GATWICK AIRPORT SOLD FOR A LOSS

Maybe its a sign of the Times or simply a bad moment for the Spanish giant Grupo Ferrovial, who have been under official pressure to reduce their dominance in UK airports. Running out of credible options Grupo Ferrovial agreed to sell London Gatwick (LGW) airport for a lower than expected £1.51 billion GBP to a consortium featuring General Electric and Credit Suisse.

Officials at Ferrovial stated that they expected to endure a capital loss on the deal of around 125,000 million against its consolidated earnings following the sale.

This news comes a mere 3 years since Ferrovial paid 10.1 billion for BAA overall, which at the time operated 7 British airports in addition to international operations.

London Gatwick has been on sale for a year now following indications from the UK authorities that the Company should reduce their UK airports portfolio. Nevertheless BAA is still appealing a UK Competition Commission ruling ordering it to sell minimum 3 airports.

London Gatwick is the second most busiest airport serving the capital of England, hence this sale will be closely watched by governments, businessmen and travellers alike.

The core focus of BAA now appears to be to improve London Heathrow's 5 Terminals and the other 5 airports that remain.

Meanwhile, the Competition Commission of the UK ordered BAA to sell Stansted also, as well as either the airports of Edinburgh or Glasgow.
It is understood that Ferrovial originally secured a debt-funded takeover of BAA - which included London's Heathrow, London Gatwick, Southampton, Stansted and 3 Scottish airports. This was executed at the peak of the market in 2006, however since the overall operation has since struggled with falling passenger numbers and competition concerns. BAA is highly leveraged and reported a net debt of 29.7 billion in June 2008. It is also therefore widely believed that BAA would use the sale's proceeds to pay back some of the debt.

At Perpetual Traveller we feel the BAA strategy to sell London Gatwick was executed in the hope to avoid offloading more of its major airports on the market at the same time. This may give them a bargaining tool in subsequent negotiations with authorities. Moreover it could serve to ease the pressure of negative feeling in public opinion that opposes such dominance of UK's airports. Whatever happens its a challenging time for BAA and Ferrovial.

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