There’s only one slight flaw in the Competition Commission’s plan to force BAA to give up Gatwick Airport: nobody's willing to buy it. According to this morning’s papers, the Manchester Airport Group – the only bidder left in the auction – has withdrawn from the process, because it’s unwilling to stump up the £1.5bn BAA is demanding. Apparently the group refuses to pay any more than £1.4bn, given the recent slump in the airport’s passenger numbers – which leaves BAA without a viable buyer. We’re sure it’ll be devastated about that…
BAA’s owner Ferrovial has been ordered by the Commission to get rid of at least three of its seven UK airports, including Gatwick and Stansted – the idea being that this would increase competition between the London airports to give passengers a better deal (and let’s face it, BAA hasn’t set the bar terribly high). Although BAA bowed to the inevitable and put Gatwick on the block, it’s refusing to drop its price below £1.5bn, despite all three serious bidders insisting that this was too much. MAG’s withdrawal follows that of two other groups – the owners of (the much more pleasant) London City Airport, and a Citigroup-led consortium.
If you’ve spent any time battling through security queues and substandard service at one of its UK airports, it’s not easy to side with BAA on anything. But we can’t help feeling a smidgeon of sympathy for them on this issue. It’s basically being forced to sell one of its prime assets at a time when prices are horribly depressed and bidders are finding it difficult to get finance. It’s hard to say what the ‘true value’ of Gatwick is (since the value is whatever someone’s prepared to pay), but it has an estimated ‘regulated asset value’ of £1.6bn. So you can see why BAA is reluctant to accept £200m less.
That said, BAA is not exactly negotiating from a position of strength. On the one hand, the Commission is unlikely to let it get away with pricing potential bidders out of the deal – if needs be, it will presumably be able to force the sale through for whatever it can get, whether BAA likes it or not. And perhaps more significantly, BAA also has to pay back £1bn of its debt next March – so it could really do with having the Gatwick cheque in the bank before then. So who’s going to blink first?
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