Thursday, March 24, 2011

Queenstown Airport: Queenstown Airport Update

If you have been following the issues closely surrounding Auckland International Airport Ltd [AIA.NZX] and their purchase of a 24.99% stake in Queenstown Airport you will probably already know that a couple of significant pieces of news have been released on this matter over the last week or so.

Queenstown Lakes District Council (QLDC), through council owned subsidary Queenstown Airport Ltd, initially gave the green light for the deal last year and members on council are now opposing it and have completed a comprehensive 76 page report on it and have come to various conclusions as only a long winded ratepayer funded report can.

Their main point seems to be that Auckland Airport paid too much for their shareholding:

Page 41 of the report finds that the price paid by AIA for the first tranche shares (24.99%) was $6.91 per share:
“This incorporates a discount of approximately 7.5% on the value of 100% of the shares assessed by QAC and AIAL at that time of $7.47 per share. This discount is relatively low (and the price per share relatively high) for non-controlling, albeit large shareholding and may, arguably, have included a ‘strategic premium’ to gain a cornerstone stake.” – PricewaterhouseCoopers.
This is something I agree with, they did in the short term but perhaps not over the long-term as there have already been some good gains on the balance sheet for AIA.

The disclosure in this report that AIA has paid a significant premium to the present day value of the company surely runs counter to the council's opposition to the AIA/Queenstown ports arrangement? The Queenstown Airport and by default the council (which majority owns the airport) got good value for the 24.99% stake and for Queenstown ratepayers and they should be given a pat on the back for extracting every last cent out of AIA that they have. This clearly should bode well for AIA in court proceedings brought against AIA by QLDC/Queenstown Community Strategic Assets Group (QCSAG) and Air New Zealand Ltd [AIR.NZX].

There has also been an agreement by both Queenstown Airport and AIA that the option to by a further stake up to 35% is going to be given the bullet:

“On one hand Queenstown Airport could have received further cash of between $11 million and $21 million, of which the community could have received a sizable portion (around $10 million) as a dividend. On the other hand if Council ownership fell below 75% it would no longer have control of the constitution,” Ms Lawson said.
In the event that the Council’s shareholding fell below 75% page 38 of the report stated:
“It will no longer have control of the constitution, be able to pass special resolutions and pass ordinary resolutions without a meeting of shareholders. It will still have in excess of 50% of the ordinary shares and so will be able to pass ordinary resolutions and control the composition of the Board. However moving below 75% will diminish the control the Council can exercise over the Company.” – PricewaterhouseCoopers.
This important development pretty much removes any opposition to the deal where AIA has a 24.99% stake, clearly still has some board influence but will not attain a sizable controlling stake in the business, points which the local council, local business people and Air NZ have issues about.

The latest developments pretty much put Queenstown Airport in the box seat as far as their partnership with AIA goes. They have a cornerstone shareholder that has allowed them to release much needed capital back onto the balance sheet and they can also use the expertise, management and size of Auckland Airport to leverage growth for the Queenstown Port.

Lets be clear though, it will be mutually beneficial for both partners but Queenstown Airport is in the box seat and will make its business decisions as it sees fit.

The High Court Judicial Review latter on this year on the port deal looks tenuous for the proponents.

Disc I own AIA shares in the Share Investor Portfolio


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