Three major airlines have fired a warning shot to bidders vying for control of London's City Airport, threatening to pull their business if a new owner raises airline charges.
The airport, currently owned by US private equity firm Global Infrastructure Partners, has attracted the interest of five bidders, including Asia’s richest man Li Ka-Shing. The deadline for final bids is this Friday.
But British Airways, CityJet and Flybe – which together account for 70 per cent of all passengers – have raised concerns that the airport’s £2bn price tag will result in landing fees being ramped up.
“Any potential new owner for London City should be left in no doubt that British Airways can move flights elsewhere if it ramps up airport charges to fund its investment,” a spokesperson for British Airways owner International Airlines Group said.
An investigation commissioned by BA and CityJet showed that fees are likely to be raised should the airport be sold at the £2bn asking price. Wyn Ellis, an analyst at Numis, said that a buyer paying £2bn would want a reasonable return on their investment. “Any sensible company would put up charges if they have to,” he said.
“This brings into question the long term sustainability of airline operations at London City Airport,” executive chairman of CityJet Pat Byrne said. The price tag, dubbed “foolish” by IAG boss Willie Walsh, would represent a multiple of 44 times London City’s earnings before interest, tax, depreciation and amortisation in 2014.
The latest comments raise serious questions about the deal and the threat of losing the airport’s biggest operators could spook bidders. Alongside Li Ka-Shing, others in the running for the airport are understood to include Chinese aviation firm HNA and a consortium made up of the Kuwait Investment Authority, Borealis Infrastructure, AIMCo, Hermes and the Ontario Teachers’ Pension Plan.
There are also fears that any additional costs would be passed on to City Airport passengers, with IAG saying that “BA’s customers will not swallow increased fares to fund unrealistic returns for a monopoly airport supplier.”
The airport, a favourite for City workers, has doubled passenger numbers over the past decade, hitting 4.2m this year. It is currently appealing a decision by mayor Boris Johnson to block its expansion plans.
GIP acquired a 75 per cent stake in City Airport in 2006 for around £750m. Oaktree Capital owns the remainder. London City Airport and Global Infrastructure Partners declined to comment yesterday.