Peel Holdings to sell airports (Liverpool, Doncaster and Durham Tees Valley) to fund purchase of ports company?

March 8, 2010   (Gerson Lehrman Group)

Analysis by: GLG Expert Contributor


An article in the Mail on Sunday (UK) suggests that the UK’s Peel Holdings, a
private company, intends to sell a majority stake in its airports division to
help fund the GBP800 million acquisition of Forth Ports, one of Britain’s biggest
port operators. How have airports become of lesser significance than ports?


Peel Holdings, a private, unlisted British company and fundamentally a property
developer, headquartered a stone’s throw from Old Trafford, the home of soccer
club Manchester United, has spent the last ten years building up a mini empire
of three secondary level airports and a general aviation facility, two of which
are in direct competition with the primary level Manchester Airport. In the main
they are kept going by low cost airlines. At Liverpool, over 90% of the passenger
traffic is attributed to Ryanair and easyJet operations.

But times are hard in the British airports sector. One commercial airport, at
Coventry in the English Midlands, closed down last year and others are known to
be struggling.

Peel’s Liverpool Airport has failed to make a profit under its ownership, but
it also failed to do so under any ownership model in its 75-year history. Peel
found that investing to replace totally inadequate infrastructure was very expensive
when the primary source of income, from aeronautical revenues, is so hard to maximise
when your client base is ‘low cost’. It isn’t the only airport operator finding
that out the hard away.

Things are little better are Doncaster-Sheffield Airport, located in an ex-mining
region, or Durham Tees Valley Airport, situated in what is left of Britain’s heavy
manufacturing industry – which doesn’t amount to much.

Peel has invested heavily in its airports but it also sought assistance from
the European Union Objective 1 and 1A regional aid schemes that support economically
retarded areas. All the airports were in these areas.That money has now all but
run out.

it has been known for some time that Peel was looking for minority investors
in its airports, and almost a year ago sought the assistance of Rothschild’s Manchester
office to help them find it. More recently, Canada’s YVRAS, an autonomous division
of Vancouver Airport that is now 50% owned by Citi Infrastructure Fund and which
has bid for both Chicago’s Midway Airport (lease) and London Gatwick Airport (sale)
during the last 12 months, was posited as a potential suitor. Now it seems that
a majority stake is for sale.

The newspaper article on Sunday 7th March quoted a valuation of ‘up to £200 million’
for the airports in their entirety. My opinion was sought and I proposed that
£50 million to £100 million was more likely. Others offered £300 million, so it
looks as if the journalist went down the middle. It is not easy to value these
assets. There is no positive Ebitda on which to base any earnings multiple valuation.
It also depends if Peel wants to sell the land within the airport boundaries that
are not used for aeronautical purposes and there is some value here. For example
at Doncaster – a big ex-military airfield –   the council is building an aerospace
business park and at Durham a cargo village will be completed when the airport
actually gets some cargo flights. And the Liverpool Airport car park, once run
by NCP but now by the airport, is probably a money spinner.

On the other hand airport valuations in general are in freefall. It was only
three years ago that Leeds Bradford Airport (a direct competitor to Doncaster-Sheffield)
was sold by local councils to private equity house Bridgepoint for GBP145 million,
at an earnings multiple of 30 x. When the much bigger Gatwick Airport (by   factor
of > 10) was sold last year, that multiple was down to 12, as it was for recent
deals in Australia. London City Airport, with < 3 million passengers annually,
was sold for GBP750 million a few years back. The same company that (partly) bought
it, GIP, recently bought Gatwick for GBP1.5 billion – an airport twice as expensive
but over ten times bigger. If asset valuation is to be used as the yardstick,
well, firstly, which assets exactly (re. the land issue)? Gatwick was sold at
a discount of 13% to its Regulatory Asset Base valuation (the RAB being a measure
the UK CAA uses and which basically means the regulated bits of the airport –
the runway(s) and terminal(s). The same calculation can’t really be applied truly
at Peel’s airports because they aren’t regulated but if it was, and Peel’s airport
assets are said to be GBP119 million, then we’d have a sale price in the order
of GBP103 million.

I believe the days of the 20x or more earnings multiple are gone, if not forever
at least for many years, and particularly in the UK. I’m not sure what YVRAS sees
in these airports although the organisation is reputed to have good skills at
turning poorly performing airports around. There is still some growth potential
at Doncaster Sheffield, though competition from nearby airports (which means very
close by in the UK) is tough and growing. Durham may be a basket case. I hope
not. Liverpool has done most of its growing in the budget segment already and
needs to build up quickly in the legacy segment. And it will face a renewed challenge
from the primary airport, Manchester, soon, when a new CEO is appointed. Manchester
has been sleeping as far as business development is concerned.

The whole thing may amount to no more than a sweetheart deal.

