Game-changer - Manston to stop being an airport

Manston and Prestwick have proved hard to sell. Unsurprisingly. Infratil wants to sell them because they're failures - and that's why they're hard to sell.

Infratil has been losing millions every year, for years, and they're eager to staunch the flow. The penny seems to have dropped that these two failed airports would be easier to sell... if they weren't airports.

So Infratil is putting the word out that they're prepared to stump up cash to help potential buyers transform the airports into, er, something they actually want to buy.

Do feel free to use the comments section to pass on any helpful suggestions for Manton's future... theme park... solar farm... race track... nature reserve...

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Infratil says it would consider investing in its two British airports to change their functions to help make them more attractive to sell.

The listed infrastructure investor's Glasgow Prestwick and Kent airports are for sale after years of under-performance. Last week, Dutch national carrier KLM confirmed it would start making twice daily flights from the Kent airport to Amsterdam from April 2013.

Infratil executive Tim Brown says the process of selling the airports has taken longer than the company expected. He says the company now has to look at a range of complex proposals and if the use of an airport is going to change, it will have ramifications for local communities.

Mr Brown says if airports are very successful then councils or cities often then tax them, but if they are struggling they may then either need subsidies or be closed and put to alternative use. He says the debate then becomes more complicated, which makes timeframes more difficult to guess. Mr Brown would neither confirm or deny whether Infratil is looking to buy Stanstead Airport in London.

Copyright © 2012, Radio New Zealand 19 November 2012

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. 

Rival group enters battle for Stansted airport

A consortium led by an Australasian investment manager has emerged as an early rival to Manchester Airports Group in the £1bn battle for Stansted airport.

Morrison & Co, which operates out of New Zealand, Australia and Hong Kong, is heading a bid team that also includes the New Zealand Superannuation Fund and Infratil, a Wellington-based infrastructure investor.

Stansted was finally put on the block last month after a three-year legal fight by owner, BAA, which tried unsuccessfully to halt the forced sale of the airport demanded by the Competition Commission. BAA’s controlling shareholder, Ferrovial, is thought to have issued non-disclosure agreements last week to interested bidders, effectively kick-starting the process. The sale is being handled by Deutsche Bank and ING.

The interest of Infratil in Stansted has surprised some industry observers because it is currently trying to sell its two smaller British airports Glasgow Prestwick and Manston in Kent after a difficult foray into the UK aviation market. Infratil, which runs about £2.5bn of assets, has twice written down the airports in the past two years, with their carrying value almost halving from £70m to £36m today. The two airports lost around £6m last year.

Even so, Infratil is an experienced airport operator, with its interests including a 66pc stake in New Zealand’s Wellington Airport. Infratil’s operations at Prestwick have also enabled the company to develop a relationship with Ryanair the low-fare airline responsible for almost 70pc of Stansted’s traffic. The Morrison consortium is believed to have held early talks with Ryanair. The NZSF, which has more than £9bn assets, devotes about 9pc of the fund to infrastructure investment, spanning airports, transport, energy and oil.

The Morrison consortium faces early competition from the council-owned Manchester Airports Group, which is building up its firepower via a potential deal with Australia’s Industry Funds Management. The giant antipodean infrastructure investor, which has around £21bn under management, has agreed to inject about £1bn for a 35pc stake in the Manchester airport company on the condition it wins the bid for Stansted.

The Stansted auction, which may also attract interest from JP Morgan, Citi Infrastructure Partners and Morgan Stanley Infrastructure Partners, is complicated by the Government’s review of airport capacity in the south east, led by former Financial Services Authority chairman Sir Howard Davies. While there will be no decision on where to build a new runway before 2015, the recommendations of the Davies Commission could have a major impact on Stansted’s value.

Michael O’Leary, the Ryanair chief executive, can also influence how much BAA gets for Stansted. He has already expressed interest in taking a minority stake in any new owner of the airport as long as it agrees to lower both landing charges and the cost of building new facilities. Mr O’Leary has also attempted to drive down the price by declaring that any bid based on the airport’s £1.3bn regulated asset base the regulator’s proxy for its value is “artificial” and based on “Noddy land” economics.

telegraph.co.uk 22nd Sep 2012

Location, Location, Location

It's refreshing to see an independent review of Manston's present and future prospects that doesn't shy away from stating the obvious - a successful passenger airport needs plenty of passengers within a convenient distance, and a successful freight airport needs plenty of customers within a profitable distance.

