Hungarian government acquisition of Budapest Airport is imminent; VINCI joins the fray, possibly QIA
The almost two decades long saga of the Hungarian political party Fidesz's attempts to renationalise Budapest Airport (BUD), the jewel in the country's logistics and tourism crown, seems to be coming to an end.
Government sources are talking about the deal taking days, although weeks - if not months - are more likely as Hungary seeks to balance its books and reduce a crippling deficit.
It will not be a full nationalisation, as at least one private sector participant (VINCI) looks set to be involved along, possibly, with The Qatar Investment Authority, although the latter's participation remains questionable.
For VINCI it would mean a reduced degree of influence compared to what it is used to.
The loser is AviAlliance, the operator and main investor since 2005, which might be excused for asking "what did we do wrong?"
One thing is for sure: other countries in the region which have seen their airports privatised during the last 20 years will be looking to see if Hungary can fashion a new model which might better suit their circumstances amid a changing political landscape.
- Hungary continues with its plan to renationalise Budapest Airport.
- But it is not a full nationalisation, because VINCI - and possibly Qatar Investment Authority - are to be involved.
- It looks like the airport's long term operator AviAlliance's days are numbered, having guided it since 2005.
- VINCI likely only to have a small stake, according to reports, which may not suit its business model.
- Hungary has been struggling to raise the cash, but this project is ring-fenced as the 'crown jewel' and other assets are being offloaded accordingly.
- Other countries in the region will be watching these events as the political landscape starts to turn in Eastern and Central Europe.
Hungarian renationalisation of Budapest Airport 'within days', but more likely weeks, according to the government
Hungary's Economic Development Minister Marton Nagy stated recently that the government planned to acquire an 80% stake in Budapest Ferenc Liszt International Airport (BUD), with VINCI Airports expected to purchase the remaining equity. Mr Nagy also reiterated plans for the Qatar Investment Authority to join the consortium "later".
The transaction was touted as possibly happening in "days," according to Prime Minister Viktor Orbán, though Mr Nagy said it was likely to take weeks to finalise the legal details - he is almost certainly right about that.
It was in Jan-2024 that CAPA - Centre for Aviation reported in European Commission clears Hungarian Govt/VINCI takeover of Budapest Airport, now 'close to a deal' that the European Commission had ratified a government-led takeover of the airport, one described by the country's Economic Development Minister as "the most complex one since the fall of communism".
VINCI likely to take part with a smaller share than expected, possibly Qatar Investment Authority
At that time it was reported that the plan would result in a state-owned corporation taking 51% of the equity of a new company and the French operator VINCI taking 49%.
CAPA - Centre for Aviation took the view that VINCI had benefitted in this respect from its management of Belgrade Airport - the only one in Eastern Europe that it operates - and also from improved Hungary-France trade relations.
At that stage there was continuing disagreement about management rights and other issues.
The governing party has always been against the original 2005 privatisation
The current governing party, Fidesz, which looks secure following its victory in the 2022 general election (which gave its leader Viktor Orbán his fourth consecutive term in office), was against privatisation of the airport from the start. It has previously attempted to regain it through a consortium of businesses close to the government in a bid to boost the domestic stake in sectors deemed strategic before the COVID-19 pandemic, and the energy crisis, but was thwarted by a cash squeeze.
And the fiscal situation has not since improved much either (see later).
The present government's coveting of BUD actually dates back to 2005 when it wasn't in power, and after the aviation directorate had been separated into HungaroControl (ATM) and Budapest Airport Zrt, a state limited company. In Jun-2005 the state's privatisation agency initiated a tender for concession rights and BAA, the then owner and operator of seven major British airports, took over the management of the airport.
Other countries in the region could follow suit
Renationalisation of the airport of one kind or another was always on the cards, with Fidesz in power, and Hungary is not the only country in the region that is likely to see a drift in the direction of greater state control over airports as left wing parties (re-)gain power. They include Poland (where the airports are in state control anyway, but decisions remain over the financing of the new Central Polish Airport), and Slovakia, where one main airport, Košice, is partially privatised.
But there is no recent experience within the Hungarian government of operating what was the 38th busiest airport in Europe in 2023 and the continuing co-operation of one or more private sector partners was always on the cards.
AviAlliance the major shareholder currently
BUD has been operated by a consortium led by Germany's AviAlliance (previously Hochtief AirPort) since 2007, when it took over from BAA - initially with a 75% stake, subsequently acquiring the government's 25% stake and thereby fully privatising it. AviAlliance's stake at present is 55.44%.
The other two, minority, shareholders are Malton Investments Pte, a subsidiary of Singapore's sovereign wealth fund, GIC, and the Canadian pension fund 'Caisse de Depot et placement du Québec' (CDPQ) which, like AviAlliance, is classified as a 'Major Global Investor' in the CAPA - Centre for Aviation Global Airport Investor's Directory, having airport assets in Canada, the UK and Cyprus, as well as at Budapest.
Budapest Ferenc Liszt International Airport: ownership as at 15-Apr-2024
VINCI in a different position from what it is used to?
So, it was always likely that the government would want its 25% back at the very least.
As it has turned out, it seeks 80% - which is perhaps a little surprising with VINCI also in attendance, as that company typically goes for much more than 20% equity in the concession operating mechanisms at its airports, or opts for a management contract without a financial commitment instead (as is the case with its smaller French airports).
