The buying game

In the 2024 edition of our annual investment feature, Modalis Infrastructure Partners’ president and CEO, Curtis Grad, discovers that the airport private sector deal flow remains strong despite geopolitical headwinds.

Dealmaking and public-private contract awards in the airport business have ebbed a little in the past 12 months, but remain relatively buoyant.

Modalis Infrastructure Partners has been tracking the market closely through its Deal Pipeline on the airportIR business intelligence website and the flow has remained robust, although the market has not been as strong as in 2023. Currently the site is tracking more than 100 active deals.

The relative dip year-to-date probably reflects a tougher funding environment due to higher interest rates, with investors taking a harder look at the speed of returns before taking aim at specific airport projects and management contracts.

Justin Lee, airportIR’s Singapore based writer/researcher, commented: “There are fewer multiple airport public-private partnership (PPP) deals that have been concluded this year.

“That’s not to say that there aren’t many multi-airport opportunities in the market; there are some in the Bahamas, Greece, India, and Peru, for example. However, the PPP process is very slow due to various factors.”

Caution is warranted given the current geopolitical concerns in Eastern Europe and the Middle East. Also, over the years, many multi-airport systems around the world have already been privatised, including some of the larger capital-city airports that are most attractive to investors.

In the recent past, these have been used – perhaps most noticeably in Brazil – as a profit-driver in a tranche with smaller gateways to make the entire group financially viable.

Despite fewer lucrative hub airport deals, air transport infrastructure remains a good bet, particularly airports given the strength of the post-COVID passenger rebound.

The latest United Nations World Tourism Organization (UNWTO) data shows that international tourism bounced back to 96% of pre-pandemic levels in the seven months through to July 2024. That amounted to around 790 million tourists travelling internationally during the period – about 11% more than in 2023, and only 4% less than in 2019.

BlackRock enters the fray

A key move this year came from the world’s biggest asset manager, BlackRock, which has thrown its hat in the infrastructure ring. The global company has swallowed up fund manager Global Infrastructure Partners (GIP) in a deal valued at $12.5 billion, and completed on October 1.

GIP is a lead shareholder in several key airport assets, among them London Gatwick (LGW) and Edinburgh (EDI) in the UK, and Sydney Airport (SYD), Australia’s primary international gateway serving 38.7 million passengers in 2023. The group also owned a 75% stake in London City Airport (LCY) before selling it in 2016.

In a statement, BlackRock said: “Large government deficits mean that the mobilisation of capital through PPPs will be critical for funding important infrastructure. As capital has become more scarce in a higher interest rate environment, companies are exploring partnership opportunities to improve their Returns on Invested Capital (ROIC) or to raise capital to reinvest in their core businesses.”

The prevailing financial environment has placed extra burdens on government owners of airports, as well as operators wanting to upgrade facilities. BlackRock’s move only confirms that this asset class, among several in the wider infrastructure pool, has longevity.

Larry Fink, chairman and CEO of BlackRock, said: “Infrastructure is one of the most exciting long-term investment opportunities as a number of structural shifts reshape the global economy.

“We believe the expansion of both physical and digital infrastructure will continue to accelerate as governments prioritise self-sufficiency and security. Policymakers are only just beginning to implement once-in-a-generation financial incentives for new infrastructure technologies and projects.”

Thrills and spills

Though 2024 has not have been the best year for the airport PPP market, there were some important transactions that came to light; some concluded, while others are in limbo.

In Europe, in the latter camp, there had been much speculation at the start of the year about a change of ownership at the continent’s busiest hub, London Heathrow (LHR) after its main shareholder, Ferrovial, expressed an interest in divesting at the end of 2023.

Two buyers – private equity firm Ardian and Saudi Arabia’s Public Investment Fund (PIF) – were said to be in the frame but, to date, Ferrovial still retains its 25% share, according to Heathrow Airport Holdings Limited.

Other current shareholders include Qatar Investment Authority (20%), Caisse de dépôt et placement du Québec (12.62%), GIC (11.2%), Australian Retirement Trust (11.18%), China Investment Corporation (10%), and Universities Superannuation Scheme (10%).

Meanwhile in Hungary, AviAlliance sold off its stake in Budapest Airport to a consortium consisting of the Hungarian state-owned Corvinus Zrt and VINCI Airports, while increasing its control over Athens Airport in Greece.

The move means that VINCI, with operations in Portugal, UK, France and Serbia, now handles more than 150 million passengers in Europe across 26 gateways.

In the Philippines, a major PPP project at Manila’s Ninoy Aquino International Airport (MNL) was finally signed off by the Department of Transportation (DOTr) and Manila International Airport Authority (MIAA) following the winning bid by SMC-SAP & Company Consortium. The concession is for 15 years with an option for a further 10 years.

