Gatwick sold by BAA for £1.5 billion as new owner plans expansion

Published 21st Oct 2009

BAA today confirmed it was selling Gatwick for £1.51 billion to Global Infrastructure Partners, an investment fund that also owns London City airport.

BAA, which is owned by Ferrovial, the Spanish infrastructure company, will use the money to pay down its huge £10 billion debt burden.

The sale brings to an end BAA's 40-year monopoly of London's three main airports, Heathrow, Gatwick and Stansted.

As part of the deal, BAA said £55 million of the sale price was conditional on the airport's traffic performance and Global Infrastructure Partners' future capital structure.

Within that, £10 million is down to traffic performance and £45 million due to the buyer's future capital structure - meaning that if improved market conditions mean Global Infrastructure Partners' can make its balance sheet more aggressive then it will pay out more.

The conditions were in part laid out to appease the Competition Commission.

The £1.51 billion sale price fell short of BAA's expectations. The group had hoped to fetch up to £1.8 billion for the airport and was reluctant to go below £1.6 billion.

It had already rejected a bid earlier this year of close to £1.36 billion from Global Infrastructure Partners.

The sale comes in the wake of a Competition Commission inquiry into BAA and especially its dominance of airports in the South East and in Scotland. The commission ruled in March that BAA had to sell Gatwick, Stansted and either Edinburgh or Glasgow airports.

BAA was careful to point out that it had unveiled plans to sell Gatwick in September 2008, before the Competition Commission published the results of its inquiry. BAA is appealing against the commission ruling.

Colin Matthews, the chief executive of BAA, said: "Gatwick and its people have long been a central part of BAA and we are proud of the airport's development as one of the world's leading international airports.

"BAA is changing and today's announcement marks a new beginning for both Gatwick and BAA. We wish Gatwick well for the future and are confident that the airport will flourish under new ownership.

"BAA will focus on improving Heathrow and our other airports."

The sale is expected to prompt a series of developments at Gatwick, which has been London's second-biggest airport since 1958.

However, It has long been seen as the poor relation of Heathrow, with critics arguing that it has been starved of investment and that BAA has diverted resources from Gatwick to its bigger neighbour to the west of London.

Global Infrastructure Partners is understood to want to attract holidaymakers rather than businessmen as part of its strategy for the airport south of London.

The hope is that Gatwick can garner business from international airlines offering package holidays and destinations in far-flung locations, while keeping low-cost carriers such as easyJet that fly to European destinations.

Global Infrastructure Partners is not expected to try to challenge Heathrow’s dominance as the UK’s principal gateway. However, analysts believe that the investment fund may seek to expand the number of flights able to use Gatwick by pushing for a second runway. Gatwick is already the busiest single-runway airport in the world.

Although an injunction prevents Gatwick from adding a second runway until 2019, a new owner might seek to accelerate a planning application to take advantage of growth opportunities the moment that ban ends.

In December The Times revealed that BAA had sent potential bidders a confidential memorandum with a section entitled “Gatwick Builds a Second Runway”. It gave details of how the expansion could increase capacity at Gatwick from 45 million passengers a year to 80 million; 67 million people used Heathrow last year.

BAA put Gatwick up for sale last year when it became clear that it needed to reduce its vast debt burden. This decision was aided by the ruling from the Competition Commission that BAA’s ownership of Heathrow, Gatwick and Stansted in the region was bad for airlines and passengers.

Global Infrastructure Partners has already held talks with Gatwick’s major users, including British Airways, Virgin Atlantic and easyJet. It is understood that the airlines want facilities improved there and Global Infrastructure Partners will have to give guarantees to the Competition Commission that it will invest in Gatwick before regulatory approval is given for the sale.

Global Infrastructure Partners is a joint venture between Credit Suisse, the investment bank, and GE, the world’s largest company. Most of the price will be raised from big banks including HSBC, RBS, Credit Suisse and JPMorgan.

Ferrovial acquired BAA in 2006 for £10.2 billion. The group borrowed nearly the full amount and had difficultly refinancing the debt when the credit crunch hit.

Gatwick has suffered as a result of the recession. Passenger numbers are down and a number of airlines using the airport have gone out of business.

BAA said last month that passenger numbers at Gatwick in the preceding year were down 8.4 per cent.

Global Infrastructure Partners beat rival offers from Manchester Airports Group, Borealis, a Canadian pension fund, and the Lysander consortium.

Source: ' Times '

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