How to sell an airport

Airports don’t come cheap. Considering their potential value and, as European governments sell their infrastructure assets in a bid to combat the ongoing debt crisis, we anticipate a rise in airport transactions across the EU over the coming years. Similarly airports are now coming to market in the US through the FAA’s Pilot Privatization Program (San Juan, Chicago Midway). But where do you start when attempting to sell an airport?

To sell an airport successfully, numerous factors must be considered, not least a business plan that realistically forecasts its future potential.

We’ve recently completed a vendors due diligence role, supporting Heathrow Airport Holdings in its sale of UK airport, London Stansted. This is one of several important ex-BAA assets that Heathrow Airport Holdings has had to sell in recent years as a result of rulings by UK competition authorities.

A review of the airport management’s business plan led to the development of our own independent forecasts of what a ‘stand alone’ Stansted – separated from Heathrow and the other existing airports in the group that was formerly BAA – could achieve. This required an integrated assessment of the prospects for traffic, revenues, and operating costs, and analysis of the capital investment requirement.

Traffic – Stansted’s traffic historically outperformed and then, more recently, underperformed UK averages. We reviewed management’s forecasts and developed detailed projections for the short term along with a longer term forecast that evaluated demand and airport capacity across the wider London market (which at 135 million passengers in 2012 is the busiest city for aviation in the world). We concluded that Stansted has the opportunity to increase its share of traffic in the London area.

Aeronautical Revenues – A key influence on traffic performance has been ongoing reductions in capacity by the airport’s largest airlines, low cost carriers Ryanair and easyJet, in reaction to higher airport user charges. We considered what potential changes might be made to the existing system of economic regulation and also assessed the potential for increased traffic growth through implementation of airport charges-related incentives.

Non-Aeronautical Revenues – Although UK airports tend to perform well when compared to international peers, we identified some opportunities to strengthen the revenue performance further in areas including retail, car parking and real estate.

Operating Costs – We reviewed Stansted’s mix of staff costs (notably wages for operational staff) and the costs it pays for non-staff items including policing and cleaning of the airport. This was informed by a comprehensive benchmarking analysis of operating costs at similar airports. The analysis indicated scope for cuts in operating costs.

Capital Investment – Although the terminal is still relatively new (Stansted opened in the early 1990s) our review identified areas for potential further development, notably to support the efficiency of various airport operating processes as well as to promote the attractiveness of the retail offer in the terminal.

Forecasting of this type should be an integral part of any business plan, as ‘doing the homework’ for potential buyers allows us to clearly illustrate an airport’s long and short term potential.

Our aviation team has been busy in the past 12 months supporting airport transactions in the US (the San Juan privatization), Latin America and Europe. We can support both vendors and investors considering these assets.