Airport blow for Infratil

By CHRIS DANIELS, aviation writer

A surprise earnings downgrade at Infratil's Glasgow Prestwick Airport has been issued just a week after shareholders were advised to approve a plan to take over 100 per cent ownership.

Infratil shares fell 10c to $2.60 on the news.

In an embarrassing turnaround from previous forecasts, Infratil yesterday told the stock exchange that earnings from the airport may drop by 10 per cent this year to £4.5 million ($12.5 million).

Shareholders were due to vote next week on a plan to increase their ownership of Prestwick to 100 per cent, buying the remaining 23 per cent of the company it does not already own.

Reasons given for the drop in earnings include lower freight volumes, lower passenger growth, therefore less money coming from shops and car parking, and higher operating costs and one-off charges.

Around £200,000 ($560,000) is being set aside for bad debts after two of the airport's tenants, one a travel agency, went into liquidation.

The problem is that despite an overall jump in the number of passengers using the airport - up 46 per cent for the three months ended February - the amount earned from each person is dropping.

Significant traffic growth contributed to a decline in per passenger concession income of 10 per cent for the three months ended February, when compared with the same period last year, the company said.

An Ernst & Young appraisal report issued on March 8 gave little hint of the problems at Prestwick.

It says the airport earned a far greater contribution per passenger from its retail and trading activity than from charges paid by the airlines.

"Management are of the view that the airport is now achieving a critical mass, which is likely to be sufficient to attract specialised and boutique retailers to GPIA [Glasgow Prestwick International Airport] so as to broaden the current offering and lead to real growth in concession yield."

Much of the problem with Prestwick comes from its biggest customer, the no-frills airline Ryanair.

Growing at an explosive rate, Ryanair has scheduled many of its new flights through Prestwick at the same time of day.

This has led to airport congestion and travellers not spending as much money in its shops.

Infratil says measures to expand retail facilities are under way, but these will not be done before the end of the month.

Shareholders have been asked to approve the deal because the shares are being bought from Utilico Investment Trust, which owns 7.48 per cent of Infratil.

This makes the purchase a "related party transaction".

The chairman of Infratil, Kevin O'Connor, said yesterday's announcement clearly had "value implications" and he, with the other independent directors David Newman, David Caygill and John Peterson, would make an announcement to shareholders this week.

Infratil and Prestwick

January 2001: Infratil pays £14.8 million (then $48 million) for a 67 per cent stake in Glasgow Prestwick International Airport.

December 15, 2003: Infratil buys a further 2.2 million shares for £6.025 million (then $22 million), taking its stake to 77.3 per cent. Chairman Kevin O'Connor said the UK regional airport sector was key for Infratil.

December 19, 2003: Infratil conditionally agrees to buy Utilico's five million Prestwick Airport shares for £11.7 million (then $43.2 million), moving it to 100 per cent ownership.

March 8, 2004: Infratil announces a special shareholders meeting on March 24 to vote on the purchase of Utilico's Prestwick shares. Infratil's independent directors recommend shareholders approve the purchase.

March 15, 2004: Infratil says Prestwick's earnings for the current year (ending March 31) will be 10 per cent lower than the year before. Independent directors now "considering the value implications of the recent results on this proposal and will advise shareholders further later this week".