SMC-SAP – composed of San Miguel Holdings Corporation, RMM Asian Logistics Inc, RLW Aviation Development Inc, and Incheon International Airport Corporation – fought off two rivals by offering to share with the government 82% of future gross revenue, (excluding passenger service charges).

The $3 billion project will cover upgrades to all facilities of the busy airport including its runways, four terminals and other facilities. The over-capacity MNL processed 45.3 million passengers in 2023, up 46% over the previous year.

Cynthia Hernandez, executive director of the Philippines’ dedicated PPP Center, regards the deal as a watershed moment. “It is a significant milestone in the Philippine infrastructure landscape. We are confident that the streamlined process this project underwent will serve as a blueprint for future Philippine PPP programmes,” she said.

Also in Asia, some big news emerged mid-year when Malaysia’s government selected an entity led by BlackRock to run Malaysia Airports Holdings Berhad (MAHB), the operator of Kuala Lumpur International Airport (KUL) and most of the other gateways in the country.

The move, according to Channel News Asia, came after BlackRock, through GIP, accepted some stringent terms including an agreement to continue appointing a Malaysian as MAHB’s chairman and CEO, and to maintain the collective national majority ownership of shares.

It seems that other suitors did not agree to the unusual terms set by Khazanah Nasional (the government’s sovereign wealth fund) and the Employees Provident Fund (EPF).

Malaysian Prime Minister, Anwar Ibrahim, said that thanks to the conditions set by Khazanah, the collective Malaysian ownership of MAHB will increase to 70% from the current 41% once the restructuring of the airport operator is completed. There is, therefore, some way still to go on this deal.

Colombia takes the PPP high road

It has been a busy year in Colombia where the concession for Cartagena Airport (CTG) was awarded by the National Infrastructure Agency (NIA), while three bidders await the result of the San Andres Airport (ADZ) tender. San Andrés Island is one of the most important tourist destinations in the country handling more than two million passengers in 2023.

In the case of CTG, the award went to Operadora Internacional Aeropuerto de Cartagena SAS (OINAC). As well as operating the airport, the entity is tasked with expanding and remodelling the gateway to help drive the national tourism strategy.

The works will include a new international terminal, a revamp of the existing one, new boarding bridges, rescue and firefighting services and a new cargo terminal.

Earlier this year NIA president, Francisco Ospina Ramírez, noted that he was looking to improve at least six concessioned airports.

He said: “We are already implementing our airport expansion strategy. The pre-construction stage of the Rafael Núñez International Airport in Cartagena began in March and construction is expected to begin in the first quarter of 2025 on the project, which has an investment of $920 billion.”

The changes will raise the airport’s capacity from 5.7 million passengers per annum to in excess of eight million per year.

Australian market

In the Pacific, Australia is seeing quite a bit of reshuffling of airport ownership, with exits from some regional gateways possible as two pension funds and a big airport investor review their options in Queensland Airports Limited (QAL) and Perth (PER).

QAL runs Gold Coast (OOL) and three other airports. Between them, the State Super and Australian Retirement Trust (ART), and The Infrastructure Fund (TIF), held a 70% stake in QAL this summer. Local media are, however, reporting that TIF wants to divest its 40% interest in the airport.

The airport group undertook a strategic review in FY23 and revamped its organisation post-pandemic with a new CEO and chair, Ann Sherry. She said that while QAL had faced difficulties in recent years it was now focused on investing in infrastructure that “best positions its airports for sustainable, long-term growth”.

In November 2022, OOL opened a modern, three-level terminal expansion designed to flex between domestic and international operations as required. The project doubled the terminal footprint, providing space for future passenger growth. It was planned ahead of the expected influx of international travellers for the 2032 Olympic and Paralympic Games, which are forecast to generate around A$5.5 billion in economic and social benefits for Queensland.

At the end of September, Australia’s Financial Review reported that software billionaire Scott Farquahar and his partner Kim Jackson (both founders of Skip Capital), had emerged as the new owners of QAL thanks to a $2 billion bid alongside US global investment company KKR.

A few days later, retirement fund AustralianSuper, which lost the QAL battle, had apparently taken a 15% stake in Perth Airport (PER), put up for sale by Utilities Trust of Australia. AustralianSuper already has a 5.25% stake in the western Australian gateway, the fourth biggest in the country.

PER, which recorded more than 16 million passengers in FY 24, is embarking on a multi-billion-dollar private infrastructure development to deliver new terminal facilities, a new parallel runway, two multi storey car parks and an airport hotel.

