London City airport owner prepares for sale

GIP wants new chief executive to review exit options, in hope of eventually fetching £1.25bn

The incoming chief executive of the Square Mile's favourite airport, London City, has been told by its owner to review sale options when he starts in the spring.

Declan Collier, who joins from Dublin airport, has been asked by Global Infrastructure Partners (GIP), which also owns Gatwick, to look at a potential sale in his first months in the job. Investment banking advisers could be selected by the end of the year.

This comes at a time of unprecedented upheaval for the airport industry. Edinburgh is up for sale, Stansted could be soon, and the Government is proposing an airport in the Thames estuary.

Other options for London City, which had 7.6 per cent more passengers last year, include syndicating the equity as GIP did for Gatwick in 2010. For example, Abu Dhabi Investment Authority spent £125m for an estimated 15 per cent shareholding and Calpers, the US pension fund, dished out around £105m for a 12.7 per cent stake.

Sources close to GIP said that a banking appointment would leave City, a favourite with business due to its efficiency and proximity to London's financial centres, able to sell quickly when market conditions improve.

At present, the airport would struggle to fetch much more than the £742m that GIP – then in conjunction with AIG – paid in 2006, despite significant operational improvements. In a buoyant market, GIP and the current minority stake partner Highstar Capital could expect as much as £1.25bn.

If Mr Collier recommends a sale, it is unlikely to take place until late next year when GIP can profit on its investment. A source said: "Timing is the only thing that matters. There are different ways of exiting – GIP looks at what happened with Gatwick and selling slices as a successful model."

Mr Collier replaces Richard Gooding, who will stay on as a non-executive director at the airport. Mr Gooding declined to comment on the potential sale.

Although GIP seems set to, at least, sell down some of its stake in London City, the US-based infrastructure group is believed to be interested in buying Edinburgh airport. The deadline for initial bids on Edinburgh is next month and Royal Bank of Scotland is believed to be advising GIP on its potential offer.

Edinburgh is expected to fetch in excess of £600m, though the price might be slightly depressed as it is a forced sale. The airports operator BAA has been ordered by the Competition Commission (CC) to sell-off Edinburgh, as it is considered to have a near-monopoly in Scotland, just as it was at Gatwick.

BAA, which is owned by the Spanish group Ferrovial, is still fighting the CC's ruling that it should also sell off Stansted. The CC argued that by owning Heathrow and Stansted, as well Gatwick until 2009, BAA was too dominant in the South-east.

However BAA believes that Heathrow and Stansted serve different markets, the former focusing on business and the latter leisure.

The future of UK airport infrastructure was a major talking point last week, after it emerged that the Government would be consulting on the possibility of building a new airport in the Thames Estuary. This is a plan for which London Mayor Boris Johnson has lobbied hard and which would negate the need to expand at Heathrow.

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