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Three, two, one… SOLD! (at a loss) October 23, 2009

Posted by supersonicswan in Swan Lake.
Tags: , , , , , , ,

Come Friday and I finally have a while to scribble something again. Meanwhile, we had some big announcement this week in the South East, hadn’t we? Without any doubt, the aviation headline of the week was the long-awaited sale of Gatwick airport.

As usual, a bit of background comes first. Back in the dark days of Cold War, when the British decided LHR might not be enough as per the nation’s growing flying needs, they set out to build a whole new air terminal some 24 miles south of London. Stemming from Anglo-Saxon for “goats farm”, Gatwick might not have been the most fortunate name and maybe could even explain today’s chaos ruling the airport wasn’t it for the Airport Authority Act of 1966 that gave birth to the British Airports Authority. BAA was conceived to manage key English and Scottish airports and remained in the hands of government until as recently as 2006 when it was sold off to a Spanish infrastructure group Ferrovial. Interestingly enough, the hegemony BAA enjoyed especially in the South-East area (owning LHR, LGW & STN) wasn’t that much contested prior to its sale or at least few believed it could be soon ordered to end. Seen from this angle, Ferrovial bought the proverbial pig in a poke and has been bashed for that ever since.

Run by BAA, LGW grew (and quite steadily regardless of the fact LHR was traditionally the jewel in the crown) becoming Britain’s second largest airport and the world’s busiest single-runway airport. It’s also managed to get a very healthy mix of full service, low cost and charter operators what makes it somehow less vulnerable to shifts in demand.

Obviously, BAA didn’t particularly like the Competition Commission’s ruling which forced the operator into selling not only LGW but also STN and one of the two Scottish airports it owns. (That’s when they figured out there was a pig in that poke). I will come back to that one day, I promise.

The sale of LGW at a price of £1.51 bn (funnily described as “a fee” by BBC) was announced on Thursday and the lucky purchaser is Global Infrastructure Partners, an investment fund that also owns a 75% stake in London’s downtown airport, LCY. They are doing a good job with the capital’s smallest airport and campaigned many innovations into the business (not last a transatlantic service out of a 1500m runway by BA). Managing LGW might be quite a challenge for them mainly due to the fact that essentially there is nothing wrong with it but people still don’t like it. Plus it’s not LHR, of course. So it will take a fair amount of PR activity to turn it around. But not only this. LGW needs investment in infrastructure, and it needs it now. Apparently the second runway won’t be given a go-ahead until 2019 but GIP have a good record working with local communities around LCY and generally have a better reputation than BAA so it simply might be easier for them to coin out an agreement sooner.

We are yet to see what the effects of this sale will be. As for now it seems that Ferrovial gave LGW away for peanuts and GIP quite rightly leaped on the chance. Public opinion is contented because from now on they can enjoy more competition and see the invisible force of free market again. Nevermind the fact that BAA still owns 2 airports, GIP another 2 and only LTN remains independent. A duopoly after a monopoly might indeed appear like a gust of fresh air.

Do you think sale of LGW will provide air travellers in  South-East with more competition? Will GIP succeed in turning LGW around? Is sale of another two airports inevitable for BAA?



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