Analysis Reports

It was only at the end of 2024 that CAPA - Centre for Aviation reported on a sudden flurry of activity in the airport sector M&A business involving Canadian pension funds, one of which is PSP Investments - the owner of Germany's AviAlliance.

AviAlliance itself had bought AGS Airports, three smaller facilities in the UK, each of which had found the going to be hard in the COVID pandemic years, and had failed to mark a serious turnaround in fortunes since. Even though each is confident of its future path, and has infrastructure plans in place accordingly.

Now, and in a rare example of an almost immediate on-sale, the US alternative asset management and financial services company Blackstone has taken a 22% stake in AGS Airports from AviAlliance/PSP, leaving the latter with a 78% share.

To PSP/AviAlliance this deal provides a welcome financial backstop, but it is harder to fathom Blackstone's motives. It already has part ownership in airports in France and Italy, including some with a cachet, like Rome and Nice.

It may be attracted to UK airports generally, because there has been considerable M&A activity in recent years, but that has been at much bigger airports like London Heathrow and Gatwick, and Edinburgh.

Moreover, at each of the three AGS airports there have been difficulties, and all have seen traffic diminish as a result. None of those difficulties will go away anytime soon, while decisions on North Sea oil and gas contracts (Aberdeen Airport) and on a third Heathrow runway (together with Edinburgh Airport's growing influence over Glasgow in Scotland) will continue to conspire against them.

Until now, CAPA - Centre for Aviation's quarterly analysis of the capacity outlook for European aviation airlines has focused on the recovery from the COVID-19 pandemic, expressing seat numbers as a percentage of the equivalent period of 2019.

However, with both capacity and traffic above 2019 levels for the past four quarters, analysis will now return to the more traditional metric of year-on-year growth.

Europe capacity growth is projected to slow from 6% in 1Q2025 to 4% in 2Q2025, but with faster growth in intercontinental than in markets intra-Europe.

Europe RPKs have been above 2019 levels since Jan-2024, and load factor is growing.

LCCs have recovered particularly strongly, and their seat share continues to increase in Europe.

Recent commentary from Europe's biggest airlines has mainly been positive on the outlook for summer 2025.

However, there are some notes of caution: air fare inflation has softened in the EU, and turned negative in the UK in recent months.

Moreover, global geopolitical uncertainties are growing.

Canada has operated its unique 'not for profit' stakeholder board system, that is mainly run by the public sector to manage its airports, since the 1990s. It has its admirers and its detractors, both within and outside Canada.

One thing that system does not support, to the level it might, is the profit motive. But the airports have to turn a substantial profit on their operations to pay hefty ground rents to the government - which bases them on the revenues they work hard to generate.

A Catch-22 level conundrum.

Various types of privatisation models were examined by the government in 2017, but the procedure fizzled out. One of the peculiarities of Canada's economy is that its pension/superannuation funds for public sector workers can invest in foreign airports (and they do), but they aren't allowed to at home.

Now the government is preparing the ground to permit them to do that, through a Mar-2025 policy statement. Partial privatisation might help to relieve the burden of the ground rents, especially if the private sector investors can obtain up to 49% of an airport's equity (bearing in mind that there are no traded shares yet).

That would give the airports more money to invest in infrastructure, or pay off debt.

And the airlines are delighted, as they envisage lower charges to them - leading to lower fares to passengers who won't have to jump ship to the Unites States to find a cheap flight.

It seems as if everyone is a winner, but these major changes in long-established philosophies are never easily accomplished, and it is worth bearing in mind that some elements of the existing model have value.

Brazil's CCR, an operator of toll roads with other interests (such as airports) was, as recently as two years ago, seeking to grow its portfolio of airports under concession, the majority of which are in Brazil.

But now it is looking to offload some, or even all, of those concessions, wholly or partially, along with investments in the urban mobility business, as it seeks to relieve debt and to expand further in the profitable toll road sector.

At the same time, CCR is not averse to locating other airport investment opportunities in Latin America or even further afield.

Its aversion to its current portfolio and its prospects seems to be driven by the acknowledgement that its airport market is fragmented, and requires consolidation, and that even as a recognised Brazilian company of some gravitas it does not have a major gateway airport in any of the big three Brazilian city-regions to boast.

Lining up to acquire those assets, wholly or partly, are companies like Flughafen Zürich and VINCI, which both have existing Brazilian airport assets; and indeed, the former is already the joint operator of Belo Horizonte Confins (Tancredo Neves) Airport, within the BH Airport consortium with CCR.

The interesting thing here is whether another operator will enter the fray, and even more so, if any of the consortiums that formed to bid for smaller groups of airports in the latter stages of the formal concession tranches between 2012 and 2024 will step up to the plate to confront and take on the industry's big players.

Germany's Fraport and India's GMR, which were (until recently) joint operators in Delhi's existing airport, have been taking divergent paths for some time.

Although Fraport has now exited all its Asian holdings (including St Petersburg in Russia, which is a BRIC country like China and India), GMR has been concentrating more on its home country and in southeast Asia, while tying up a partnership agreement with the shareholder Groupe ADP.

On the face of it, this looks like being a case of 'Goodnight Vienna' for Fraport where Asia is concerned; although a return to India, at least, where Fraport should know the ropes by now, cannot be entirely discounted. After all, that is what Flughafen Zürich has done, and in a big way, as the builder and operator of Jewar Noida, the new New Delhi airport.

As for GMR, its direction has been towards the home country for some time now, in anticipation of the next phase of the countrywide concession programme, which is now anticipated for 3Q2025 (although it has been 'anticipated' for years).

GMR knows that there will be much more competition this time compared to previous tranches in 2006 and 2019. It would be ironic should it find itself in competition with Fraport for, say the Chennai airport.