The Parsons Brinckerhoff (PB) report says Manston airport is in the wrong place:

[p5] Given the geographic location of Manston it is unlikely that carriers would show much interest for inbound traffic from key European city links – we would argue this would only be relevant if Manston was strategically placed near to a large city or a region with a large catchment area.

Heathrow has queues of carriers wanting to use the airport, so they can afford to pick and choose who they let in. Over the short to medium term, Heathrow airport will carry less freight and more passenger traffic, as passengers are more profitable. This will displace freight traffic to other UK airports.

The PB report says York Aviation is wrong when it says that Manston is "ideally geographically located" to benefit from this displaced freight traffic.

[p5] Stansted, and Gatwick to a lesser degree, have significant capacity to accept additional freight volumes and are strategically better located close to motorways and major conurbations.  For this reason we would disagree with York’s contention that “It is for the relocation of these services that MIA is ideally geographically located”.  MIA, whilst only 50 minutes from the M25 at Junction 2, is not strategically positioned for freight to be dispatched anywhere other than the far South East of England.

On p15 of their report, York Aviation claim that a night time ban prevents Manston from accepting freight traffic from much of the rest of the world (based on an arbitrary departure time of 2300).

The PB report says Manston is only excluded from 9% of the scheduled air freight market...

[p6] … we do not believe that this provides a compelling argument for significant economic benefit to the region as a result of the introduction of a night flying quota system.

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Next installment: Jobs

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Manston: "Airports could go out of business"

Some regional airports could go out of business if the Government fails to recognise their important role in easing the nation’s capacity crisis. That's the warning from Manston Airport chief executive Charles Buchanan.

He argues that direct and immediate action is needed to resolve the short and long-term airport capacity shortages at Heathrow, Gatwick and Stansted where new runways have been ruled out indefinitely. In Manston's submission to a consultation on aviation policy, he urges the Government to look to existing regional airports to buy time for longer term plans to be explored.

"Realistically no new runway will be built in the South East for at least 10 years, probably 15 years, but regional airports can deliver capacity now. The downturn in the economy has seen a number of the smaller regional airports, including some in the South East, operate at a significant financial loss, with the real possibility that it will only be a matter of time before the industry starts to see the closure of some of these currently loss-making airports. Once closed, they will probably be lost forever and not replaced."

Mr Buchanan also wants to see different rates of Air Passenger Duty (APD) applying at congested airports to persuade airlines to operate out of smaller ones like Manston.

Meanwhile, the British Chambers of Commerce has called on the Government to develop an aviation policy that supports business growth and job creation. It also wants ministers to scrap proposed APD increases. Jo James, chief executive of Kent Invicta Chamber of Commerce, said:

"In Kent we have a particular interest in aviation policy owing to the controversial question of the expansion of airport facilities within the county. If companies are to make the most of the opportunities offered by international trade, it is essential that a cohesive aviation policy is developed, and definitive decisions reached on future developments."

KentOnline 2nd Nov 2011

Location, location, location matters for airports too

Manston isn't Outer London. It's out of London.

Well, there are several airports that have leapt on the global branding bandwagon and smuggled the word 'London' into their name, with varying degrees of geographical accuracy.

(A special mention must go to "London Ashford Airport": 60 miles from London, 13 miles from Ashford, 1 mile from Lydd. It seems the greater the distance, the more prominent the billing - it's full title is actually "Jupiter Brazil London Ashford Airport".)

So, JBLA to one side, what are we left with? Well, starting from where London actually is, you can see that London City is pretty much a slam-dunk - 9/10 for accuracy. Spiralling out clockwise from the south, we have Gatwick, Heathrow, Luton, Stansted, Southend and Manston. Yes, folks, Manston's even further from London-land than the fantasists at Lydd.

'Location, location, location' does matter and this seems to be a persistent blind spot for many when it comes to discussing Manston's viability. It may have a lovely long runway, but it's in the wrong place.

