Hungary seeks ‘friendly’ co-investor for Budapest Airport: part one – sharing the burden
Central Europe is a region that airport investors have never shied away from in the past, with IFM investing latterly in Vienna Airport and both BAA plc and an AviAlliance-led consortium taking majority (and eventually 100%) control at Budapest Airport.
But it is also a region where there have been notable failures of privatisation, including examples where governments have suddenly pulled the plug on a deal while the ink was still wet.
That is not going to happen at Budapest, but it is an open secret that the long-serving prime minister would like to retrieve the gateway airport from the private sector, and the latest plan to co-opt a 'friendly' investor to help it do that might work.
The private sector, for its part, needs to play its cards carefully.
This is part one of a two-part report.
- Hungarian government seeks a "friendly" co-investor to acquire and operate Budapest Ferenc Liszt International Airport.
- AviAlliance, a German airport management company, currently holds the majority stake in the airport.
- The Hungarian government has a history of attempting to regain control of the airport, including previous threats of renationalization and stock exchange listing.
- BAA plc was the first outside organization to invest in Budapest Airport, but the government has always desired its return.
- The current consortium that owns the airport consists of AviAlliance, a Canadian pension fund, a German bank, and a Singaporean sovereign wealth fund.
- The government's call for a "friendly" investor suggests that it needs external support to acquire a majority stake in the airport.
Summary
- Hungarian government on the lookout for a 'friendly' investor to help buy back Budapest Airport (BUD).
- The language suggests that the consortium that owns it isn't one, but its performance has been more than adequate.
- Since 75% of it was sold to BAA in 2007, the Hungarian prime minister has been on a mission to get it back under national control.
- The government began meddling with a stalking horse takeover a couple of years ago and then pledged full nationalisation.
- This call for 'friendly' support now is representative of the fact that the government can't afford to carry this off on its own.
- There is reported interest from Qatar, but any organisation getting in bed on this matter needs to have 'caveat emptor' in mind.
Hungary seeks a 'friendly' co-investor to help manage Budapest's airport while AviAlliance currently does that job
Hungary's Economic Development Minister Márton Nagy says the government is seeking a "friendly" co-investor to acquire and operate Budapest Ferenc Liszt International Airport. Mr Nagy stated that the government was in talks with "several" airport operators, including one from Qatar.
The German airport management company AviAlliance, previously Hochtief AirPort, is currently the majority shareholder, with a stake of 55.438%.
Ownership and management have a lengthy history
There is quite a lengthy background to the ownership of the airport, which aspiring investors need to be aware of.
The Hungarian government, in the form of the current ruling party, Fidesz - Hungarian Civic Alliance, led by Prime Minister Viktor Orbán, has a chequered history where the country's gateway airport is concerned; it has not always been easy to anticipate its next move.
Having once owned the airport outright, the government had cancelled a contract with a foreign company (Canada's Airport Development Corporation) to build a terminal (at some cost), handing it to the airport management instead, and then subsequently threatened to renationalise the airport and/or list it on the stock exchange on several occasions, after it was privatised when Fidesz was no in power.
BAA was the first outside organisation to invest in it, and Mr Orbán has always coveted its return
The airport having been state-owned, 75% of it was sold in 2005 to what was then the UK's BAA plc for EUR2.6 billion (and at a very high earnings multiple for the time of 29.3), when it was handling 7.8 million passengers per annum.
Mr Orbán tried unsuccessfully to persuade the then prime minister not to sell it at the time, and became somewhat obsessional about getting it back.
BAA had outbid the German constructor Hochtief Concessions (now AviAlliance) and 11 other 'big hitting' investors in the process of securing Hungary's biggest-ever privatisation deal. The attraction to these investors at the time included the recognition by IATA that Hungary was expected to become the third fastest growing aviation market in the world.
Two years later the same holding was sold on to a consortium for EUR1.9 billion - representing an earnings multiple of 23.8.
The controlling consortium now is representative of Germany, Canada and Singapore
That consortium consisted of Hochtief (AviAlliance), the Canadian pension fund Caisse de dépôt et placement du Québec, the German bank KfW IPEX (Kreditanstalt für Wiederaufbau) Bank, and the Singaporean sovereign wealth fund GIC, through its investment arm Malton Investment Pte.
KfW IPEX has since exited.
The ownership situation as of Jun-2023 is described below.
Budapest Ferenc Liszt International Airport: ownership, as at 05-Jun-2023
At that time passenger numbers had risen to 8.2 million, but an economic downturn was clearly coming and the collapse of the state airline Malév was only three years away.
Otherwise, that reduction in perceived enterprise value over two years stands as evidence of the overconfidence that existed in airport infrastructure in the mid 2000s.
Rumours of IPOs and partial state takeovers muddied the waters…
In 2015 rumours surfaced that the government intended to initiate an IPO process for the airport, and that approximately 20% of its share capital would be issued in the first round. That was not the case, and would have been somewhat difficult to achieve anyway, because no one was known to be selling.
Latterly a consortium led by a Hungarian part-state oil group with connections to the government had sounded the owners out for a sale, late in 2020, apparently as a sort of stalking horse to gauge reaction.
…until the government itself pitched for the airport
Then the government made an unsolicited bid itself, in Jul-2021, to buy the majority share held by AviAlliance (which is owned by another Canadian public sector pension fund, PSP Investments). But AviAlliance was having none of it, both then and in Feb-2023 when the idea was revived. A figure of EUR4.4 billion for majority ownership was mentioned at the time.
It looked for all the world as if this was a political manoeuvre by Mr Orbán, who faced a make-or-break general election in 2022, or sooner (which Fidesz ultimately won quite easily), and who was embroiled in yet another of several conflicts with the EU. These have continued to rumble on - and even at times have threatened to question Hungary's continuing role within the EU.
Nor should any of it amount to a surprise, in the sense that since Mr Orbán has been in power his government has increased Hungarian ownership in energy, banking, telecoms and the media, quite apart from its aspirations on the airport.
Now it seeks a 'friendly investor' to share financial burden
All this brings us around to the present situation, in which the government seems to be trying a new tack by seeking a 'friendly' investor to work with. The unfortunate impression conveyed by such language is that the current arrangement is somehow unfriendly.
Minister Nagy said the government was seeking a majority stake in the transaction but the issue was open to negotiation. He said the acquisition could be closed by the end of 2023.