First-round bids for Edinburgh airport are due on Monday in what is expected to be a fierce battle for one of the UK’s fastest-growing airports.
At least five parties, including a number of overseas investors, have expressed interest in the contest, which was triggered late last year when BAA decided to put Edinburgh up for sale rather than its smaller sister, Glasgow airport.
Global Infrastructure Partners, which bought Gatwick from BAA in 2009 and also owns London City airport, is expected to be among the bidders, including a consortium led by private equity group 3i and another headed by the US firm Carlyle. Once indicative offers are in, due diligence by shortlisted bidders could start within weeks.
BAA, owned by the Spanish infrastructure group Ferrovial and whose prize property is Heathrow airport, is being forced by the Competition Commission to sell one of its Scottish airports after an investigation found that the operator, which also owns Aberdeen airport, wielded significant market power in the region.
Edinburgh airport, which earned BAA £44m before interest, tax, depreciation and amortisation last year, could fetch between £500m and £600m, say analysts.
Douglas McNeill, airline analyst at Charles Stanley, forecast a deal multiple in line with the 9.5 times ebitda – or £1.5bn – GIP paid for Gatwick. He said bidders would be balancing the appeal of an asset with low operational risk with a higher-risk capital structure. “This isn’t a time in the cycle to make big bets with leveraged capital. But opportunities like this do not come up very often. You’d be ill-advised to pass it up if you wanted to buy an airport.”
BAA was also ordered to sell Stansted airport, which competition authorities said contributed to market dominance in the south-east of England. The operator was originally told to carry out the disposal ahead of any Scottish sale, but numerous appeals have delayed the process, and regulators decided in October last year to let the company switch the order of the sales.
“The infrastructure world was taken slightly by surprise,” said one industry watcher, suggesting some groups now focused on Edinburgh had been preparing bids for Stansted.
The decision to sell Edinburgh Airport rather than Glasgow airport was also unexpected. According to provisional data from the Civil Aviation Authority, Edinburgh saw a 9.2 per cent rise in passengers last year, compared with a more modest 4.7 per cent rise at Glasgow.
Manchester airport Group, which is owned by local authorities, told the Financial Times last month that Edinburgh Airport was “slightly on the small side for us” – with 9.4m passengers last year – but did not rule out an offer for Stansted airport if or when it went on sale.
London’s third-largest airport by passenger numbers, serving about 18m people last year, is considered a more difficult asset than Edinburgh given its high proportion of leisure travellers and its dominance by Ryanair, which has been quick to pull flights in response to rising airport charges.
But Gerald Khoo, an analyst at Execution Noble, said Edinburgh was not risk-free: “The problem is the competition with Glasgow at the margins. The catchment areas do overlap.”
BAA last month lost its most recent attempt to overturn the Stansted ruling. It is still considering whether it will appeal against that decision.