Draw a circle with a 20, 30 or 50 mile radius around all the 'London' airports, and Manston's circle will have the least land in it - because it's on a peninsula. In terms of population within the catchment area, it may just nudge ahead of Lydd, but will always be well behind the others. It's not a great place for a high volume passenger airport. Not that great for freight either, being so far from the highest densities of people and industry.

On with your thinking cap, dear reader, for soon I will be asking for your best efforts on two topics: how would you make a sustainable success out of Manston as an airport; and how would you make a sustainable success out of the Manston site as a non-airport.

Infratil's flawed bid

Seppuku Lite

As I mentioned recently, before getting revolted by Infratil’s selfishness, the pile of poo they presented to TDC was the carefully considered best efforts of a wealthy, globe-spanning organisation aiming to win support from a strategic partner at a key point in the development of its European operations.

It is a public declaration of commercial weakness; of ongoing and increasing failure; of a flawed business model; of narrow short-termism and strategic poverty.

“All airports across the country are significantly affected by recession”; passengers, freight, airport investment and employment are all down. Like it says in the small print ‘the value of your investments can go down as well as up’. As Newton said ‘what goes up must come down’. As my Gran said ‘all good things must come to an end’. So deal with it.

Guys, having a fixed cost base is nothing special – everyone from the United Nations to my local ice cream van has a fixed cost base. Why bother mentioning it? It in no way entitles you to any special treatment or sympathy.

We all know Manston’s losing some £4 million per year, and that this is unsustainable, and will lead to closure. Top tip: DO NOT BLEAT about your company going down the toilet in a public document. It does not inspire confidence, and puts you in an appalling negotiating position in the event of anyone showing an interest in using your airport.

And what’s this about wanting to be “able to compete equally for new business as shown by the BAWC tender”? As if you couldn’t! At the time of the bid, Infratil had already successfully bounced TDC into giving the all-clear for night flights, and night flights didn’t seem to feature in BAWC’s decision-making process:

Jude Winstanley, BAWC's head of network and freighters, said: “After careful evaluation and taking into account a number of factors including the need to provide the best product for our customers, cost effectiveness, service quality and speed of connection, Stansted remains the most attractive long haul freighter base for BA World Cargo and our customers.” Air Cargo News, 13th March 2009

Manston lost out to Stansted on at least FOUR key considerations, and night flying wasn’t even mentioned. The competition was unequal only inasmuch as Manston was a crappier proposition for BAWC.

In an earlier post, I pointed out that Infratil made Manston’s under-usage a selling point: lack of congestion, competitively priced aircraft parking, etc. There are at least two major problems with this: first, idle is good vs busy is bad isn't a great starting point for a business model; second, when all the other recession-hit airports are less congested anyway, you suddenly lose your selling point.

Infratil are labouring under the impression that they are competing for low cost passenger and long haul freight with Gatwick and Stansted. (Duh! Heathrow, London City, Lydd and Southend: recession-hit airports, just like Manston, and all hungry for business. Manston’s business would do fine. Ignoring them won’t make them go away.) Infratil are trying to hit the big time in a high volume, commoditised market, setting off from well behind the starting line in the toughest market for decades. I wouldn't start from here, guys. Strategically, making a selling point of lack of custom, whilst aiming for a high volume, low margin market sector is a rather messy form of suicide.

Manston keeps failing. What next?

Controlled descent...

Down under. Going under?

The downward drifting squiggly line is Infratil's share price on the New Zealand stock market. Should we care? Definitely - it's time to plan ahead. Infratil describe their strategic interest in airports thus:

The huge growth in the world’s population of people financially able to fly (both because of reducing air travel costs and increasing incomes) is increasing airport throughput. In Europe, hub airport congestion is presenting additional opportunities to “urban edge” airports.

I've heard Manston called many things, but 'urban edge' is a first. Infradig describe the advantages of Manston thus:

KIA's major advantage is its lack of slot congestion and its ability to provide prompt ground service, a significant advantage to customers over the principal London airports. KIA can take delayed or unscheduled services, which other airports struggle to fit into congested passenger service dominated schedules. KIA will also offer freight airlines competitively priced aircraft parking.

