Monday, January 11, 2010

Auckland International Airport lands Australian Ports

As the horse from Ren & Stimpy was fond of saying, "No Sir, I don't like it, I don't like it at all."


Picture Right - Cairns Airport

As first glance and without going into detail that is my first take on the purchase by Auckland International Airport [AIA.NZ] of a nearly 25% stake in North Queensland Airports (NQA) who own the Mackay and Cairns Airports in North Queensland.

If you look even closer it appears to be even uglier.

It cost AIA shareholders more than NZ$166 million (plus finance costs) for a quarter share in slightly less than 5 million annual passenger movements VS Auckland's 12 million plus in two regional airports that have intense competition with Queensland Airports Ltd who operate 3 regional airports in North Queensland with the regional hub of Townsville Airport, Gold Coast and Mt Isa.

Ask Infratil Ltd [IFT.NZ] how their stakes in various regional airports have gone over the years and they will tell you it hasn't done their shareholders pockets any good.

Look, I am willing to admit I am wrong if this turns out to be the deal of the century and AIA management turn the two Australian Airports into shopping malls as they have done with Auckland (oh even more debt) and get more people and tenants there, but the history of regional airports around the world is that they are big money wasters unless they can become regional hubs, and even then it is a stretch. Auckland Airport management are relying on budget carriers to fill the gap left by major airlines flying off to bigger hubs to boost the flagging fortunes of the two airports they have just purchased but this cross your fingers sort of stuff has failed to work for similar airports the world over - see the Infratil example for more.

It would have been better to buy a smaller stake in a larger airport like Sydney, Melbourne or Brisbane - key players in their states.

Auckland Airport is a company treading financial waters at present with management willing to pile on even more debt based on the security vast undeveloped tracts of land it owns around it Airport.

It needs to focus on producing better numbers at its Auckland port and reduce debt before trying to big note in Australia.

Many an NZ company has learned before, Australia is a far more competitive market and the near monopoly AIA company need to remember that when spending shareholders moola.

AIA board members do not have the experience of a competitive Airport market and I personally think they are out of their depth because of this.


Disclosure: I own AIA shares




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