KEY POINTS:
Wealth, like water, detests a vacuum and Auckland Airport has become something of a vacuum. It is a company that no single shareholder currently controls. The largest stakes are held by the Auckland and Manukau City Councils and many people would say, considering the public importance of the airport, control should rest with the councils.
But that is taking a narrow view of the public interest. Unless one or both councils are going to be active, enterprising investors, the airport is likely to suffer in competition for global and domestic traffic. It could continue to serve its function adequately and return an annual profit to the councils but it would not be contributing as much value as it possibly could to the economy of Auckland and New Zealand.
Some private investors sense its potential, others see only its ownership vacuum. Prospective bidders for control have been circling like sharks in the Manukau Harbour in the past year or so and two have now taken a bite.
The first, Dubai Aerospace, an active airport operator, was welcomed by the Auckland directors but the timing was bad, a few months before local body elections. The second bid, by the Canada Pension Plan, has just been put to shareholders after being rejected by a majority of directors.
The Canadians see more than vacant ownership. They see a balance sheet that could bear more debt and they propose to "restructure" the debt-equity ratio in a way that would let all shareholders take cash out of the asset and derive a tax advantage into the bargain.
That is obviously attractive to shareholders, including the Auckland City Council, which stands to lose none of its proportionate holding while extracting some cash. But is the Canadian proposal in the best interests of the airport and the public?
The directors opposed to the Canadian bid for about 40 per cent of the company say the restructuring would increase the airport's debt from $911 million to $2.6 billion within five years. This, they say, would reduce the company's room to move financially and restrict its ability to develop the business as planned. It would lower the airport's credit rating from A to BBB-, the bottom end of the investment grade.
Most important, the directors note that a pension investment board is clearly not bringing experience or additional expertise in aviation services or tourism into the company. The Canadians have not yet challenged this view. They do not pretend to be more than a committed, long-term investor that would see that the asset remains well managed and sufficiently profitable.
If that is all they can offer, it would seem better that the profits stay in the country. The NZ Superannuation Fund has recently bought an 8 per cent stake with Infratil, owner of Wellington Airport and airports in Europe. But Infratil's chief executive, Lloyd Morrison, told the Business Herald on Friday that Auckland was too big an operation for them to bid for control.
Mr Morrison, who is seeking election to the board next week, wants the company to actively seek a cornerstone shareholder with industry expertise as well as the required capital. He rejects the view that the 10 or so investors who have taken a tentative look at the airport so far are the extent of interest in it.
We hope the airport's many small shareholders, and Auckland City Council, resist the Canadian offer, as Manukau City has. If our airport is to be loaded with double its present debt, let it be for a project that will enhance its value and its services. This bid offers nothing of real value. The airport can do better.
