Auckland Airport CEO on Queenstown Airport Fracas

In a Share Investor Q & A with CEO of Auckland International Airport Ltd [AIA.NZX] Simon Moutter coming up tomorrow, Simon gives his view on the dispute that has arisen over the Auckland ports purchase of a stake in Queenstown Airport that has ruffled feathers in Queenstown local political circles and the boardroom at Air New Zealand Ltd [AIR.NZX].

He is candid in his answer of my question about the dispute that was instigated by three other parties as he is also candid in the other questions he has answered.

Here is my question from the full interview:

SI - On the purchase of a stake in Queenstown Airport late last year. Please explain, from your point of view, why there has been so much opposition from some quarters down in Queenstown and specifically from Air New Zealand?

SM - The local opposition to the investment seems to be almost totally driven by concerns about the process adopted by the Queenstown Airport board. The Board, a group of independent and local people, decided to issue new shares to Auckland Airport under powers included in the constitution given to it by the Queenstown Lakes District Council.

This power in the constitution was used exactly as designed – to allow the Board to exercise commercial judgement in the best interests of the airport and the community. This is consistent with good corporate governance, which involves having clear rules that delineate the respective roles of shareholders, directors and managers. In contrast, opponents of the deal believe that the Board should have passed the process over to the Council, which would then have undertaken community consultation before making a decision. As would any business, we preferred the certainty achieved through the deal we negotiated with the Board.

We’re now focused on demonstrating to the Council and the Queenstown Lakes community that we are a good shareholder who is making a real, positive contribution to Queenstown Airport and to the regional economy. Our status as NZ’s pre-eminent international airport and our relationships with many of the world’s top airlines mean we can offer value to Queenstown that no other partner can.

Regarding Air New Zealand, I must admit I’ve struggled to understand their opposition. I note they have publicly stated a desire to own a shareholding in Queenstown Airport themselves, so perhaps this is behind their stance. Air New Zealand has claimed our investment will push up airport prices at Queenstown, but I believe this is a red herring as Auckland Airport's current charges to airlines are, on average, lower than Queenstown Airport's. This opposition to an alliance also seems at odds with their own desire to form a similar sort of alliance with Virgin Blue.


Disclosure: I own AIA shares in the Share Investor Portfolio


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AIA @ Share Investor

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Queenstown Airport Buyout @ Share Investor

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Think Bigger: How to Raise Your Expectations and Achieve Everything
By Michael Hill

c Share Investor 2011

Auckland Council look set for a Auckland Airport Takeover

With a total holding of 22.45% of shares in Auckland International Airport Ltd [AIA.NZX] the new Auckland City Council is by far the biggest shareholder in the airport company.

It disclosed its shareholding this morning after the amalgamation of the council and the two individual holdings Manukau Council and Auckland city used to have.



With a left leaning council this got me thinking about the possibility that the new council might want to buy more AIA shares. This happened when the former publicly listed Ports of Auckland was purchased by the ARC a few years back under the left wing Hubbard Auckland Council.

I went digging on the council website and found a document that outlines a new council stance on Auckland Airport that allows it to purchase additional AIA shares:

The council adopted the policy on Auckland Airport shares in September 2007 as an amendment to its 2006-2016 10-year plan and the policy was worded and structured accordingly. The policy is now part of, not an amendment to, the council’s 2009-2019 10-year plan and has been updated to reflect this. Some other minor edits have also been made.

The previous policy did not allow the council to buy shares or other securities in Auckland International Airport Ltd outside of a restructuring transaction. The council believes there are a few other scenarios where buying additional shares in the airport would be prudent and having the flexibility to do so, should such a scenario arise, would be beneficial.

Consequently, the policy on Auckland Airport shares, has been changed to enable the purchase of more shares in the airport subject to council approval, following rigorous analysis against the objectives and criteria outlined in the policy.

The rest of this document outlines the possibilities of a new ownership structure for the airport and points out options the council could take:

A change in ownership or control of some or all of Auckland City Council’s shareholding in Auckland Airport, or a restructure of the council’s interest in Auckland Airport, may take place by any of the options listed below, or by a combination of those options, or in any other ways that satisfy the six general assessment criteria set out later in this document.

