03.12.05
BAA, the UK airports operator, has emerged as the front-runner alongside a consortium led by Hochtief, the German construction and infrastructure group, to win the contest to take control of Budapest airport in Hungary.
The privatisation of Budapest Ferihegy International airport with the sale of a stake of 75% minus one share will be one of the biggest airport deals globally this year with reports in Hungarian newspapers suggesting that the highest bid had been made at around $1.86bn (£1.07bn).
The reports suggest that BAA made the highest bid, Germany's Hochtief made the second-highest bid, with Frankfurt Airport operator Fraport coming in third. The winner of the bidding war is expected to be announced by the Hungarian government next Thursday and the deal is likely to be completed before Christmas.
BAA and Hochtief have built up a number of foreign airport holdings, but for both groups the scale of the investment needed to win control of Budapest airport will make it their most significant foreign venture to date. The deal on offer is for a 75-year operating concession.
BAA has management or retail contracts and stakes in airports in Australia, Italy and the USA, led by a 65 percent stake in Naples and minority stakes in Melbourne and Perth airports in Australia. It is world's largest airports company and includes seven UK airports led by Heathrow, Gatwick and Stansted.
Mike Clasper, BAA chief executive, has said the group was keen to expand further in foreign markets, where the returns could be significantly higher than from its UK regulated airports.
Hochtief has shareholdings in the airports of Athens, Düsseldorf, Hamburg and Sydney and also operates Albania's Tirana airport through a concession agreement. Through its Hochtief Airport Capital fund it includes financial partners from Canada, Australia and Germany.
The Budapest airport deal is expected to be the single largest privatisation transaction ever made in Hungary, and with a final bid representing a multiple of around 20 times prospective 2006 earnings (ebitda), it is likely to be one of the most expensive airport sell-offs. Comparable airport privatisation deals in recent years, where majority stakes were available, have achieved valuations of 15-16 times earnings.
The selection of the winner will largely be determined by the size of the final bid, which will account for around 70 percent of the decision, but other factors including the quality and airport operating experience of the bidders will account for the remaining 30 percent.
Budapest airport has been growing rapidly since the entry of Hungary into the European Union, which has opened the way for the arrival of several low cost airlines, which have made the city into one of their main gateways in central Europe. Passenger numbers increased by 28.6 per cent last year to 6.5m and are forecast to rise to just under 8m in the whole of 2005.
Given the rapid growth the expansion of capacity will be a key challenge for the airport's management and the successful bidder, which have submitted investment plans and capital expenditure commitments as part of the binding final offers.
