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Auckland airport seeks tourism growth through North Queensland acquisitions

Monday 11th January 2010

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Auckland International Airport Ltd. is buying a strategic 24.55% in North Queensland's Cairns and Mackay airports in a bid to pull more Asian-sourced tourists to New Zealand and ramp up New Zealand travel to Australia's popular tropical far north region.

The A$132.8 million (NZ$166 million) investment is AIA's first demonstration of its previously announced strategy to diversify out of its Auckland core, and represents around 5% of AIA's total assets. The purchase, from Westpac Bank, will occur on Jan. 13 and initially be funded with debt, although an equity component is envisaged. Details of any capital-raising were not immediately available, although the company has an investor presentation this morning at 11am.

The more significant of the two airports is at Cairns, which is currently completing a A$200 million upgrade to its international terminal in anticipation of a resurgence in arrivals following a drop from over 1 million international arrivals annually to a project 640,000 in the current financial year. The drop partially reflects the impact of the global financial crisis, although international arrivals to Cairns have been dropping since 2006 and the airport has experienced a fall in annual compound growth rate of 5.4% since 2003. However, the CAGR for domestic arrivals has been growing at 6%, with some 3 million domestic passengers passing through Cairns in the last financial year.

"It has been estimated that 40% of passengers who travel on the Cairns airport domestic network are international passengers who, due to the limited direct international services into Cairns, transit or stopover at other Australian capital city airports," AIA says in its investor presentation. In addition, only 9% of New Zealanders visiting Queensland go to the tropical far north at present.

AIA expects a combination of recently announced federal government incentives to encourage international airlines to use regional airports, along with a substantial commitment to advertising by the Queensland state government, to bolster international arrivals at Cairns airport, which was privatised last year.

The current international terminal upgrade leaves Cairns well-placed to expand without significant additional capital expenditure in the medium term, AIA says. 

It believes the acquisition to be "strongly value accretive, offering an equity return on investment in the mid teens percentages", although it was likely to dilute AIA earnings per share ahead of an expected rebound in international passenger numbers.

"The purchase price represents and implied prospective Economic Value/EBITDA multiple higher than Auckland Airport's trading multiple, reflecting the turnaround growth outlook," AIA's chief executive, Simon Moutter, said. 

The AIA share price fell 3.37% to $2.01 in early trading on the NZSX this morning.

Other shareholders in NQA are JP Morgan Infrastructure Investment Fund (49.9%), Perron Investments (5.3%), and Hastings Funds Management, a specialist airport investor with 20.12%. AIA will be the only airport operator on the NQA register and the investment offers partnerships with "compatible co-investors".

Investors with more than 20% shareholdings are entitled to board positions and hold veto rights on major decisions.

Mackay airport is a smaller proposition than tourist-centric Cairns, mainly servicing major coal-mining operations near the town, with feeder flights to secondary tourism areas such as the Whitsunday Islands. Mackay had throughput of 946,000 passengers, all domestically sourced, in the 2009 financial year.

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