So its advantages centre on the fact that it's not very busy. Presumably this puts KIA in something of a bind: every time they get more business, they will be making themselves less attractive. Idle is good vs busy is bad isn't a great starting point for a business model. The aggregated figures for Infrapenny's Urban Edges must make dispiriting reading for any of their shareholders, and the footnotes suggest that the actual figures are even worse.

• Infratil's founder supremo Lloyd Morrison is worth some NZ$70 million, and estimates his company's market capitalisation at NZ$1.2 billion.
• They bought Manston for £17 million and are happy to spend £10-20 million on it before pulling the plug, so from their point of view KIA is small but far from trivial.
• Infratil's European airport investments are performing poorly. Infratil are big enough to take the hit by cross-subsidising, but not indefinitely.
• Their airport at Prestwick had to fire a quarter of the staff due to falls in freight and passenger traffic; Manston just lost out to Stansted on a freight contract that was big enough to be a tipping point.
• The global decline in air traffic due to economic slowdown and contraction won't be reversed quickly.
• The mad fluctuations in oil prices over the last couple of years have highlighted the vulnerability of budget holiday travel and air freight.

Infratil's portfolio covers a couple of airports and bus companies in New Zealand, property investments, a port and lots of power generation. Close to home, well understood and relatively successful, these ventures are a comfort to Infratil's shareholders. In their shoes, I would be looking askance at the European airports, and Manston in particular. It's bleeding cash at the rate of millions a year. Realistically, a lot of good news has to happen to Manston very soon. Realistically, it won't.

So, we come to the forward planning. Infratil pulls the plug and Matt flies home, presumably from another airport. Twice-failed Manston lies empty. What shall we do with it?

Keep calm and carry on

I sent this to all the Herne Bay Councillors, in the hope of encouraging them to keep their collective eye on the ball.

Dear Councillor,

It is now public knowledge that BAWC have pulled out of their negotiations with Infratil.

PLEASE don't let the issue of planes over Herne Bay drop off your radar. It is as important as ever, just temporarily less urgent.

For their own (presumably good commercial) reasons, Infratil couldn't allow Thanet or Canterbury Councils enough time to give their proposed increase in air traffic the careful attention it deserves. I got the impression that everything became rather hasty and rushed.

This temporary setback in Infratil's growth plans gives us all a much-needed breathing space. It is essential that we all use this interlude to agree a robust framework which allows Infratil scope for commercial success, while maintaining the quality of life for the residents of Herne Bay. Rather than rushing into this half-cocked, we can work towards a sound and solid "win-win" solution.

At Tuesday's HBAMP meeting, I was delighted to see you all agreed that this issue transcends party boundaries. At the meeting with Infratil on the 24th March, I think it is essential that you have Paul Twyman and a flight path expert present. Only then can you be sure of establishing what is possible and what is practical in terms of flight paths, monitoring and policing. And that is how to get the best deal for Herne Bay.

Stansted 1, Manston 0

MANSTON airport's chief executive has announced British Airways will not be using the airport for cargo flights. The airport applied for changes to the its legal agreement last month saying a "major global freight carrier", widely speculated to be British Airways, was set to move in.

But in a statement released today (Wednesday, March 11), an airport spokesman said British Airways World Cargo had decided to stay at Stansted airport in Essex.

Chief Executive Matt Clarke said:

“Like any business that bids for a new contract and is unsuccessful, we are obviously disappointed with this news. However, this negotiation was only one of several opportunities we have been pursuing and we are pleased with the level of interest shown by carriers in operating at KIA. We are committed to attracting further freight operators to the airport and ensuring the successful return of scheduled passenger services to a range of destinations in line with the development proposals outlined in our draft master plan.

“The fact that Kent International was considered alongside Stansted shows how far its reputation in the industry has progressed since Infratil acquired it in 2005 and this bodes well for future business. We have now established a solid base of regular freight customers and tonnage has bounced back after the temporary reduction associated with the administration of MK airlines."

 ...from thisiskent.co.uk:

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So that's BAWC out of the picture. However, as Matt says, there may be others in the pipeline.