Infratil is selling Manston, but wants to buy Stansted. Why?

In March 2012, Infratil announced that Manston was up for sale because it wanted to "refocus its investment profile" and concentrate on retail, production and supplying gas and electricity. What they didn't mention in their press releases was that Manston had lost them money hand over fist ever since they bought it.

In the previous couple of years Infratil had "written down" the value of its two European airports (Manston and Prestwick) from £70m to £36m. These write-downs were simply more realistic estimates of the actual value of the airports, in the light of their performance and the fact that they were losing Infratil about £6m a year.

Don't forget, dear reader, that Infratil is an infrastructure investment company. They buy and sell "big stuff" (putting it technically) to make money for their investors. On their website, Infratil state that "Infratil’s primary goal is to provide its shareholders with a consistent return of 20% per annum over the long term".

Clearly this 20% hadn't happened at Manston, and Infratil realised it wasn't going to happen soon enough to please their investors, if ever. So they decided to cut their losses.

But now we learn that Infratil are joining forces with Morrison & Co (the bank that owns a large chunk of Infratil) and a large pension fund to put in a bid for Stansted Airport. Stansted is owned by BAA, the largest airport operator in Britain, and the Competition Commission ruled some time ago that BAA owned to much of Britain's airport capacity and would have to sell some of it. BAA spent a lot of time and and money fighting this through the courts, but has finally accepted that it will have to sell Stansted.

This makes Stansted a very interesting purchase for a number of reasons. BAA also owns Heathrow, and has spent years carefully managing the mix of flights and carriers at the two airports to avoid them cannibalising each other's customer base. It hasn't been in BAA's interests to have Heathrow and Stansted competing with each other. Clearly, this will change when a new operator takes control of Stansted - there will be a massive increase in competition.

Stansted is well placed to take on new business. Throughout the recent hoo-hah about airport capacity in the south-east, one simple fact has been under-reported - there isn't a shortage of capacity in the south-east. BAA's own chief financial officer was reported as recently as April 2012 saying that Stansted is "only half full".

Both Stansted and Manston have spare capacity, long runways, and are in the "aviation-hungry" south-east. So why would Infratil balk at spending a few million a year at Manston, but leap at the opportunity to invest a BILLION in Stansted? The answer, of course, is in the question - it's the difference between "spending" and "investing". And this is also the answer to those who ask why not Manston.

Manston doesn't feature in any of the serious discussions about the future of aviation in the south-east (and it doesn't feature in Infratil's strategy) for one plain and simple reason - it's in the wrong place. If these two maps don't explain it clearly enough, have a look at this.