Option 1: The council joins a consortium, which will execute a full or partial takeover or otherwise acquire a substantial stake in Auckland Airport. The council would achieve an ultimate stake of at least 12.75 per cent in the airport by taking shares, or other securities, in the consortium.

Option 2: The council agrees to Auckland International Airport Ltd merging with another company, exchanging the council’s shares in the airport for shares or other securities in the new entity (provided the council’s ultimate stake is at least 12.75 per cent of that new entity).

Option 3: The council agrees to Auckland International Airport Ltd being restructured so that its business units separate into stand-alone entities, with the council receiving a proportionate equity stake in one or all of the stand-alone entities (provided that the council’s ultimate stake is at least 12.75 per cent of the combined equity of the stand-alone entities).

Option 4: The council sells shares, or other securities, in Auckland Airport for cash or some other form of consideration, provided that the council’s ultimate stake in the airport is at least 12.75 per cent.

Option 5: The council buys shares or other securities in Auckland Airport.

Option 6: The council transfers its ownership stake in Auckland Airport to a holding company.

Auckland Council’s 34 Long-term Plan 1 November 2010 – 30 June 2019 - released 30 Oct 2010

It seems to me that the new council have allowed themselves to be open for a bid in some form for the Airport as whole.

This raises two important questions.

Considering that this is such an important asset why has this change in policy been kept secret by Len Brown and the Council?

Also as a substantial shareholder surely the council should have let the NZX know that their policy has changed for it is material to the market and would have an affect on the company and the whole market should know, not just the guardians of the 22.45% holding in AIA held on behalf of the Auckland ratepayers.

Footnote:

It has been pointed out to me by Matt Nippert from the NBR that it seems the document I described above is an update to a 2007 planning policy and he thinks I have overplayed my hand. I must point out though that the following part of the Oct 2010 policy, which has changed from the 2007 version, is the significant part of the story though:

The previous policy did not allow the council to buy shares or other securities in Auckland International Airport Ltd outside of a restructuring transaction. The council believes there are a few other scenarios where buying additional shares in the airport would be prudent and having the flexibility to do so, should such a scenario arise, would be beneficial.

Consequently, the policy on Auckland Airport shares, has been changed to enable the purchase of more shares in the airport subject to council approval, following rigorous analysis against the objectives and criteria outlined in the policy.


Disclosure I own AIA shares in the Share Investor Portfolio


AIA @ Share Investor

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Queenstown Airport Buyout @ Share Investor

Queenstown Airport: Court Case looks set to Drag
Queenstown Airport: Loud Voices & Loyalty
Queenstown Airport: Air New Zealand's Crocodile Tears
Queenstown Airport: AIA purchase good Long-Term but will cost shareholders Short-Term

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Download Queenstown Airport Company Reports

Think Bigger: How to Raise Your Expectations and Achieve Everything
By Michael Hill

c Share Investor 2010

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.

Disc I own AIA shares in the Share Investor Portfolio


Queenstown Airport Buyout @ Share Investor

Queenstown Airport: Loud Voices & Loyalty
Queenstown Airport: Air New Zealand's Crocodile Tears
Queenstown Airport: AIA purchase good Long-Term but will cost shareholders Short-Term


AIA @ 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

Download AIA Company Reports
Download Queenstown Airport Company Reports



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c Share Investor 2010

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.


Disc I own AIA shares in the Share Investor Portfolio


Queenstown Airport Buyout @ Share Investor

Queenstown Airport: Air New Zealand's Crocodile Tears
Queenstown Airport: AIA purchase good Long-Term but will cost shareholders Short-Term


AIA @ 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
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

Discuss this stock at Share Investor Forum - Register free
Download AIR Company Reports

Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham Buy new: $41.77 / Used from: $33.50 Usually ships in 24 hours

c Share Investor 2010

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.


Disc I own AIA shares in the Share Investor Portfolio



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

Discuss this stock at Share Investor Forum - Register free
Download AIR Company Report





c Share Investor 2010