That’s my reaction on seeing the news (a few days ago, I know) that it has finally made good on its intention to nationalise Cardiff Airport.
Don’t get me wrong; I’m not taking a view for or against nationalisation. It’s more the price that the government (advised by KPMG) have agreed to pay. £52 million is not a lot of money to buy an airport outright, but when said airport generates earnings before interest, tax, depreciation and amortisation of about £2 million, it becomes a very large amount indeed.
In a previous post, I discussed the EBITDA multiple of the purchase price of London Stansted Airport. This is the most common yardstick with which to measure how much has been paid for an airport and in Stansted’s case it was 15.6 times EBITDA, which I thought high.
By paying £52 million for Cardiff, the Welsh have managed to pay a whopping 26 times EBITDA for no apparent reason whatsoever. This figure is completely off the scale.
Nobody has paid a multiple like that for an airport since Global Infrastructure Partners (who bought Edinburgh Airport off BAA in 2012) bought London City Airport in 2006 for 27.5x EBITDA. But that was before the global financial crisis, when mad deals were happening all over the place.
Besides, Cardiff is a worse quality asset than either London City or Edinburgh; although it is technically a capital city airport, Cardiff is not an important a destination as either the English or the Scottish capital, and it suffers from being just a few miles down the M4 motorway from Bristol, whose airport is bigger and serves more destinations. Wales provided 10.6 per cent of Bristol’s passengers in 2006. Also, as blogged previously, in a downturn smaller airports get hit disproportionately hard.
Finally, the majority owner, Spanish infrastructure group Abertis, was in a weak spot. Cardiff loses money, and has seen traffic halve in the five years since 2007. In the last two years it’s lost two airlines, bmibaby and Helvetic Airways. In their accounts for last year, Abertis acknowledged that they had written down the value of TBI by €181.7 million (£148.5 million), largely because of their UK airports (Luton, Belfast and Cardiff). Besides, Abertis was known to be considering selling its airports anyway.
The government could have demanded a lower price, and had it been refused, could have walked away. Abertis has been selling a lot of minority stakes recently, partly to reduce debt, and the ratings agency Fitch puts its rating only two notches above junk. Couldn’t they have been forced to sell at a lower price? Or was the government committed, as Sion Barry in the Western Mail writes, to getting control of the airport rather than letting them sell to someone else?
Abertis says that the sale price corresponds to the airport’s book value; but this doesn’t justify ignoring the market rate for an asset like this. Nor is it clear where Cardiff will find the big jump in passenger traffic it needs to deliver a return on that £52 million any time soon. The airport has spare capacity, so simply throwing more money at it is not going to increase traffic (although spending money on transport links might help).
Oh, and finally finally: if the Welsh government is so confident of generating a return, why has it not leveraged the acquisition, as a Welsh government spokesman confirmed to me this week?