were ready to do this, years ago, but we waited because of diplomatic relations with certain countries" (presumably Spain). He reportedly ordered the military to ensure the airports remain in operation, while operational control is assumed by the Ministry of Public Works. Coincidentally, Spain's AENA, before the advent of AENA Aeropuertos, the vehicle intended to take it through its own privatisation process, came under the unique control of the Spanish Ministerio de Fomento, which loosely translates also as 'Ministry of Public Works'.

Mr Morales added, "We've lost three years in negotiating with them to invest and there has not been an investment". An independent audit will reportedly be carried out to determine any compensation to be made, after deducting outstanding debts.

Not satisfied with these outbursts, Mr Morales went on to describe the privatisation of airports in general as "looting". Together with the fact that a large section of the population apparently agrees with Mr Morales, this must prompt alarm bells to ring at foreign airport operators and investors in some Latin American countries.

They are not as numerous as they once were and those that remain have rather less exposure than they did in the 1990s but they include, inter alia, organisations such as Aecon (Canada), Airis (US), Andrade Gutierrez (Brazil) and ADC-HAS (US), all of which have interests in Ecuador and mainly at the New Quito International Airport; and Zurich Airport, which is widely exposed through subsidiary A-Port and the OPAIN consortium, including in Venezuela.

Mr Morales' rationale is apparently that his quest is to "redistribute wealth" to the landlocked country's indigenous majority. He is apparently worried about his increasing inability to satisfy the rising demands of the diverse social groups that form his broad power base, hence the accelerated pace of recent nationalisation activity.

Abertis' response was that it "respects the decision of the Bolivian government as long as that decision is carried out in accordance with the principles of international law, and is prepared to negotiate appropriate compensation" but that it "rejects the accusations that it has failed to fulfill investment commitments in Bolivia".

Defending its investment record, Abertis said it has made "significant investments" in the three airports SABSA operated, having invested USD12.6 million from 2005-2012 in capital expenditures, paying USD38.6 million in fees, and taxes of USD9.4 million.

Bolivia's public prosecutors countered by revealing that SABSA earned USD3 million in revenue per month from operating the three airports. SABSA was to reinvest 20.8% of its monthly revenue by allocating it to the Administration of Airports and Auxiliary Services for Air Navigation (AASANA) for airport expansion and equipment purchases, but the prosecutors noted SABSA was still using 20-year old equipment in some cases.

Abertis also highlighted the arbitration process it entered into with the Bolivian Government in 2011 over "various breaches of the concession contract" resulting in a USD90 million compensation claim. The company stated, "Abertis' principal allegation is that Bolivia has breached the regime applicable to tariffs for boarding and landing services since the Government froze these tariffs in 2003, and in 2005 reduced them in an arbitrary and illegal manner and without following a process which would have permitted SABSA to mount an adequate defence." Abertis added it has received "no financial compensation for the damages suffered", and concluded that "the expropriation of SABSA has no impact on the accounts of Abertis."

In other words, we may not have come up to your mark in investment terms, but you didn't come up to ours in revenue terms. When we earn adequate revenues then we will invest. This is a conundrum that has plagued western airport investment in this region for over a decade; this balancing act between input and output and the confusion can be traced back to the original TBI/AGI deals.

The Spanish and EU governments reacted strongly against the breach of international law

Apart from what this means for Abertis there are other ramifications of course. The Spanish Foreign Ministry was quick to denounce and "deeply regret" (quite strong diplomatic language) Bolivia's decision, labelling it an "unfriendly act" which forces it to "reconsider" bilateral relations (even stronger language). The Ministry stated, "Spain does not question the sovereign right of a state over its resources and public services but maintains that any expropriation must be prepaid with a fair price according to a fair and independent valuation of the expropriated property." The Ministry added, "The Spanish Government considers this expropriation an unfriendly act that adds to similar measures taken in recent months against other Spanish companies in Bolivia," and went on to warn, "We will study all measures to be taken both at the bilateral level, as well as the possibility to claim solidarity with our partners in the European Union". Mr Morales will at least be impressed by the search for that old socialist stand by, solidarity.

