Chinese consortium to sell stake in Toulouse Blagnac Airport. Did the French authorities make a bad decision on the original sale?

CASIL Europe is reported to have decided to sell its 49.99% stake in Toulouse Blagnac Airport. The decision is said to come as France’s Government intends to conserve its 10.01% stake in the airport, thereby denying CASIL the chance to hold overall majority ownership.


Summary:

  • CASIL Europe to sell its majority share in Toulouse Airport as France’s Government confirms intention to conserve its 10.01% stake;
  • Original transaction saw Chinese companies mysteriously triumph over French firms as France wooed Chinese investment;
  • Vinci, Groupe ADP, Ardian and other French organisations will be making their preparations already to get their hands on what is a prize asset.

Originally the Symbiose consortium, CASIL Europe is a joint venture that includes Chinese state-owned group Shandong Hi-Speed Group and Hong Kong-based investment company FriedmannPacific Asset Management, and which took a 49.99% stake in Toulouse Airport in France through a French registered company of that name. CASIL is the acronym for China Airport Synergy Investment Limited.

The transaction was completed in Mar-2015 for EUR308 million. Previously, the French Government owned 60% of the airport, the Toulouse Chamber of Commerce had a 25% stake, and a further 15% was owned by various local government bodies. The local Chambre de Commerce, along with various local authorities, retained 40% of the equity. So the only substantial change was to the central government’s holding.

CHART – CASIL Europe is the largest shareholder in Toulouse Blagnac AirportSource: CAPA – Centre for Aviation

The transaction was the first to involve a French primary level airport, other than the Paris airports, and was subsequently followed by similar transactions involving Lyon and Nice airports, with Lille, Marseille and Bordeaux set to follow, possibly in 2019.

As the first such transaction it came under close scrutiny from the French press and public, who were not used to the idea of foreign companies taking a controlling stake in one of their main airports and especially one so important to the continuing location of the main production facilities of Airbus (although that company has manufacturing units in China).

CASIL Europe notified its aim to raise Toulouse’s air traffic to 18 million passengers by 2046, up from 7.5 million in 2014. Growth has been steady at levels considerably higher than at peer airports such as Marseille, Nice and Bordeaux in 2017 and much the same as at those airports in 2018.

CHART – Toulouse Blagnac Airport has seen passenger traffic grow since the transaction, peaking at a decade high annual growth rate of 14.6% in 2017Source: CAPA – Centre for Aviation and Toulouse Blagnac Airport reports

But it was political considerations that have dogged the transaction. French companies that had been expected to clinch the Toulouse deal included Aéroports de Paris (now Group ADP), Vinci and Ardian. That did not go down at all well with some politicians. The act of giving strategic infrastructure to a non-European group was frowned upon in a country that typically reserves its major projects for its own companies and which has been reluctant even to cede partial control of public transport organisations to the French private sector.

On the other hand, France covets Chinese investment generally and particularly so in infrastructure projects, and is locked in a battle with the likes of the United Kingdom (even more so as ‘Brexit’ looms) to secure it.  Chinese foreign investment in Europe had doubled between 2013 and 2014, ahead of the transaction.

Wherever the President of the Peoples Republic, Xi Jinping, travelled, investment quickly followed and a visit had taken place shortly before the Toulouse transaction by the Chinese Premier of the State Council Li Keqiang (to Toulouse) at the end of a Franco-Chinese business summit, after which then Prime Minister Valls said, “Today I want to give this message to the heads of Chinese companies: come to France.”

The French government was committed to selling assets of around EUR10 billion to pay down debt and fund new investment, with the Chinese regarded as desirable customers for some of the larger sales. That is essentially why the airport privatisation procedure had been raised from its slumbers although there was also a pressing need to find cash to finance the purchase of a 20% stake in power and rail sector multinational, Alstom, in order to veto a foreign takeover, in the case of the Toulouse sale.

The Toulouse deal was also part of a wider government bid to promote more cooperative relations between the Chinese and French aerospace industry. China is a key market in particular for Airbus. Thus the real value of the deal to the people and businesses of Toulouse disappeared – at least temporarily – in the rhetoric of Sino-French relations.

Now those relations are back on the table as CASIL Europe concludes that France is never going to give up its ‘golden share’ in Toulouse Blagnac Airport as the British Government was forced to in BAA, the operator of Heathrow, Gatwick and Stansted airports, in 2003, following a ruling by the European Court of Justice, thus leaving it open to a hostile takeover.

You can be sure Vinci, Groupe ADP (in which Vinci will soon be a major stakeholder anyway), Ardian and other French organisations will be making their preparations already to get their hands on assets they felt they should never have been allowed to slip through their fingers in the first place.

READ MORE…Further and more detailed reading on this matter can be found in two CAPA reports on this transaction, both of which are free to access. Toulouse-Blagnac Airport deal signals rekindling of airport privatisation in France (Nov-2014) Lyon and Nice airport privatisations – lessons to be learned from the events at Toulouse (Nov-2015)