Manchester Council to cut share in MAG from 55% to 35.5% and 9 other councils cut theirs from 45% to 29%
The Manchester Evening News looked at the recent purchase of Stansted airport, by MAG, and assessed what this means for Manchester taxpayer, Manchester airport and the region. 10 councils currently own MAG and they have not had to pay anything towards the deal. The cash has been raised through a combination of MAG selling a 35.5% stake in itself to IFM and agreeing a new debt package with its banks. The deal will see Manchester Council reduce its stake in MAG from 55% to 35.5%. The other 9 councils, which currently have a 5% stake each, will share equally the remaining 29% of MAG. After buying Stansted, MAG will control nearly 19% of the UK aviation market, and this may strengthen its bargaining power when negotiating with airlines. The 10 councils hope to get a larger annual dividend now. In 2012, £20m was paid out, of which £11m went to Manchester and £1m each to the other 9 councils. MAG hopes to increase profits at Stansted, which is operating now at 47% of capacity, by increasing income from shops, restaurants and bars.
MAG will now be 35.5% owned by IFM and 29% owned by the councils, retaining 35.5% itself.
Manchester Airport buys Stansted – but what does it mean for you? We find out
by Adam Jupp
January 20, 2013 (Manchester Evening News)
Manchester Airports Group has struck a £1.5bn deal to buy Stansted Airport.
Supporters of the deal, reported in Saturday’s MEN, claim it could bring more money to Greater Manchester’s ten councils, which currently own MAG.
Here, MEN head of business Adam Jupp examines what it means for taxpayers, the airport and the region as a whole:
1) If Manchester Airports Group is owned by the 10 Greater Manchester councils, how can it afford to spend so much on another airport at a time when there are huge cuts to public services?
The councils have not had to pay anything towards the deal, which is set to be finalised at the end of February. The cash has been raised through a combination of MAG selling a 35.5 % stake in itself to an Australian company called Industry Funds Management and agreeing a new debt package with its banks*. The deal will see Manchester council reduce its stake in MAG from 55% to 35.5%. The other nine town halls, which currently have a 5% stake each, will share equally the remaining 29%.
*AirportWatch comment: If they paid £1.5bn and only got an injection of £1bn then “agreeing a new debt package with its banks” disguises a £0.5bn loan of some sort. This could be ameliorated somewhat if the £1.5bn is paid by instalments – but even then that £0.5bn has to be found somewhere.
2) Will Manchester Airport itself benefit?
As a result of this deal, MAG will control nearly 19% of the UK aviation market, owning Manchester, Stansted, East Midlands and Bournemouth. That is likely to strengthen its bargaining power when negotiating with airlines. As a result, the deal could help airport bosses in their quest to bring new routes to Manchester.
3) Why was Stansted so attractive to MAG?
Stansted has seen its passenger numbers fall by around a quarter over the past five years and that is why MAG thinks it has huge growth potential. It believes it can improve the airport’s retail areas, increasing the amount of money brought in by its shops, restaurants and bars. After investing heavily in Manchester’s terminals, retail revenues have risen steadily year-on-year – they grew from £69.4m in 2011 to £74.6m in 2012. MAG will also be looking to make the most of its airline relationships to bring passengers numbers back to what they were five years ago. Ryanair currently accounts 70% of all flights out of Stansted but the airport is only at 47% capacity. MAG will be looking to encourage other carriers like Jet2.com, Flybe and easyJet, many of which have a strong presence at Manchester, to launch new routes from the Essex gateway.
4) Could it lead to greater profits, which could then be distributed to the 10 Greater Manchester town halls?
The councils have reduced their stakes in MAG but have agreed to the deal in the hope it will boost the dividend they receive each year. The dividend is based on MAG’s annual earnings and in 2012, £20m was paid out, of which £11m went to Manchester and £1m each to the other nine. Buying Stansted will automatically add around £80m to MAG’s profits, which the group will hope to increase through the measures mentioned above.
5) Is £1.5bn value for money?
When weighing up whether a deal represents value-for-money, analysts tend to look at the purchase price as a multiple of a company’s underlying profits. The £1.5bn price tag was 15.6 times Stansted’s 2012 earnings. When looking at other airport deals, Newcastle sold a 49% stake in itself for a reported £150m, which was 16.1 times its profits, while Edinburgh Airport was sold for £807m – 16.7 times its earnings. On that basis, the Stansted deal has been viewed as a good one from MAG’s perspective by some industry commentators.
6) What are the risks associated with a purchase of this magnitude, particularly during the current recession?
There is, of course, a risk that MAG’s plans for Stansted won’t come off. However, it has a proven track record of not only managing an airport of a similar scale – Manchester – but improving its performance, even during a recession. In the last six months alone, Ryanair and easyJet have added routes from Manchester, while United Airlines started daily flights to Washington and American Airlines started using bigger aircraft for its New York and Chicago services. Earlier this month, it revealed revenues, profits and passenger numbers in the six months to the end of September were all up on last year.
7) Who were Manchester’s rivals for the Stansted deal?
Various parties have been reported as being interested in Stansted during the sale process. By last week, there were just three left in the race, with MAG up against Malaysia Airports, which lodged a joint bid with YTL, the company that owns utilities firms Wessex Water, and Australian investment bank Macquarie.
8) Will any people currently employed at Manchester Airport be transferred to Essex?
It is too early to say but it is unlikely large numbers of workers will be asked to transfer to Stansted. MAG has said it has “a detailed integration plan in place to ensure a seamless transition of ownership and operations at Stansted.”
9) As MAG is owned by the people, why were the people not consulted?
The proposals were first put the the Association of Greater Manchester Councils, then secured approval from each town hall individually, where they were voted on by publicly-elected councillors.
10) And finally, with all the cutbacks taking place, which we hear about on a daily basis, why didn’t our town hall leaders consider selling their stake in MAG?
Selling their shareholdings in MAG would have netted a one-off windfall for the councils. However, it is hoped by not only retaining their stakes, but backing the expansion of the group, the amount they pocket year-on-year through their dividends will grow.
Comment from an AirportWatch member:
If MAG cannot make a profit out of Stansted, at least enough to pay the interest MAG may have to raise more money, possibly from the local authorities, but more likely from IFM or a new investor. It is unlikely that the local authorities will put up any new money; I do not suppose they have it for a start. The worst case is that they lose all the investment they have in MAG.
When they talk about the debt package, I imagine that the debt for the whole of MAG will have been re-negotiated, not just the extra £500m. MAG will be a standalone entity and the debt will not be the responsibility of the shareholders, unless they have given a specific guarantee or provided security to the banks, which I feel sure they would not have done.