This is the latest setback Spanish companies specifically have suffered in Bolivia after the government took over electricity generators owned by Iberdrola, the Basque country based electricity provider, in late Dec-2012 and Red Electrica in May-2012.

And the EU was not slow to respond, its trade spokesperson John Clancy urging Bolivia to compensate Abertis and AENA "as soon as possible". Mr Clancy said: "The frequent nationalisation or expropriation of European companies sends a very negative signal to the international business community... [a policy of] systemic and repeated nationalisation of foreign companies could seriously damage the reputation of Bolivia... Bolivia should be aware of the signal it is sending." In the meantime the Bolivian Ambassador was summoned to a meeting in Madrid to protest the nationalisation. No doubt he was gently reminded of the Conquistadores.

For now, Bolivia's Government is on the front foot at home and the back foot abroad. It plans to invest the aforementioned sum of USD56 million in improving infrastructure until 2022 at the three SABSA airports. It will initially invest in improving and recuperating the runway at (La Paz) El Alto airport and will expand the apron and terminals, both passenger and cargo, to meet growing demand. Similar projects will be undertaken at Santa Cruz and Cochabamba.

Mixed feelings persist in the community. SABSA's own employees welcomed the renationalisation decision but at the renaming of Bolivia's Oruro International Airport after President Morales on 20-Feb-2013 there was a 24-hour general strike in the local community, with demonstrators calling for the old name of Juan Mendoza Airport to be reinstated. Juan Mendoza was Bolivia's first aviator, while President Morales is a native to the region.

Who is really at fault here? There is a lot of 'grey' amidst the black and white facts. On the surface it seems that the Bolivian government, for its own reasons, has decided to nationalise foreign-owned facilities where it thinks it can get away with it. It may pay the price on the world stage for so doing, and now it has to find the investment funding for the airports.

But are the privately-owned Abertis and the (as yet) state-owned AENA entirely blameless? In order to move nearer a conclusion a look at what has been happening at two airports in the UK - Cardiff and London Luton - may be instructive; here the (TBI)/Abertis/AENA vehicle ACDL (El Consejo de Administración de Airport Concessions and Development) has been in charge since 1995 and 1998 respectively.

Cardiff Airport and the Welsh government's nationalisation move

Despite the fact that Cardiff Airport has been haemorrhaging passengers for the last few years - ending up with 1,017,000 passengers in 2012 (-16.1%) and with its traffic halving over five years, there was little indication of deep dissatisfaction with the operator until late in the summer of 2012 when Abertis said it was not currently seeking to appoint a new MD, following the departure of Patrick Duffy. The decision was, according to Abertis, "taken in light of a number of factors, including the development and progression of numerous internal and external initiatives with stakeholders such as the Welsh government, the Chamber of Commerce and other parties; the success of the management structure over recent months; and, a review of other related business conditions. The airport's group owners will continue to offer guidance and assistance to the directors when required during this interim period, and the situation will be reviewed regularly to ensure the structure is successful in delivering the airport's goals and objectives."

But behind the scenes the Welsh government was clearly unhappy and on 18-Dec-2012 the First Minister announced it had entered into an exclusive 'due diligence' agreement with TBI. Subject to the satisfactory completion of financial, legal and value for money considerations, the Welsh government might then proceed towards a purchase of the airport. The rationale was that such an arrangement would enable the government to develop a more coherent approach to its national infrastructure planning, and integrate the airport into its wider economic development strategy. The Business Minister also hinted at dissatisfaction with the dwindling number of international transport links that are vital to the country's prosperity, and key to future economic growth.

The prospect of renationalisation did not go down well in all quarters, with opposition politicians pointing to "disarray" as evidenced by the announcement of a (presumably subsidised) direct bus route to the nearby primary-level Bristol Airport (which has prospered in almost direct proportion to Cardiff's demise), a cut in the money spent on promoting Wales abroad and the lack of a Welsh government business plan before the announcement of the purchase of the airport and, most significantly, "the Welsh Labour Government's ability to provide value for money for Welsh tax payers following previous unsuccessful and expensive projects".