In the summary I asked why have ports taken on more significance than airports
to these companies? Peel is a property developer (it runs a ridiculously ostentatious
shopping mall on the outskirts of Manchester and has grand plans for huge waterside
developments throughout the northwest of England). It also has ownership of the
Port of Liverpool and the Manchester Ship Canal Company so it is not new to this
sector – one that has been doing very nicely these last few years. Well, better
than airports, anyway. The airports business has witnessed the mass exit of companies
that were not directly related to it before now – for example the bus operators
of the late 1990s. Is Peel’s decision one on its own, or will other companies
now follow suit; airports patently not being the cash cows they thought they would


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see also


Business Week


Key developments for Peel Holdings p.l.c.

Peel Seeking Co-Investor For Airports; Denies Talks To Sell Airports

Durham Tees Valley Airport Ltd’s owner Peel Holdings p.l.c. has denied that it
is trying to sell its air operations in a bid to expand its port business. The
Northern Echo reported at the beginning of February that talks were ongoing between
Vancouver Airport Services and Peel, over a stake in the business. Peel again
refused to confirm or deny that negotiations had taken place, although Peel Group
added that it was looking for a co-investor for the airport groups. It was learnt
that Peel was part of the Northstream consortium that bid £612 million for Forth
Ports, on March 5. It was speculated on March 8, 2010 that a higher bid of £800
million would be put in and that Peel was looking to sell a majority stake in
its airports, which could raise £200 million, to help fund this. Peel said, "Any
speculation that the Peel Airports Group, or any of the Group Airports, has been
sold or is for sale is wrong." Peel added, "Peel Holdings confirmed several months
ago that, at the appropriate time, it would consider the introduction of a co-investor
into Peel Airports to provide further capital for the development and expansion
of the airports group. This remains the case." Apart from the Durham Tees Valley,
Peel Airports runs Liverpool Airport PLC and Robin Hood Airport.

Peel Reportedly In Talks To Sell Stake In Peel Airports

It was reported that Peel Holdings p.l.c. is in talks to sell a majority stake
in Peel Airports Limited that could help fund its £800 million bid for Forth Ports.
The report added that the firm is in talks with Vancouver Airport Services (VAS)
to sell Peel Airports. These comprise Liverpool Airport PLC, Robin Hood Doncaster
Sheffield, Durham Tees Valley and City Airport Manchester. A sale of the division
could raise up to £200 million. It was reported that a Peel spokesman declined
to comment on talks, but confirmed the firm would like to sell part of Peel Airports.
VAS declined to comment on the Peel talks. Peel is looking to sell off non-core
parts of the business after seeing millions of pounds wiped off the value of its
assets as a result of the recession.
see also
Northern Echo
Vancouver Airport Services and Peel Holdings in talks

A STRUGGLING airport could receive a major investment boost after it emerged that a Canadian company is looking to take a stake in
the business.

The Northern Echo understands that talks are ongoing between Vancouver Airport
Services and Peel Holdings, which operates Durham Tees Valley Airport (DTVA),

Peel Holdings would not confirm or deny that negotiations had taken place when
asked last night, but a spokesman reiterated the firm’s desire to sell part of
its airport business, Peel Airports.

Industry expert David Bentley said DTVA would benefit from the potential investment
by Vancouver Airport Services, a firm he said was "wellrespected in the industry".

Vancouver Airport Services operates 18 small to mediumsized airports around the
world, serving a combined 30 million passengers annually.

Several failing airports had been turned around by the Canadian company, said
Mr Bentley, joint managing director of consultancy Big Pond Aviation.

"They have the funding, they have the expertise, I think it would be a good thing
for the North-East if they are involved in a deal," he added.

As well as DTVA, Peel Airports operates Robin Hood Doncaster-Sheffield, and Liverpool
John Lennon airports.

There is understood to be no danger that the airports would be sold individually.

As reported yesterday, a survey by an industry magazine rated DTVA bottom of
300 European airports after figures revealed that passenger numbers had halved
within a year. Airlines bmi, Flyglobespan, Thomson and Ryanair all axed routes
from the airport last year.

But Mr Bentley said: "DTVA had a very bad year in 2009, but I don’t think it
has reached the end of the line."

Meanwhile, DTVA bosses are on a collision course with the Government over controversial
body scanners that produce a naked image of passengers.

Peel Airports is refusing to commit to installing the Advanced Imaging Technology
(AIT), which Gordon Brown has insisted is vital to defeat terrorists.

The Prime Minister backed the scanners, which allow security staff to detect
explosives hidden on a passenger’s body, after the Christmas Day attempted bombing
on a flight to Detroit, in the US.

Yesterday, the department for Transport (DfT) ordered all airports to install
them before the summer holiday season, stating they must be in place "in the coming

The scanners cost between £80,000 and £100,000 each, and a major airport would
need to have several. So far, the Dft has only "encouraged" airports to adopt
the scanners, although it has the power to order them into line, if necessary.

But a spokesman for Peel Airports Group said there was only the "potential" for
the scanners to be introduced.

He added: "We are awaiting clarification from the DfT over the use of body scanners
and so are unable to comment as to whether Durham Tees Valley Airport will see
such machines being installed."

Newcastle Airport also said it was awaiting further information from the DfT,
but added: "We will work with them on whatever measures are deemed necessary."