The Queensland Government this week announced plans to sell its shares in Cairns and Mackay airports, as well as a 12% stake in Brisbane Airport, to help fund hospital upgrades. As one of the rare opportunities globally, this has spurred a flurry of investor interest.
It follows the sale late last year of Hobart Airport to the Tasmanian Gateway Consortium, including Macquarie Bank and the Retirement Benefits Fund Board (Tasmania's largest public sector superannuation fund). That sale attracted an eye-popping price tag of AUD350.5 million – well above initial expectations – or 33 times historical EBITDA.
Recent airport transactions valuations: Historical EBITDA
Source: Centre for Asia Pacific Aviation
The Queensland airport sales should attract strong investor interest, not only from cashed-up superannuation funds (both in Australia and abroad, namely Canadian teachers’ funds that are scouting for airport opportunities in this region), but also from the leading global airport operators, such as Macquarie Airports, Schiphol Group, Changi Airports International, and new entrants, such as DAE Airports.
Queensland Airports Ltd (QAL), owner/operator of airports in Mount Isa, Townsville and the Gold Coast, will reportedly be among the bidders with particular interest in Cairns. Located in Far North Queensland, Cairns is Australia’s fifth busiest international gateway, with good upside potential for further international and domestic growth.
But price is unlikely to be the only driver for the Queensland Government. It would be irresponsible if it were. Each airport serves sensitive regional areas that are highly dependent on inbound international and domestic tourism. This indeed has been the rationale for keeping the airports under State ownership until now.
Overall, the sales are a positive step and follow the healthy diversification of the Australian airline market in recent years. Despite airline complaints at greatly increased aeronautical charges, the results of airport privatisation in Australia have generally been outstanding. New airline models serving domestic and international markets have driven strong traffic growth, particularly at Queensland resort gateways.
As a result, the region’s airports require ongoing capacity expansion, and this, along with the future operators’ track record in growing air markets, should be key criteria when the government sits down to review what is likely to be a strong range of offers.