CityJet: Sale could jeopardise London City Airport’s future
The airport’s second largest carrier expressed serious concerns about its viability if new owners hike airline charges to compensate for the £2bn price tag that’s been put on the airport.
CityJet executive chairman, Pat Byrne, claimed such a move would “bring into question the long-term sustainability of airline operations at London City Airport”.
“The airport is expensive for airlines, both in terms of equipment required to operate within the unique physical constraints of the airport, and also in terms of the airport’s charge per passenger, which is the highest by far of any of London’s six airports.
“The £2bn potential sale price quoted suggests that potential buyers consider the earning potential of the airport to be significantly in excess of where it is today with a return on investment only being possible through increased charges to airlines and their passengers.”
Any increase in airline charges could “ultimately be detrimental to all users of the airport,” he added.
Mr Byrne’s intervention follows that of Willie Walsh, chief executive of IAG, British Airways parent company. Mr Walsh threatened to pull the majority of BA’s fleet if new owners push the cost of any potential takeover onto his airline.
The valuation placed on the airport by current owners, New York private equity fund, Global Infrastructure Partners, represents a multiple of 44 times the airport’s 2014 Ebitda [earnings before interest, tax, depreciation and amortisation], Mr Walsh told the Financial Times.
The report cited “people close to” London City’s owners who disputed the figures and said the actual multiple was 28 times Ebitda, not 44, given adjusted 2015 profits of £72m.
The airport was previously owned by Cork-born businessman Dermot Desmond who sold the business to GIP, which controls a 75% share with Oaktree Capital owning the remainder, for an estimated £750m in 2006.
The margins BA makes at London City wouldn’t support any increase in charges, Mr Walsh added, labelling the valuation as “foolish”.
BA and CityJet, which are the airport’s first and second largest carriers respectively, have commissioned a report into the situation by consultants Cambridge Economic Policy Associates (CEPA).
“This concern has in fact motivated BA and CityJet to commission a joint report carried out by CEPA, the City-based consultants to look into the likely impact on airport charges that would follow a sale of the airport for anything that approximates to the enormously inflated valuations speculated in the media, especially given the already restricted opening hours at weekends.
“The initial findings of the report would indicate the concerns BA and CityJet share in respect of likely increased charges are well grounded if the speculated sale price range for the airport is achieved,” Mr Byrne said.
The airline operates a number of routes from Cork and Dublin including to London City, its main hub.
In addition to the London route, CityJet also operates services to La Rochelle and Nantes from Cork and has raised the prospect of further growth this year.
London City Airport and Global Infrastructure Partners declined to comment when contacted.
