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.

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Queenstown Airport: Court Case looks set to Drag

I could well imagine that the argument in the High Court in a judicial review sought by the Queenstown Community Strategic Assets Group (QCSAG) and the Queenstown Airport and the Queenstown and Lakes District Council (QLDC) over Auckland International Airport Ltd [AIA.NZX] purchase of a nearly 25% stake in Queenstown Airport will go something like this.

The QCSAG, who are apparently a group of wealthy influential Queenstowners who have their panties in a twist about the strategic move by AIA, have already argued publicly that the move by the QLDC was "antidemocratic" because insufficient disclosure was made to council and therefore to the public but look set to argue that provisions in the Local Government Act 2002, which requires council-controlled businesses to issue a statement of intent annually to councils, should take precedence over a 1996 clause in Queenstown Airport's constitution which states it can issue new equity without first offering them to its shareholder.

The QLDC and Queenstown Airport are defending their decision to sell to AIA

The QCSAG will also cry foul, like Air New Zealand [AIR.NZX] who will take separate action - probably against AIA rather than the QLDC - that the move by AIA is anti competitive and will take control of the airport away from locals. Furthermore, they will contend that the asset should remain fully locally owned for the benefit of Queenstowners so the potential benefits of full ownership will allow them to reap all the profits.

The issue of big bad Aucklanders who have no experience in business in the area coming down to pick on the little guy who knows how things run will be pushed as well as a contention that AIA will be looking after themselves first before Queenstown Airport.

The QCSAG will pick on AIA's propensity to throw its business might around by raising prices at their Auckland Airport and by implication Queenstown Airport, and their dominant position in the ports market in New Zealand - the word monopoly will be thrown around with gay abandon.

The QCSAG will also argue that AIA paid too little for the airport and that if the port is to be sold it be open to competitive bids.

The QLDC are going to defend their decision and I would imagine reiterate what they have already said in the media that claims by QLDC and AIR lack merit for the following reasons.

The QLDC will argue that the 1996 clause in Queenstown Airport's constitution should take precedence over the 2002 Local Govt Act because Queenstown Airport is an autonomous business separate from the QLDC and any significant public disclosure made to satisfy the QCSAG's stance would be commercially sensitive.

The issue of control of the Airport being taken away from locals would be countered by AIA arguing that they are only buying a less than 25% share with a view to take 35% in 2011 so control will still remain in local hands.

One key point in AIA;s rebuttal will be that they will bring airport expertise, the right avenue for growth in Queenstown Airport and of course the all-important capital required to grow the airport quickly and in the right manner. Pointing back to the QLDC and its ratepayers, AIA will argue that by injecting capital into the business it will allow the QLDC to retire council debt and along with their experience in this sector it will allow Queenstown airport to grow quickly, allow more tourism and be a better long-term return for locals than it would be without AIAs input.

Direct flights to Queenstown will propel growth of that airport, in percentage growth terms, higher than that of AIA and that alone is a good reason to make the buy and increase their stake further to 35% as the purchase agreement allows.

The question of AIA looking after themselves first would be relatively easy to bat away because AIA would contend that their financial stake in Queenstown Airport means that argument is simply silly.

The issue of AIA's monopoly would be argued away because they would contend that since they have no business in the South Island, this isn't a problem and any shareholding in Queenstown Airport would be mutually beneficial to both ports and therefore the monopoly bogey would take a back seat to what AIA will bring to a port connected to a much larger shareholder with a bigger business, providing custom and business expertise.

On the question of the price paid for the port stake being too little AIA would argue that they paid well above market rates for the asst and will provide documentation to prove their point. I have argued that AIA paid too much.

In my opinion though, after arguing my way through some of what might happen in the Christchurch High Court, I think a good judge will find most of what both sides say after the issue of the 1996 Clause VS the 2002 Local Govt Act largely irrelevant because their argument will be primarily based on politics and the politics of business, which can be clearly be argued all the way to the Supreme Court if participants have sufficient funds, so if this is the case the judge's interpretation of these acts will be all important.

Like the vexed case of Woolworths Ltd [WOW.ASX] and Foodstuffs VS the Commerce Commission over the purchase of The Warehouse Group Ltd [WHS.NZX], Queenstown Community Strategic Assets Group VS Queenstown Airport and the Queenstown and Lakes District Council is likely to be another long running saga if they are both willing to take this case all the way to the Supreme Court.

