LTNman

Time to put this all to bed, it's going off topic.

We (I think I speak for a fair few on here) do understand your complete and devoted love for Bedfordshire International. Unfortunately it's the same regurgitated clap trap from the Luton regulars time and time again.

I think the Southend thread might be missing you? Nothing happening at Luton that you can discuss to death on the Luton thread?

Maybe its me, but I struggle to understand those who champion various airports over others. Personally I would like to see all airports and airlines succeed in the UK bringing in much needed business, tourists and trade. Some airports are more specialist in certain markets, others have a broader based approach. Does it really matter who is the biggest, smallest or whatever? As long as all are allowed to play to their strengths fairly there should be no issue.
To those on here who at times allow personal prejudices to blind them from reasoned argument and economic reality I say step back and get a sense of perspective.

V.

Yes lets get back to discussing the sale of Stansted to MAG. :ok:

Agree, time will tell who are the winners and losers but buying Stansted could well be a smart move in the long term for MAG if they can attract new non Ryanair business. Maybe the place to start is to try and pick up some of the IT market that seems to be concentrated at Gatwick.

Agree back to the main topic

Jeez. I thought I was going to read an interesting discussion on the business merits of MAG’s takeover of STN. What I actually see is a 3-way bitch fight…….

Can anyone tell me why a group of local authorities in North West England have ambitions to run a portfolio of airports throughout the country? MAN I can just about understand, but what business do MAG have operating an airport in Essex?

What do we think that MAG will do differently from the team at BAA Stansted?
How will they accomplish this?
Will lowering charges mean no return for the airport operator etc?

Quote: "No doubt about it Luton could do with a railway station by the terminal but 2.3 million people still used it in 2011. With a journey time as little as 22 minutes non-stop Luton is looking to increase the frequency of these non stop trains."

One-stop might be better: West Hampstead. It has a large catchment area, potentially linking up areas east, west and south west of London on the new "Overground" system, and the Underground.

Indeed if some of the fast trains on the Chiltern, East Midlands, Thameslink and Metropolitan lines also stopped there, West Hampstead could be a very useful hub/interchange, and not just in relation to access to/from LTN (or LGW).

To come back on-thread (in part), it would be the equivelant of the Stansted express stopping at Tottenham.

Andy S, you may be interested in the article below.

Manchester Airport buys Stansted - but what does it mean for you? We find out | Manchester Evening News - menmedia.co.uk

The ten authorities are mere shareholders, MAG look after the assets on behalf of them However, they will have voted in favour of this move in order for it to go through. Also, Manchester City Council no longer own a controlling stake in MAG, as IFM bought 35% of MAG, with MCC's share reducing to 35%. So effectively STN has been purchased at no cost to the tax payer.

Not sure on the financial situation at STN however?

According to the Financial Times, the deal has been done for £1.5bn at an EBITDA of 15.6 times.

Simple maths tells us that Stansted's EBITDA is therefore £96.1m. For those unfamiliar with such terminology, EBITDA is Earnings Before Interest, Tax, Depreciation and Amortisation.

So, assuming no increases in revenue or decreases in costs, out of £96.1m per annum, MAG has to pay:

• interest on £1.5bn - at a mere 5% that is £75m
• Depreciation on any short life plant/machinery
• Amortisation of any other assets
• Tax on anything left

Call me cynical, or biased, or anything else, but IMHO that doesn't add up to a brilliant deal. It also shows that there isn't much cash left to invest in reducing fees to encourage new users, or upgrading facilities.

Of course, depreciation and amortisation are non-cash items, but they still need to be accounted for in the P&L. Even if some of the capital outlay is not direct borrowings, a return still has to be made on it.

So, when asked what MAG will do with their shiny new acquisition, I'm not sure. Having made the commitment, they will try to make it work, but I hope, for the sake of Manchester's ratepayers, that they manage it conservatively, at least to start with. Non-cost improvements would be uppermost in my mind, such as staff training, strict control of overheads and combination of functions and sharing resources within the group. They may try to sell off or outsource some of the assets or activities included in the sale.

It's a major management challenge...

Have a look at these:

Stansted sale welcomed by business | Cambridge Business News | Cambridgeshire Local Business & Corporate News

Manchester's £1.5bn acquisition of Stansted backed by loan - The Irish Times - Tue, Jan 22, 2013

LGS why are they having to pay interest on £1.5 billion?

Because the money has come from somewhere.

If it's been borrowed from a bank, the bank will require interest.
If it's shareholder's funds (retained profits) the shareholders will require to earn a dividend on it. (If they aren't going to get a dividend on it, the company should return it to shareholders).
Any money or asset that a company applies to a specific project will be judged by its opportunity cost, i.e. what could otherwise have been done with it.

It's easiest to use the example of bank borrowings because that's an understandable concept, but all money carries a cost.

OK taking that point on board then I guess it is ridiculous anyone would buy Stansted.
Thank you for the clarification.

I disagree. What's ridiculous is the price paid, which I really struggle to understand.

Off topic alert
 

LGS6753 - do you work in my HR department??

Unless you were close to the months of negotiation, due dilligence and funding, then it would be difficult to understand. Without the details, impossible to say

I would point out that I can borrow against my house at well below 5%, so borrowing against airport infrastructure and revenue will be significantly below the 5% you assume

Most are people who are championing their own city and airport "support" is part of a bigger thing of championing anything to do with their local town or city. Explains why the Heathrow thread is relatively quiet. No one in London feels the need to "big up" the airport or the city in the same way people from regional cities do.

SWBKCB -

Unfortunately not.

However, the success of GIP at Gatwick has been based partly on improving service standards, and I would expect MAG would want to emulate that, as well as instilling their own corporate culture on newly 'acquired' staff.

Northwest -

You are right to say that airports are cheaper to finance than other types of business, particularly if a securitisation deal can be done. It's a while since I was involved with that type of financing, so my estimate is just that - an estimate. Although LIBOR is only 0.5%, UK Gilts are trading at over 2%, so there are certainly steep gradients in interest rates. Many UK utilities are paying dividends of around 5%, so for the moment I'll stand by my estimate.

MAG was owned by the local councils. Can someone clarify why bringing in an investment fund to dilute the council's shareholding and then buying an airport hundreds of miles away benefits the councils and their populations?

They would have been off focusing on extracting further dividends from MAG to support local services than allowing management to go off on a trophy buying spree, which then requires their service contracts to be re-adjusted for this "extra responsibility" after benchmarking with their peers.

I understand, of course, that the local authorities are not directly running the airports. Nevertheless, as shareholders, they will presumably be receiving dividends, which raises the question of why the users of an airport in Essex should be topping up the coffers of councils in Greater Manchester.

Unless, of course, the profits from STN are simply servicing MAG's debt. In which case what is the point? Empire building??