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.


Disc I own AIA shares in the Share Investor Portfolio



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