You can look forward to more from me on this as this saga unfolds.

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Queenstown Airport Buyout @ Share Investor

Queenstown Airport: Loud Voices & Loyalty
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AIA incentive scheme must fly out the window
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Queenstown Airport: Loud Voices & Loyalty

Yep, just like some folk down in Queenstown and management of Air New Zealand Ltd [AIR.NZ] at their plush new head office in the most expensive real estate in the country, in Auckland, I am fired up about Air New Zealand's attack on Auckland International Airports [AIA.NZ] buyout of nearly 25% of Queenstown Airport.

Management met with some Queenstown council drones yesterday to assuage their fears that the airport was stolen from the Queenstown ratepayers but it looks like there are a few loud voices down there filling newspaper and webspace in the hope they are noticed before local elections latter on this year. The majority of ratepayers must be pleased that the nearly $30 million that AIA paid for their share of the port might just be put to paying off council debt, if councillors do their jobs properly. This would mean less of a rates rise in 2011 and wouldn't that be a good platform to stand on for election.

There is an agreement by AIA and those on the council side of the airport deal for Auckland Airport to raise their 27.7% stake up to 35% but unless there is a firm deal to do that it looks like this deal could be compromised by the chatter.

As I said in my second post of this deal Air New Zealand's poke at AIA for being "anti - competitive, greedy and monopolistic" is kind of laughable considering the way the company has been ripping off New Zealanders for decades with sky high fares and their own monopolistic business practices and this story out today about an Air New Zealand's Starfish Card a "loyalty programme" that will cost users $800 per annum in order to get a regional flight discount is surely evidence that the airline will do anything as long as there is no competition to keep them honest.

Why not just charge customers lower fares ?

Answer? Because they don't have to as they have no competition in this area of their business.

This is the very reason Air NZ has taken a shot across the bow of Auckland Airport and clearly makes little sense given they continue to rort their "loyal" customers.

Meanwhile the NBR reports that AIA management are "bemused" by AIR NZ's public outbursts and I would have to agree and I must add confused by the AIR move.

Sour grapes.


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Queenstown Airport Buyout @ Share Investor

Queenstown Airport: Air New Zealand's Crocodile Tears
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Long Term View: Auckland International Airport
VIDEO - Simon Moutter on Australian Airport Purchase
Auckland Airport Capital Raising a fair call
Auckland International Airport lands Australian Ports
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Is another Auckland Airport bid likely under a business friendly Government?
Latest Airport coverage
Cullen's move on Auckland Airport has far reaching effects
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AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?

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Download Queenstown Airport Company Reports

AIR @ Share Investor

Long Term View: Air New Zealand Ltd
John Palmer Tipples on the Shareholder
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Queenstown Airport: Air New Zealand's Crocodile Tears

The outburst of hot air from Air New Zealand Ltd [AIR.NZ] domestic airline general manager Bruce Parton over the weekend about the deal Auckland International Airport Ltd [AIA.NZ] stitched up over buying a piece of Queenstown Airport seems to be nothing more than sour grapes from a company that practices the same sort of monopolistic, anti-competitive business that the airline is accusing the airport of practicing - one of the reasons I bought AIA shares by the way.

"AIAL has displayed significant greed over several years and is adept at fleecing travellers. It would be naive to think it's not aiming to increase airline and airport charges, which will ultimately increase the cost of travel into and out of Queenstown," NZ Herald, 24 July 2010

Mr Parton's part of the airline has had a decades long history of over-charging on most of the domestic routes that it operates on and still does when not faced with competition in small towns - Napier is still a route that you have to take a mortgage out just to fly there and I am sure you have your own story to tell about your own local Air New Zealand rort.

Lets forget about that though. This is simply part of business. When you don't have a competitor to keep you honest there is always the temptation to charge more. In Auckland Airport's case they are able to charge more because of their size and dominance in this part of the world and that is unlikely to be challenged anytime soon simply because they are the biggest and will probably remain the biggest for many more years to come.

