The sale of Gatwick: not quite what it seems?

Malcolm will be reading with interest the accounts of the sale of Gatwick Airport to the owners of London City.

Not just because it appears as if the monopoly of London's airports has become (Hooray!) a duopoly.

As far as Malcolm understands it, the story goes like this:

In June 2006, BAA, the owners of

Heathrow, Gatwick and Stansted, yesterday succumbed to a £10.3bn takeover bid from Spanish construction firm Ferrovial, after months of fending off its unwanted attentions.

Yet another privatised industry fell into foreign hands.

From the start, there were doubts that Ferrovial could support the debt-level.

By January 2009, those doubts were being loudly bruited:

The Sunday Telegraph reported that a note issued by Credit Suisse analyst Robert Crimes raised the prospect that the Spanish infrastructure giant could default on repayments of part of the £2.25 billion loan that funds its stake in BAA. The full debt is due to be paid by 2014.

Ferrovial owns 56% of BAA and last year it completed a £13.4 billion refinancing when its stake was cut from 61%. The Credit Suisse note stated that funds from the proposed sale of Gatwick and Stansted cannot be used to repay this loan until after a further banking facility is reduced from £4.4 billion to £1.3 billion.

Well, in the meanwhile the Competition Commission has been musing that BAA owning seven airports, including the three main London ones, and both the main Scottish ones, might, just might be a teeny monopolistic. Eventually, the edict came down: Gatwick, Stansted and one of the Scottish airports had to be rendered up.

So the news today is hardly earth-shaking.

Yet that Credit Suisse note suggests Ferovial is still a way from plugging the gap. The note suggests that Ferrovial has got to reduce their borrowing by well over £3 billion by 2014. Meanwhile, the Times continues to report that Ferrovial's total borrowings are "huge":

Ferrovial acquired BAA in 2006 for £10.2 billion. The group borrowed nearly the full amount and had difficultly refinancing the debt when the credit crunch hit.

For reasons that are not immediately clear, Credit Suisse (who, unsurprisingly, appear among the lenders allowing the finance for the present deal) say the "take" from selling Gatwick cannot be set against the debt. Even if it could, there's still a way to go. Even more so, since Ferrovial is a Spanish company -- and sterling has devalued substantially against the Euro in the interim.

The Times report today is a long way from enthusiastic:

The £1.51 billion sale price fell short of BAA's expectations. The group had hoped to fetch up to £1.8 billion for the airport and was reluctant to go below £1.6 billion.

Of that, £55 million is "conditional".

If Gatwick (32.2 million passengers a year) is only worth £1.5 billion (only!), then Stansted (22.2 million) must be worth a lot less. Moreover, all passenger numbers and freight tonnages are down, though it seems that Gatwick is better off than elsewhere.

Malcolm senses this story still has legs

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