Moreover, VINCI usually demands unfettered management rights. It could have expected that had it taken 49% of the equity, but with only 20% it might find its hands tied somewhat. Voting rights under the purported agreement are not known.
Investor/operators have been known often to move on from deals where their limited holding only permitted peripheral influence on operational and investment affairs in China, India and Africa.
Valuation in the range EUR4-5 billion; government insists it has the cash
The BUD airport asset is valued in a wide range of EUR4-5 billion, but the actual purchase price has not been revealed. Its recovery has been hampered by macro-economic factors and a windfall aviation tax - but its value has more than doubled since it was first sold.
Another complicating factor remaining is Hungary's budget deficit, which is set to overshoot a revised 5.2% target.
Indeed, only two days (11-Apr-2024) after Mr Nagy's statement on the BUD airport purchase the government advised that it was going to postpone some state investments in a bid to stop the budget deficit from exceeding that already raised target, delaying some HUF675 billion (USD1.86 billion) of such investments, although a specific list of affected projects is yet to be worked out. The government has accumulated a HUF2.32 trillion budget shortfall through the end of Mar-2024, citing a jump in interest costs.
However, the government insists that it has set aside the funds needed for the planned purchase of BUD, and that this move will only affect the cash-flow deficit.
It has done so by building up a war chest for the deal, including the divestiture of a 15% stake in the local unit of Erste Group Bank AG, and the sale of a 35% stake in the Hungarian unit of Vienna Insurance Group, as well as issuing debt.
BUD is regarded as not just a strategic asset but the "crown jewel" in the tourism and logistics industries.
The government's plan is to expand the airport by building a third terminal, and thereby to boost capacity for passengers and also cargo.
AviAlliance is the loser, having seemingly done a solid job at BUD
All of this leaves analysts wondering about AviAlliance, which can claim credit for building up BUD - certainly from 2011, when it took full ownership, and probably also from 2005 when it first invested in it.
The chart below is of passenger growth from 2011 to the present day.
Budapest Ferenc Liszt International Airport: annual traffic/growth, passenger numbers, 2011-2024
In only one year between 2011 and 2019 (2012) did passengers numbers fall (very slightly), and that was on account of the collapse of the state carrier Malev.
In four successive years, 2015-2018, double digit growth was achieved, and BUD grew by 8.8% to an all-time high of more than 16 million passengers in 2019, when most airports in Europe suffered peculiar pre-pandemic falls.
With numbers back to 2018 levels in 2023, growth in 1Q2024 was strong, at +20%.
In any other circumstances, changing the operator now would raise eyebrows
In any other circumstances changing the operator at this stage would raise eyebrows in the investment community, because AviAlliance is well established, respected, and not known to have had any plans to sell the airport.
Rather, it seems simply to have been pushed out after being accused of underinvestment - a claim which the prospective in-comer VINCI has also faced at some of its airports, for example in Portugal and Cambodia.
Underinvestment is a regular government go-to get-out position, but the likes of AviAlliance and VINCI never comment on these matters.
If there has been underinvestment, perhaps it occurred because the operator has been living under this threat for too long.
AviAlliance completes its Athens acquisition; VINCI reels from a knock-back in court
AviAlliance might not mind too much about this, as it has recently taken full operational control over Athens International Airport in the Greek capital, which will undoubtedly occupy most of its attention in the immediate future and further underlines its standing in the airport community.
VINCI most certainly will, having been informed on 10-Apr-2024 that its request for approximately EUR1.6 billion in damages from the French government arising from the abandonment of the Notre-Dame-des-Landes Airport project was denied by a French court. The court merely stated "certain damages" could be paid at a later stage.
And that amount, coincidentally, is very close to the price agreed on 16-Apr-2024 (GBP1.3 billion) for VINCI to take 50.01% of Edinburgh Airport in the UK in a partnership agreement with Global Infrastructure Partners which is due to be completed in the summer of 2024.
Qatar's sovereign wealth fund would bring financial expertise and a source of cash but...
The outsider in all this is the Qatar Investment Authority (QIA), which has frequently been referred to as a potential investor in this deal, when it happens. QIA is not to be confused with Qatar Airways, which has become an investor in the airports business in its own right.
Rather, QIA is the country's sovereign wealth fund and has been an investor in London Heathrow (20% as Qatar Holding) and St Petersburg Pulkovo airport for some time, the latter complicated by the change of overall ownership there to that of a Russian state holding company early in 2024, in another strategic political move which has marginalised the private sector in the eastern part of the continent.
Latterly QIA's focus has been on potential investments into airports in Pakistan, and possibly into Pakistan Airlines.
While QIA is a 'hands-off' investor in airports, the attraction to the Hungarian government lies in its financial strength as the world's eighth largest sovereign wealth fund, with assets of more than USD500 billion.
The question is whether the declining influence that western governments have on Hungary will be sufficient to dissuade the Hungarian one from getting into bed with Qatar - or any other Gulf state, for that matter. There are rumours that western governments have "forced" Hungary to abandon that plan.
The transaction, when it comes, will take place during a period of political flux in east-west relations
European countries, and those in the east of the continent in particular, will be watching events in Budapest closely as political pressures mount for a return to the old 'Iron Curtain' Soviet era days of parastatal control over major economic sectors in the 'Comecon' countries, as they were known before the group's dissolution in 1991.
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