Canadian pension funds on a home run?

Recently, there have been some promising signs from Canada’s Trudeau administration. It has set in motion plans to get Canadian pension funds, which have been active investors in airport in markets like Australia, Belgium, Denmark and the UK, to consider investment in the Canadian airport sector.

In Canada’s federal budget in May, the government pushed forward with some ideas that could bring about more flexible infrastructure investment options at airports. The changes could herald a new era of privatisation among Canadian gateways and the country’s pension funds – which hold over C$3 trillion in assets – will likely be the first to take a closer look.

Predictably, there is pushback from labour unions on airport privatisation, but in a statement, the Canadian Airports Council (CAC) said: “We applaud the government for their efforts, particularly in working toward identifying and clarifying ways Canadian airports can pursue infrastructure investment opportunities to attract capital, including from pension funds.”

The CAC has asked for more financial investment options for airports along with an extension of the government land lease at airports to meet the growing demand for air travel and business development needs. “We are pleased to see government taking steps to clarify options for airport infrastructure investment and look forward to learning more,” stated CAC’s president, Monette Pasher.

Canada has seen the benefits of PPP investments by its own pension funds abroad. In the UK, much the most recent upgrades at London City Airport (LCY), including the investment next-gen security scanners, have been attributed to the gateway’s acquisition by pension and sovereign wealth funds, and subsequent cash injections.

LCY is owned by a consortium made up of AIMCo, (Alberta Investment Management Corporation), one of Canada’s largest and most diversified institutional investment managers; OMERS, among Canada’s biggest defined-benefit pension plans; Ontario Teachers’ Pension Plan; and Wren House Infrastructure, a direct infrastructure investments arm of the Kuwait Investment Authority.

Since the 2016 purchase, the city-centre gateway has steadily been developed, despite it being geographically hemmed in, with residential buildings very close by. The plans have needed substantial investment and have been boosted recently thanks to the approval of a rise in the passenger cap from 6.5 million to nine million per year by 2031.

The Canada Pension Plan Investment Board (CPPIB) is also eyeing up airports. It has had a 5.64% stake in Aéroports de Paris (Groupe ADP) since 2022 and, this year, appointed Guy MacKenzie to lead its Listed Infrastructure team in London, which invests globally across airport and other transport infrastructure like toll roads and rail, as well as regulated utilities.

CPPIB president and CEO, John Graham, was recently quoted in Canada’s Financial Post as saying: “We have not invested in airports as much as some of our peers around the world, (but) it’s not due to a lack of interest. We’ll continue to look at assets that become available. Airports are interesting to big institutional investors because there’s a scarcity value to them.”

Regions to watch

Looking further ahead on PPP, India, China and Saudi Arabia will be places to keep a close eye on in 2025. Boeing’s latest commercial market outlook from 2023-2042 indicates that total passenger traffic this year will exceed pre-pandemic 2019 by 15% as constraints such as labour shortages, supply chain friction and operational limitations at airport and air traffic control are managed better.

By 2042, single-aisle fleet sizes will more than double to 34,000 jets from 16,200 in 2022 thanks mainly to the rise of low-cost, point-to-point carriers. Additional aircraft will invariably drive need for extra airport capacity from new greenfield airport projects and airport expansions. The infrastructure opportunity is vast and highly visible in some markets such as Saudi Arabia.

The kingdom’s General Authority of Civil Aviation (GACA)  has implemented several reforms to bring in private investment. GACA’s president, His Excellency Abdulaziz Al-Duailej, commented: “The regulations will enable the realisation of the Saudi Aviation Strategy, which is mobilising $100 billion in  nvestment from public and private sector sources by 2030.”

Data from S&P Global and Cirium also show that based on urban populations versus available airport capacity, China, and particularly South Asia (mainly India), are under-served. This suggests that more new-build/greenfield airports will spring up. By 2042, both regions will have close to 10,000 jets, exceeding the 13,600 in the Americas and Europe’s 10,600.

India has already rolled out a successful airport privatisation programme and it is continuing. Nagpur, after lengthy court proceedings, has just been confirmed for GMR Airports, as reposted in the airportIR Deal Pipeline, while gateways such as Durgapur, Puri and a batch of 25 smaller regionals are also waiting in the wings in the second phase of privatisations.

So, although not a banner year by any means, 2024 and the year preceding have done much to temper doubts and fears brought on by the impact of the pandemic. Not only has traffic bounced back, the appetite for private sector investment in airports has proven to be remarkably resilient.

Bottom line… the future remains bright for a sector that has seen more than its fair share of turbulence over the past three decades. Onwards and upwards!