Bloomberg News

Heathrow-Owner BAA to Sell Edinburgh Airport, Keep Glasgow

October 19, 2011

(Updates with latest analyst valuation starting in first paragraph, growth and spending at Edinburgh starting in 10th.)

Oct. 19 (Bloomberg) -- London Heathrow airport-owner BAA Ltd. aims to sell Edinburgh airport in an auction next year that analysts reckon may fetch as much as 600 million pounds ($948 million) as part of a breakup ordered by antitrust regulators.

BAA will seek to sell the airport in Scotland’s capital rather than a less busy one at nearby Glasgow, the nation’s largest city, after being offered a choice by the U.K. Competition Commission, the London-based company said today.

“They’ve decided to go for the money and keep the problem child,” said John Strickland, an aviation analyst at JLS Consulting Ltd. in London. “It’s a bit of a bombshell really, because Edinburgh is the jewel in the crown in Scotland. I suspect they will now seek to grow Glasgow more aggressively.”

Edinburgh airport’s passenger total rose 9.5 percent to 7.28 million in the first nine months, so the terminal may be easier to sell and raise more cash than Glasgow, which posted a 5.7 percent increase to 5.31 million people, according to BAA figures. The company, controlled by Madrid-based infrastructure operator Ferrovial SA, has already sold London’s Gatwick hub and is contesting a ruling that it must sell London Stansted.

‘Quality’

“Edinburgh airport is a high-quality asset,” Robert Crimes, an analyst at Credit Suisse Group AG in London, said today in a note to clients. “It should be well bid for.”

The airport may be worth as much as 600 million pounds including assumed debt as it’s more profitable than Glasgow, said Crimes, who has an “outperform” rating on Ferrovial. Edinburgh, Glasgow and Aberdeen, which BAA also owns, are worth a combined 1.4 billion pounds including debt, he estimates.

Edinburgh will fetch in the “mid-hundreds of millions of euros,” Andrew Lobbenberg, a Royal Bank of Scotland Group analyst in London, estimated before BAA’s announcement, adding that it is “quite vibrant” and “more saleable than Glasgow.”

BAA, forced to decide between the Scottish terminals after losing an appeal in July against a 2009 ruling, said it’s commencing preparations for a sale that will begin in the New Year and should be completed by next summer.

“Choosing which airport to sell has been a difficult decision,” BAA Chief Executive Officer Colin Matthews said in a statement. “Edinburgh airport has shown itself to be a strong and resilient asset throughout the economic downturn.”

Growth Story

Annual passenger numbers at Edinburgh are forecast to reach 12.3 million by 2020, up 43 percent versus 2010, with aircraft movements 23 percent higher at 140,000. Transport links with the city will be improved by a new tram system, albeit running three years late, which will terminate at the airport, while a second runway may be needed by 2040, BAA said in plans issued in July.

Edinburgh is currently served by more than 40 airlines, with London, Amsterdam and Dublin the most popular destinations and EasyJet Plc, Europe’s second-biggest discount carrier, the No. 1 operator, as it is at Glasgow.

BAA completed 42 million pounds of improvements in Edinburgh last year, having invested more than 240 million pounds over the past decade, according to the airport’s website. It has spent more than 200 million pounds at Glasgow and has earmarked a further 31 million pounds to extend the terminal, improve security and offer more restaurants and shops.

The sale decision came as the Scottish government said today that the economy grew by 0.1 percent in the second quarter and 1.1 percent in the year to June 30.

Selling Edinburgh will provide “further evidence” of the market value of Ferrovial’s assets, Credit Suisse’s Crimes said. The Spanish company this month agreed to sell a 5.9 percent in BAA to U.S. infrastructure firm Alinda Capital Partners for 280 million pounds, valuing the airport unit at 4.76 billion pounds, better than a 2.5 billion-pound to 3 billion-pound consensus.

--Editors: Chris Jasper, Rodney Jefferson.

To contact the reporters on this story: Steve Rothwell in London at srothwell@bloomberg.net; Peter Woodifield at pwoodifield@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net; Colin Keatinge at ckeatinge@bloomberg.net


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