Despite this opposition, the government closed in on signing an agreement to acquire the airport in Jan-2013 as a price was negotiated. The First Minister reported that checks on the airport's finances had revealed "no concerns" though some experts had told him its commercial future was limited (as CAPA could have pointed out, see the related article: Where next for Europe's secondary airports?).

A straight cash deal to nationalise the airport

The airport is now expected to be nationalised in Mar-2013, subsequent to the conclusion of a GBP50 million agreement over the sale with the government currently continuing to undertake due diligence before the purchase is finalised. It is understood that it will be a straight cash deal for Abertis. The deal will not see the Welsh government taking on any debt but the Welsh government would need to inject around GBP6 million per annum into the airport to support it, including agreeing to underwrite any losses in the first few years accrued by airlines establishing new routes out of south Wales (effectively a route development fund, which the airport has had in the past).

It is understood representatives of the Welsh government have sounded out a number of LCCs on establishing operations at the airport, including Ryanair. It will be lucky. Ryanair is already well established at Bristol Airport with almost 19% of the capacity and 22 regular routes (though that is only just over a quarter of easyJet's capacity).

The demise of bmibaby in 2012, which was a significant operator at Cardiff, is not anticipated to be an attraction for Ryanair as the Irish carrier will feel it could always have dealt with any threat from that airline anyway. The only real attraction would be if the Welsh Assembly could negotiate a lower rate of Air Passenger Duty for Wales (i.e. for Cardiff; there are no other functioning commercial airports since such services ended at Swansea, apart from at the tiny Anglesey Airport (RAF Valley) in North Wales) as the Northern Ireland Assembly did in 2011. That would undoubtedly drag Welsh air passengers back across the border just as Belfast International Airport has been able to do at the expense of Dublin Airport. It may well be that is part of the Welsh government's philosophy. Indeed, in Nov-2012 the Silk Commission (the Commission on devolution in Wales) recommended the devolution of responsibility for long-haul Air Passenger Duty (APD) at least to Wales.

During 2012, Cardiff Airport attached itself to the campaign to redirect air traffic within the UK and thereby to attempt to 'rebalance the economy' in line with proposals put forward by other airports like Birmingham and London Luton as counter-proposals to the prospect of additional runways and/or airports in the southeast of England.

Leading airlines at Cardiff International Airport (Abertis) by seat capacity, 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

Bristol's Mayor calls for a Brisdiff/Cartol airport

Cardiff's proposal looks the least likely to be taken on board by the Davies Commission, which is reviewing UK airport capacity but it is interesting to note that very recently (19-Feb-2013) the Mayor of Bristol called for Bristol and Cardiff airports to "join forces", noting both airports were "unsatisfactory" and would be stronger if they cooperated. The Mayor correctly pointed out that both airports are badly positioned for rail and road access. But that's where it ends. He then talked much more vaguely about it being good to "combine forces with Cardiff" without indicating why. He said, "I am not suggesting a Boris [Johnson]-type island in the middle of the Severn [estuary], not just yet anyway, but there must be some way in which the two airports could work closer together. The problem is that we have a privately owned airport and one that is about to be owned publicly so there could be issues." There certainly could.

This lack of focus disguises the fact that the Mayor is obviously concerned about the potential loss of traffic at Bristol to a government-owned Welsh facility where passenger duties are much less than at Bristol.

Leading airlines at Bristol International Airport by seat capacity, 18-Feb-2013 to 24-Feb-2013

Source: CAPA - Centre for Aviation & Innovata

To return to the main issue, how do these developments reflect on Abertis and its cohorts? It is certainly the case that the traffic collapse at Cardiff has been quite catastrophic. The airport is getting close to the level of operational infeasibility as assessed by several academic studies (around one million ppa) and is still in decline (-11.3% in Jan-2013 compared to -1.7% at Bristol, which had much the same bad weather). The Abertis management's route development initiatives were not wholly effective and a GBP1 million profit in 2010 became a GBP319,000 loss in 2011. But it did not lack ambition where long term planning was concerned. In 2006 it published a GBP100 million development strategy which would have seen the current terminal being extended, as well as upgrades to the main body of the building. It was anticipated that the investment would attract up to five million passengers per annum by 2015, a reasonable number for a country of just three million inhabitants. In Mar-2010 the local council approved a much reduced GBP5 million terminal extension plan linking the arrivals and departure halls into one area. In this sense Abertis seems to have been overtaken by events. The revelation that the airport was seeking GBP5 million from taxpayers without indicating clearly what it was for probably didn't help. Confidence had been lost.

