Edinburgh Airport sale ‘abandoned because of Brexit’. What does it mean for GIP’s airport interests?

Rumours continue to circulate that Global Infrastructure Partners (GIP), the US-based infrastructure investor which owns Edinburgh Airport, would, amongst a package of options concerning its various assets, like to sell the gateway to Scotland’s capital city, but that it backed off earlier this year on ‘Brexit’ fears.

The sale of the airport, following the GBP2 billion Feb-2016 disposal of London City Airport ten years after it was acquired and at a world record-breaking earnings multiple, would leave GIP with only London Gatwick in its airport portfolio. Its other transport sector assets are a port operator (Melbourne), a global container terminal shipping manager, and an Australian rail freight operator.

GIP is scaling down in the UK in the same way the Spanish company Ferrovial did at London Heathrow Airport as a succession of national and international funds increased their shareholding there (see also: Europe’s Ferrovial seeks to benefit from increase in airport PPPs in the US).

But at least Ferrovial resumed its interest in Southampton, Glasgow and Aberdeen airports – once part of Heathrow Airport Holdings – through another vehicle. What GIP appears to be doing is to focus 100% on Gatwick Airport, which still harbours the intent to build a second runway. Recent political events (see: Playing the political game: will we ever see a third runway at Heathrow Airport?) appear to have opened another window of opportunity for Gatwick and its management remains bullish about the third Heathrow runway not getting across the finishing line, and the emphasis falling in favour of Gatwick, whose development is supported by the current London Mayor.

There is no obvious reason why GIP should choose to realise its assets at Edinburgh right now, certainly less than there were in the case of London City, where planning applications are frequently thwarted and which is threatened by the forthcoming opening of Crossrail, an east-west rail line traversing London which will enable air passengers from the City of London and the new City in the old Docklands to access Heathrow Airport in as little as 20 minutes.

Edinburgh Airport’s financials are not published independently. If its success or otherwise is measured by alternative means then it is a strong performer. Passenger traffic growth in 2015 and 2016 was 9.4% and 11.1% respectively, making it one of the top performers in its class in the UK. In the first five months of 2017 that rate of growth dipped a little to 9.1% but that is still impressive. New long haul routes are frequently added and the airport now has non stop connectivity to Toronto, New York, Newark, three secondary airports in the US northeast, Doha, and Abu Dhabi.

CHART – Edinburgh Airport has seen strong recent growth as it has become established as Scotland’s primary international gatewaySource: CAPA – Centre for Aviation and UK Civil Aviation Authority data

Edinburgh has eclipsed Glasgow as the busiest airport in, and premier gateway to, Scotland and the city is second or joint-second in most pan-UK measures of incoming national and international tourism (leisure, business, MICE etc). According to the CAPA Airport Construction Database, a GBP240 million construction programme includes the commencement of the first phase of a terminal expansion project in Aug-2017 while a long-term master plan (to 2040) will add further infrastructure including a new access road.

There is a problem with runway expansion. Under the master plan the existing but unsuitable second runway will be closed and land safeguarded for a new one, though present estimates surprisingly do not consider that a second runway would be required for regular use until 2050.

Investment funds, as with all the other fund variations, are not known for their loyalty to their assets. They exist to provide the best financial options for the investors in those funds and if that means a disposal is called for, so be it. It is possible the sale of Edinburgh Airport was considered (and not for the first time) around the time of the London City transaction, an airport that had already changed hands twice before.

But London City was sold prior to the Referendum on the UK leaving the European Union in Jun-2016. The notion that GIP backed off from a deal to sell Edinburgh in the summer of 2017 because the ensuing ‘Brexit’ negotiations might have meant it could not realise the full benefit of the asset is an interesting one. It also prompts the question ’when is the best time to sell?’