Mr Parton's suggestion that the deal between AIA and Queenstown Airport needs to be looked at by the Commerce Commission is a retrograde move by a manager without the foresight to make the move on Queenstown before AIA did. Is it really going to be a fair playing field if one or more of the airlines flying to Queenstown own the means to fly there and the Airport as well? I dont think so.

Whatever you think of Auckland Airport's business practices and charges - and some of them have been and still are highly suspect and overpriced - Air New Zealand operates in a similar manner and will continue to do so given the opportunity to own part of Queenstown Airport.

Better that a company with experience at running an airport, rather than a state run bureaucracy like Air New Zealand have a chance to fleece us all over again.

Mr Parton's cries are those of a hungry, anti-competive, monopolistic crocodile.


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Auckland International Airport @ Share Investor

Queenstown Airport: AIA purchase good Long-Term but will cost shareholders Short-Term
Long Term View: Auckland International Airport
VIDEO - Simon Moutter on Australian Airport Purchase
Auckland Airport Capital Raising a fair call
Auckland International Airport lands Australian Ports
What Infratil sale of Auckland Airport stake means...
Is another Auckland Airport bid likely under a business friendly Government?
Latest Airport coverage
Cullen's move on Auckland Airport has far reaching effects
Cullen's move on AIA tax plan Anti-Business
AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?

Discuss this Stock @ Share Investor Forum - Register free
Download AIA Company Reports
Download Queenstown Airport Company Reports


AIR @ Share Investor

Long Term View: Air New Zealand Ltd
John Palmer Tipples on the Shareholder
Mike Pero and Air New Zealand: Capitalism vs Socialism
Rob Fyfe's "Environmental Extremism"
Reality Needs to Bite
Air New Zealand wants another taxpayer bailout

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c Share Investor 2010

Queenstown Airport: AIA purchase good Long-Term but to cost shareholders Short-Term

I wasn't going to comment on the purchase by Auckland International Airport Ltd [AIA.NZ] of nearly 25% of Queenstown International Airport last week until I read about the opposition to the purchase by Queenstown big noters this morning and it put it back on the raydar again.

Unlike the dubious merits of buying run down Australian Airport assets earlier this year, I see the Queenstown purchase as providing some long term benefit to AIA shareholders.

While I see little reason that there will be significant extra visitors to Auckland Airport as a result of the purchase, as AIA management do, I do see good growth in visitor numbers direct to Queenstown (why fly to Auckland to go to Queenstown?).

Direct flights to Queenstown will propel growth of that airport, in percentage growth terms, higher than that of AIA and that alone is a good reason to make the buy and increase their stake further to 35% as the purchase agreement allows.

The only negative part to this is the price paid. Does it add value to AIA shareholders by giving us a return after financing costs or does that return come for us on a longer term basis when that growth is achieved?

If you look at the latest results posted for Queenstown Airport, in 2009 revenue was $11.3 million, up 5.2%, with a profit of $1.65 million, up 42.3% on 2008. AIA's cut of that is $410,000.00. At a purchase price of $27.7 million, with financing costs of a modest 5% (the actual will be higher) the cost to borrow the money is $1.38 million, leaving AIA shareholders in the hole approximately $970,000.00 per annum.

It seems modus operandi for AIA to pay over market price for assets but at least this is a quality asset with good long term benefits for shareholders.


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Auckland International Airport @ Share Investor

Long Term View: Auckland International Airport
VIDEO - Simon Moutter on Australian Airport Purchase
Auckland Airport Capital Raising a fair call
Auckland International Airport lands Australian Ports
What Infratil sale of Auckland Airport stake means...
Is another Auckland Airport bid likely under a business friendly Government?
Latest Airport coverage
Cullen's move on Auckland Airport has far reaching effects
Cullen's move on AIA tax plan Anti-Business
AIA profit stays grounded
Softening opposition to CPPIB bid for AIA
Directors of AIA bribe brokers not to sell
What is Auckland Airport worth to you?
Second bite at AIA by CPPIB might just fly
AIA new directors must focus on shareholders
Auckland Airport merger deal nosedives
The Canadians have landed
AIA incentive scheme must fly out the window
Government market manipulation over AIA/DAE deal
DAE move on AIA: Will it fly?

Discuss this Stock @ Share Investor Forum - Register free 





c Share Investor 2010