The Dublin Airport Authority could be in line for a windfall of at least €300 million from the sale of its 24 per cent stake in Birmingham airport, Britain's fifth largest.
The airport authority, a State-owned company, which owns the stake via its subsidiary Aer Rianta International, has appointed advisers to assess the level of demand for its stake. Another shareholder, Australian bank Macquarie, is performing a similar exercise.
While a sale is not a foregone conclusion, the currently attractive valuations for airports could be key in influencing the decision. Birmingham has annual traffic of more than nine million passengers and has the highest proportion of business traffic after London Heathrow.
If the DAA decides to sell and achieves a strong valuation, it could come under pressure to use the proceeds to defray the costs of its new terminal. However, it will argue that it has many calls on its resources, including the costs of the new Cork airport, a restructuring programme for Shannon and a potential pension deficit at the DAA itself. It also must build up its reserves so that the three airports - Dublin, Cork and Shannon - can finally be split up.
It is unlikely these arguments will be accepted by airlines like Ryanair which want the DAA to sell all its overseas assets and use the cash to fund any capital developments, such as the new terminal and runway.
Valuations of airports were radically changed recently when London City Airport - owned by Dermot Desmond - attracted an offer of £750 million (€1.1 billion) from US insurance group AIG, Credit Suisse and GE Capital.
Valuations of Birmingham range from €1.2 billion to €1.4 billion. Other shareholders apart from Aer Rianta and Macquarie are seven local authorities and the airport's staff. Aer Rianta, according to a previous annual report bought its stake, along with a share in Dusseldorf, in 1997 for £75 million.
The London City Airport deal was priced at 20 times earnings or earnings before interest, taxes, depreciation and amortisation. London City earlier this year handled its two millionth passenger.
While Birmingham has far higher passenger numbers, pieces of London infrastructure tend to attract premium bids. London City is also expecting a major boost in the run-up to the 2012 Olympics.
The DAA yesterday declined to comment on the possibility of a sale, but it is likely a decision will be made in the first few months of 2007. While interest in airports among private equity groups is intense, the demand for what could end up being a minority stake may be lower than usual. Birmingham airport also has significant capital investment plans and future shareholders may have to stump up fresh cash.
This week it was disclosed that the Dublin Airport Authority has sold its 3 per cent stake in Hamburg, the fourth largest airport in Germany. It is understood it gained €30 million from the sale. The authority has declined to comment this week on the sale, but in private its executives deny that developments at Hamburg and Birmingham herald a major asset sell-off. Specific clauses in shareholder agreements have triggered the latest moves, they argue.
The other major asset Aer Rianta owns is a 24 per cent stake in Dusseldorf airport, but there are no plans to sell. It also owns several duty free and retail businesses at international airports, but these are contracts with the airport authorities and usually lapse every five or 10 years.
Rating agency Standard & Poor's has warned that the boom in infrastructure deals worldwide is creating a dotcom-style bubble, raising the spectre of overvaluation and excessive leverage.
