International departure and arrival gates have become eerie ghost towns and domestic flights are disrupted by frequent lockdowns and border closures.
It doesn't seem a good time to buy an airport, but the takeover bid for Sydney Airport launched by a consortium of infrastructure funds a week ago will, in the long run, prove to be a very astute move.
The A$8.25 ($8.82) a share bid launched by a group of pension funds and infrastructure investors— including IFM Investors, Queensland superannuation fund QSuper and US-based Global Infrastructure Partners—values Sydney Airport at A$22 billion.
The company's enterprise value – its share market value plus the debt it's carrying – comes to A$29b, making this Australia's largest ever takeover bid.
So why buy an airport now, when there is little prospect of the more profitable international travel, returning any time soon?
The buyers are betting international travel will eventually return and they have deep enough pockets to wait it out. This is not a short-term investment. The airport has an operating lease on its land until 2097 and hundreds of hectares of land, some of which is marked for commercial property development.
At this point, Sydney Airport's board has told shareholders to do nothing while it weighs up the proposal. That's not an easy job. Forecasting cashflows while the Covid-19 virus is still swirling around the globe and Australia remains closed to overseas visitors is nigh on impossible.
What is almost certain, is that large numbers of international travellers will return to Australia, not this year, maybe not next year and maybe not even the year after that. But it will happen, and when it does, it will become apparent what a great deal the investment funds have got if they succeed in buying the airport.
It's also a tough bid for current shareholders to weigh up.
At A$8.25 a share, the bid represents a 42 per cent premium to the pre-bid trading price, but is still below the $8.80 or so the shares were trading at before the pandemic struck.
It's not as if Sydney Airport is in a perilous position and needs saving or that shareholders' capital is at risk if the pandemic goes on for longer than expected. While it posted a A$146 million loss as of December last year, Sydney Airport had A$1.1b of available cash and A$2.4b of undrawn debt.
It also generated A$627.8m of earnings before interest, tax, depreciation and amortisation
The question will be how many shareholders are prepared to sit tight, for potentially several years, and wait for travel to return and how many will decide they'd rather have the cash in hand.
One issue for fund managers is there are fewer and fewer infrastructure investments left on public markets, so if shareholders take up the A$8.25 offer, where will they put their money?
The takeover bid is part of a bigger trend for pension funds to take infrastructure assets off the share market, because they like the stable long-term cashflows (coronavirus notwithstanding), are looking for better returns than those on offer from cash and bonds, and don't have to worry about short-term ups and downs in the share price.
Sydney Airport is one of the few remaining stock market-listed airports, along with Frankfurt Airport in Germany and Paris' Charles de Gaulle and Orly airports and, of course, Auckland Airport.
Infrastructure funds and investment bankers are undoubtedly running the ruler over New Zealand's main international gateway. Any bidders would need to win over the City of Auckland, which owns about a fifth of the airport, but as the council demonstrated in 2005 when it launched a takeover for Port of Auckland and took it off the share market, it's not averse to taking assets off the share market.
The Sydney Airport bid is structured as a scheme of arrangement, requiring 75 per cent of shareholders to vote in favour of the offer. Making the bidders' job more difficult is that UniSuper owns 15 per cent of the airport and the bid is conditional on UniSuper retaining its stake and taking part in the takeover.
The superfund has indicated it will likely do this, but in a way that makes the takeover even harder to achieve; UniSuper won't be able to vote for the proposal and help obtain the 75 per cent of votes, because of the conflict of interest taking part in the offer raises
But what's likely to make the takeover most difficult is that Sydney Airport shareholders will see it for the opportunistic bid that it is.
Equity markets are surging to all-time highs, so it's not as if there are a whole lot of bargain stocks for fund managers to reinvest the money they would receive from selling Sydney Airport.
The vast majority of shareholders will hold on, either for a much better offer or until international air travel recovers, whenever that is.