Someone loves Gatwick after all

April 29, 2009

REUTERS– Neil Collins is a Reuters columnist. The opinions expressed are his own –

The Spanish owners of London’s three airports must wonder whether someone above the skies has got it in for them.

Having paid top dollar for BAA, Grupo Ferrovial <FER.MC> has had an endless series of problems, of which the worldwide panic over swine flu is just the latest.

Never mind the potential pandemic, things already look bad enough. The problems for the owner of Heathrow, Gatwick and Stansted extend far beyond simply servicing the new debt, piled on top of the old, which the airports must support.

They go back to the fundamental error when the UK government sold all three as a single unit, to maximise the proceeds for the state. Yet it took 20 years for the British competition authorities to admit the obvious, that for a single company to have a stranglehold on flyers from London might be a mistake.

The trigger was Ferrovial’s intention to bid, but the Spaniards ignored the warning, and went ahead anyway. Three years later, they must surely wish they’d never heard of BAA.

The Office of Fair Trading sent the monopoly question to the Competition Commission, which rejected the arguments from Ferrovial and last month demanded the sale of both Gatwick and Heathrow.

BAA was already reeling from the farcical opening of Heathrow’s fifth terminal, but things were to get much worse. It had put Gatwick on the block, with a guide price of two billion pounds. As credit dried up, the price kept coming down, and the queue of bidders shrank.

Last week Heathrow reported the first decline in passenger numbers in half a century, as consumers cut back on discretionary travel.

Standard & Poors, the ratings agency, has told one of the bidders that it would not award investment grade status to the buyer’s debt if it exceeded half the 1.6 billion pounds “regulated asset base” of Gatwick. Analysts now believe that Ferrovial has received just two bids for the airport, each below 1.5 billion pounds.

The latest health scare will do nothing to encourage the buyers to be brave, and, rumbling away in the background like a distant jumbo jet is the continuing resistance to a third runway at Heathrow.

These hammerblows have done terrible damage to the 10.7 billion pounds of BAA’s senior debt. Five-year credit default swaps had ballooned out to 25 percent. The 2014 euro bond fell to around 65 cents, but it and the CDS spreads have rallied a little in relief that there appear to be two credible bids for Gatwick, rather than none. Considering the scale of Ferrovial’s problems, the bonds are not obviously cheap.

The winners here are the former shareholders of BAA, who were bought out for cash at a fabulous price. The institutions who cleaned up are much the same ones who have been vociferously complaining about the travails of Barclays. Perhaps they should remember that Marcus Agius, the Barclays chairman, was the man who so skilfully lured the Spanish into overpaying.

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