Overall, the events at Cardiff are not so much an investment issue as they were in Bolivia though they have played a part. It could also be argued that with 14 airlines in situ in 2013, including KLM and Lufthansa, of which two are start-ups, a growing presence from Vueling and well-established programmes by both Thomas Cook and Thomson Airways, things could be much worse for Cardiff Airport. More so as it falls into the generic category of moribund secondary airports in the UK - some of them with worse results - that need a lift from somewhere. Perhaps the tax issue will be the spur?

At least the owners need not fear the intervention of the military as in Bolivia! The UK does not have a sufficiently large military to spare, in any case. Finally, Abertis is also the operator, via TBI, at another UK airport where the management has come under scrutiny these last two years - London Luton (LLA).

London Luton is a more complex, but largely successful "pioneering" case

LLA is the fifth largest UK airport by passengers carried, with 9.6 million in 2012 (+1.1%). Long established as a passenger charter airport for north London and the northern 'Home Counties' those charter carriers (Thomson Airways and to a lesser degree Monarch Airlines which is switching to scheduled operations) are still in place, though the principal traffic now comes from the LCCs easyJet, Wizz Air and Ryanair (in that order).

The ownership and management of LLA is rather convoluted. In what is described by Luton Borough Council as a "pioneering public-private partnership deal signed in Aug-1998, London Luton Airport remains publicly owned by Luton Borough Council but is operated, managed and developed by a private consortium, London Luton Airport Operations Ltd, for a period of 30 years."

TBI plc became the majority shareholder in London Luton Airport Operations Ltd in Mar-2001 when it increased its shareholding by buying shares from Barclays Private Equity and Barclays UK Infrastructure Fund. Subsequently, as we know, TBI was taken over by ACDL (Abertis Infraestructuras /AENA Internacional).

This distinction is important. Luton is the only UK airport not actually owned by the Abertis-led consortium within its portfolio. But unusually neither is it leased in the traditional sense; the PPP has some unique aspects to it.

Abertis' development of LLA is generally regarded in the industry as positive. Traffic has continued to grow; the transition from a charter airport to one that hosts more LCCs has been well managed; easyJet remains headquartered right there at the airport along with Monarch and Thomson Airways; the airport is a major contributor to what became a depressed economy after the closure of a major motor vehicle plant in the town; and even though a new terminal and rail station were already in place (both since 1999) London Luton Airport Operations Ltd has attempted to improve the capacity of both. Tellingly, rail connections to, from and through London, although still hardly perfect, are now much improved.

Considering the management has to work within the constraints of a small overall airport surface area and proximity to the town centre, a neutral observer would consider LLA to be at least fit for purpose.

Leading airlines at London Luton Airport by seat capacity, 18-Feb-2013 to 24-Feb-2013

Source: CAPA A - Centre for Aviation & Innovata

In 2005 LLA presented a 2030 master plan, by which time the UK government estimated 30 million ppa could be reached at Luton (in its Nov-2003 White Paper 'The Future of Air Transport in the United Kingdom', which remains the standard work of reference until the Davies Commission reports).

The first phase was scheduled to end just in time for the 2012 Olympics but the changes made were ultimately cosmetic in nature, just improving on existing capacity, at a cost of EUR53 million. They did not include the advertised new runway (to replace, not add to, the original), terminal and control tower, with which the government did not concur for such a short time span and three weeks of increased traffic. Those objectives, however, were very much part of Phase 2. The runway need was anticipated as the long-haul premium discount carrier Silverjet was operating at LLA at the time, but it soon went out of business as did its peer airlines Eos and Maxjet (both operating at London Stansted), Oasis Airlines of Hong Kong, Flyglobespan, Zoom, XL Airways and others.

