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Strategic review at Manchester Airports Group – buying or selling?

1-Jun-2010

News leaking from Manchester Airports Group (MAG), UK suggests that the airport authority has appointed consultants to undertake a strategic review of the company. It comes as speculation mounts that the head of the northwest England based water and power conglomerate United Utilities is set to take over as CEO of MAG, the largest airport operator (in fact almost the only one) in the UK to remain in the public sector. It raises the question as to whether MAG has designs on buying more airports itself, of selling some of its own or even putting the whole entity on the market; something it has stated it would ‘never’ do.

No apparent need for a review

There is no evident need for a strategic review. A Master Plan to 2030 is already in place, Manchester has all the infrastructure it needs for now (it has as many runways as Heathrow, twice as many as Gatwick and Stansted and three terminals to handle traffic that has shrunk to a little over 18 million per annum) and the infrastructure is adequate for purpose at the other three airports – East Midlands, Bournemouth and Humberside.

In recent years MAG’s growth has come from the smaller airports at East Midlands (EMA) and Bournemouth. Last year easyJet decided to leave EMA and has been regrouping at nearby DoncasterSheffield Airport, which is owned and operated by Peel Airports, but Jet2.com has started to fill some of the gaps left by easyJet at EMA, which has significant cargo volume. Three years ago MAG decided to sell Humberside, which has made losses, then had a change of heart when traffic improved.

On the ‘buy’ side MAG tried and failed to buy London Gatwick Airport, in conjunction with Borealis, a Canadian pension fund, and the Greater Manchester Pension Fund, but losing out to GIP. It is known to have coveted the BAA Scottish airports, especially Edinburgh, with Glasgow as an option. Otherwise it has no other none-MAG investments, having disposed of its limited Australian airport interests that were acquired in the late 1990s.

GBP300 million credit facility refinancing looms

One critical issue that MAG does have to deal with is the need to refinance (or repay) a GBP300 million revolving credit facility by Jul-2011. That facility was initially secured in 2005, syndicated between the Manchester-based Co-operative Bank, AIB Capital Markets, RBS Corporate Banking and others and was put in place to fund MAG’s plans for expansion, notably terminal facilities at MAN and EMA. It was the first such syndicated loan arranged by MAG. There is an additional bank loan of GBP75 million but it is not due until Jun-2028. This repayment requirement comes at a time when a new and not exactly airport-friendly government is keen, in its own words, to ‘sweat the assets’ of transport infrastructure and while both aeronautical and non-aeronautical revenues are in decline for MAG (not so much non-aero at Manchester owing to extensive investment in retail facilities in terminals 1 and 2, supported by this credit facility).

This is an extract from a report in the upcoming Jun-2010 edition of Airport Investor Monthly. The full report, available for individual purchase, contains the following sections:

  • From second international gateway to ‘just another regional airport’
  • Death by a thousand cuts - new Coalition Government takes aim at aviation
  • End of the line for the tram?
  • City regions to gain influence in UK
  • No love lost between Peel Holdings and MAG
  • The Pakey conundrum

Buy the report now!


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