Queenstown Airport deal raises questions

By Grant Bradley

For the price of $27.7million, Queenstown airport is now a quarter-owned by Auckland Airport. Photo / Supplied
For the price of $27.7million, Queenstown airport is now a quarter-owned by Auckland Airport. Photo / Supplied

Auckland International Airport's decision to spend $27.7 million for a quarter share in Queenstown Airport has met a mixed response with questions over the value of doing the deal.

Auckland Airport will take a 24.99 per cent stake in the Queenstown operation through the purchase of new shares, funded from existing cash holdings. The airports said the "strategic alliance" would promote tourism growth.

Auckland Airport chief executive Simon Moutter said the alliance was consistent with its strategy of shifting some resources into areas that will drive earnings faster than the company's organic growth rate.

"We can accelerate growth in international passenger volumes - which represent our biggest value driver - by forming deeper partnerships with selected and like-minded airports that share our growth focus on particular airlines and travel markets [especially out of Asia]," he said.

Marcus Curley, head of research at Goldman Sachs JBWere, said there were significant benefits from the deal - for Queenstown Airport.

"Where we struggle is where the flow-on benefits to Auckland Airport itself, especially given its small shareholding and the unproven nature of cross-selling multiple destinations."

Curley said the company would have to provide proof of the benefits for a sceptical market.

"The question is, why bother given the benefits? It comes back to their belief in the flow-on benefits and I suppose given that we haven't seen that before that the onus is on them to illustrate the benefits of those to build market confidence in that strategy."

Auckland Airport's shares closed steady yesterday at $1.93.

Fast-growing Queenstown Airport is owned by Queenstown Lakes District Council and, if councillors approve, it may allow Auckland Airport to increase its shareholding to 30 to 35 per cent any time up to June 30 next year.

Forsyth Barr analyst Jeremy Simpson said he tended to be neutral on the deal but could see some strategic value in it for Auckland Airport, which has a market capitalisation of $2.5 billion.

"It's tiny in the scheme of their [Auckland Airport's] overall asset base. Strategically it makes sense," he said.

"They need to demonstrate a return but at the same time they're not betting the farm [although] some people may think 'why bother?"' In January, Auckland Airport announced a $166 million purchase of a 24.55 per cent stake in Cairns and Mackay airports but the company said yesterday that it was not considering any equity positions in other airports until the benefits of current investments had been proven.

Standard & Poor's said its A-/A-2 ratings and stable outlook on Auckland Airport were not affected by the Queenstown deal but warned it might come under pressure.

The company was now more exposed to the leisure market. "Given some inherent cyclicality in the leisure market, we believe that the rating may come under negative pressure in the longer term should AIAL rely more significantly on dividends from these investments to fund distributions or increase leverage," S&P said.

As a result of the deal Queenstown Airport expects an additional 176,000 passenger movements a year by 2015, worth more than $2 million to the airport.

Auckland Airport expects a further 50,000 extra passenger movements by the same year through "partnered multi-destination promotion and itinerary management".

Auckland Airport said the alliance would strengthen its case when pitching to attract new airlines.

"Much of the work with airlines is already being undertaken on a marketing front and the addition of Queenstown Airport increases the strength of the offer without increasing the effort."

During the past five years international passenger volumes had quadrupled and domestic volumes had risen by 22 per cent.

In the 12 months to June the airport handled 703,000 domestic passengers and 107,000 international passengers.

Nearly $13 million in capital spending at Queenstown Airport during the next five years was planned but no price rises had been imposed since 2004.

SWOOPING IN

* Auckland Airport will pay $6.91 a share for four million new shares in Queenstown Airport, giving it a 24.99 per cent stake for a total price of $27.7 million.

* Queenstown Airport may exercise an option for Auckland Airport to increase its stake to 30-35 per cent at any time up to June 30 next year.

* The price for the additional shares will be $7.47 per share, plus a lump sum consideration of $2.2 million, reflecting the additional value of a shareholding over 25 per cent.

- NZ Herald

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