I came across this social media post on London City Airport, which I’ve used a lot over the years, mainly for professional reasons. The 63-day consultation prior to construction is one fun anecdote given today’s standards.
And if you are interested in Finance and Private Equity, its ownership history is fascinating.
The small airport has always been privately-owned and changed ownership 3 times after it was built as part of a regeneration project for the Docklands, at the east-end of London, in the early 1980´s.
The original owner, Mowlem, sold the airport in 1995 to an Irish business man, Dermot Desmond, for £23.5m.
Bank Crisis #1
If £23.5m seems shocklingly cheap to you, you are not wrong. It was ! But, for context, the entire business district nearby, Canary Wharf, was in receivership following the Real Estate crash and subsequent bank crisis in the early 1990’s. For Desmond, this was a highly speculative bet. And one of his finest coups.
Fast forward 10 years: London has established itself as the unrivalled Finance hub of Europe, the airport has expanded… London has been awarded the Olympics for 2012.
The next change of ownership starts in 2005-2006, with a sequence of transactions that are difficult to track as many investment firms changed names, were integrated or completely disappeared after the Great Financial Crisis.
Desmond first sells a 22%-stake for ~£150m to Greencore, a company he owns. The valuation is very soon confirmed by an arm's length transaction: a full-blown sale takes place at the end of 2006, when a consortium led by GIP (Infrastructure Asset Manager created by Credit Suisse and General Electric) and AIG acquires the airport for a reported valuation of £750m.
You can do the maths, it means over 30x under Desmond’s ownership!
Bank Crisis #2
On to the next financial crisis: GIP holds but the rest of the shareholding is reshuffled. The airport is one of the first assets, if not the first, to go as AIG offloads its investments to repay an $85 billion US government loan. Reported valuation of the airport at the time: ~£1bn.
By the end of 2008, the airport is owned a 75% by GIP, and 25% Highstar Capital (now Oaktree). The consortium holds for another 8 years, a period during which Infrastructure really emerges as an asset class, attracting a lot of capital. The airport is ripe for a sale by the end of 2015.
And so, in February 2016, it is sold for £2bn to Canadian-led consortium of Alberta Investment Management Corporation (AIMCo), OMERS, the Ontario Teachers' Pension Plan and Wren House Infrastructure Management of the Kuwait Investment Authority.
No Bank Crisis #3, but...
Since then, two major disruptions occurred :
- Brexit referendum in June 2016, leading many businesses based in London to relocate to continental Europe. The referendum also caused a drop of the British Pound, which never recovered;
- Covid-19 pandemic which did not only cause a complete shut down for few months, but accelerated the secular trend of video adoption meaning that fewer people travel for business.
Reported traffic was 3m passengers in 2022 vs. 5m in 2019 (4.5m in 2016)
Does it mean that the current owners will lose money on this? Likely not: infrastructure asset valuations have continued to increase but we'll need to see the impact of interest rates on this. The airport has also been modernized / expanded.
Let's wait another 3-5 years to find out..