If there was a criticism of LLA is was that its 'image' was not conducive to the attraction of business passengers, which has become a mantra for both easyJet and Ryanair.

About a year ago LLA began to lobby for further mid-term expansion of the airport to cater for at least 18 million ppa by 2020 by optimising existing capacity by 57%. A revised master plan was drawn up and consultation began. Ultimately the council came up with its own scheme for 16 million ppa. This relatively small dichotomy became the subject of a growing rift between the two parties.

Council intervention would destabilise expansion plans

At about the same time reports emerged alleging that the council was considering terminating the 30-year contract with LLA early and that it might face a 'severance charge' of GBP300 million if it did so. The disagreement over the new master plan seems to have been the root cause as the council considered 18 million ppa as "totally unrealistic" given its location "on a hill" and its proximity to London Heathrow (which at that time was still, just, in line to receive a third runway).

In Jun-2012 the two parties agreed on future expansion plans for the airport after public consultation with a passenger target comfortably between the two extremes. Both owner and operator agreed LLA will operate and develop the airport for a further 19 years from that date.

In summary, Abertis has been involved in three undisguised 'disputes' at airports it invests in and/or operates. In Bolivia, allowing for the determination of the government to see through change it considers necessary, much of the fault can be placed on misunderstandings and cultural differences that existed for many years without being challenged. At Cardiff, it may well be the driving force behind the government's clawing back of its national asset is that it might feel it would be in a better position to optimise a political decision on taxation itself, rather than via a private company. If that taxation scenario does not emerge though, then it might find that small regional airport operation is a very difficult business right now, no matter who is in charge.

It is not very clear why the disagreement at Luton degenerated into threats of early contract termination and of punitive legal charges. Luton Airport was, from the 1970s through the 1990s, considered to be a national joke. In a well-known mid-1970s UK television advert for Campari, a then quite famous model-cum-actress, Lorraine Chase, played the role of a Cockney (London) girl being wooed by a sophisticated suitor at a bar and who asked her: "Truly, were you wafted here from paradise?" To which she replied, in full-on Cockney accent, "Nah, Luton Airport". The line became a national catchphrase and inspired a 1979 hit record "Luton Airport".

That just about summed Luton Airport up at the time and perhaps the local council ought to revisit that era and compare it to what is now a busier airport than Birmingham and Edinburgh, in a mid-sized unremarkable town of 250,000 people.

Abertis can justly claim to be the victim - but it still hurts. So much that it might exit airports

So in all three cases Abertis could claim 'Non est mea culpa.' Even so, these events seem to have had some adverse effect on the company. Just as TBI gave up on its non-airport estate to focus on airports, so did Abertis, through its joint acquisition of that entity, confirm its focus on the airport sector. In just one year the airport sector became the second source of revenue for Abertis, overtaking management of telecommunications infrastructures. As can be seen in the table below, Abertis' airports business has been growing in terms of passenger numbers, revenues and EBITDA, through to year end 2011.

But now Abertis' CEO Francisco Reynes says the company is studying the possible sale of its airports division as part of its "diversification strategy" and has hired Citigroup and AZ Capital to study options for the business, with Mr Reynes stating: "We're open to any option".

A report in CAPA's Airport Investor Monthly in Aug-2010 had gone so far as to ask 'Is it Adios, Abertis Airports?' when it became the subject of a potential hostile takeover. Just like Orwell's 1984, that prediction came a little too early but the end does at last seem to be nigh for the company.

Renationalisation is not a trend, but there are rumblings in some quarters

In conclusion, for a variety of reasons, renationalisation is or has been on the cards for a number of airports. As recession continues to bite, and stagnant economies to predominate; while investment funding is hard to find and questions are asked about what value a private operator adds, governments may be tempted to think they can run airports better and more profitably themselves.

But that will probably prove to be a forlorn hope.

Abertis Airports principal figures and activity 2011

(Million Euros)	2011	2010	CHG.
Revenues	293	277	5.4%
EBITDA	86	81	5.8%
TBI (incl. AGI) passengers	23 million	21.5 million	7.3%
DCA passengers	38.6 million	36.7 million	5%

Source: Abertis Airports website