Airports are out of reach for the majority of investors
You can do this in two ways.
If an airport is strategically located, it can be a significant investment. Despite their less than ideal locations, airports' monopoly status frequently gives them a competitive edge over other kinds of infrastructure assets. Sadly, the majority of airports are not easily accessible to the typical investor because they are owned by sizable private equity firms. A limited number of opportunities are accessible.
Athens International Airport (Athens: AIA) is one of them. It started out as a build-own-operate-transfer (BOOT) business in 1996, with the Greek government owning a 55 percent stake and the investment firm Hochtief (later known as AviAlliance) owning 45 percent. Up until the global financial crisis and the ensuing Greek debt crisis, traffic increased gradually in the early 2000s. Following the crisis, the airport saw a six-year decline in both inbound and outbound traffic, rendering it a prime target for Greece's creditors.
The remarkable transformation of Athens Airport.
In 2019, the Greek government took a major step toward privatization by extending the concession agreement between the government and the company to operate the airport for an additional 20 years, until 2046. The Greek government received £114 billion from the deal. At that time, the government's thirty percent stake in the airport was held by the Hellenic Republic Asset Development Fund (HRADF), a Greek state-owned asset management firm founded in July 2011 to oversee and leverage Greek state-owned private property.
The 2020 global lockdowns that rocked the aviation industry dealt a serious blow to the privatization plan. Traffic to and from the airport did not return to pre-Covid levels until 2024. In February 2024, HRADF put its interest in Athens International Airport up for sale on the Athens Stock Exchange. The IPO raised 784.07 million and was greatly oversubscribed. About half of the company is still owned by AviAlliance, a significant investor, while the Greek government, through HRADF, still owns a 25.5% stake.
Greece's economy has undergone a significant upturn at the same time as the airports' recovery. Despite still being the highest in Europe, its public debt-to-GDP ratio has been steadily declining over the last two years and is predicted to continue to decline in 2025 following a decade of bailouts and external shocks. The most recent data indicates that unemployment is below 9 percent, which is the lowest level in 15 years. This year's GDP growth is predicted to be between 2 and 3 percent higher than the European average.
Greece's recovery from the devastating debt crisis and subsequent pandemic is exemplified by the Athens airport. Flyers traveling to Greece for vacation account for 85% of all airport traffic, which is leisure-related. Among the busiest in Europe, the airport is the biggest in Greece. Operators with a leisure focus, like Athens International, have done better because leisure traffic has recovered faster than other aviation market segments. The most recent statistics show that airport traffic is in fact about 30% higher than it was before COVID.
Plans for expansion.
The business intends to heavily capitalize on this market's expansion in the upcoming years. Presently, it can handle 2633 million passengers annually. Up to 50 million passengers annually are anticipated to be accommodated by this capacity expansion. The airport group had previously intended to grow in two phases, both of which were expected to be finished by 2032. In an effort to boost growth, management has advanced the second portion of the budget. With the expenditure now anticipated to be 1.28 billion in 2024 prices instead of the previously estimated 1.35 billion, this is anticipated to result in significant cost savings of about 100 million.
The company is permitted to carry forward under-earnings and earn a 15 percent return on equity under its regulatory framework. This acts as a buffer against uncertainty and unpredictability. Airport concessions and other non-air activities account for about half of adjusted net income. The remainder is dependent on the airport's traffic, which is predicted to increase gradually over the next several years. By 2027, adjusted group net income from air activities is projected to increase from 81.3% in 2024 to 108.3%.
Because of the company's monopoly-like structure, long-term operating agreement, steady growth projections, and modest valuation, Deutsche Bank analysts have highlighted the stock as one of their top European small- and mid-cap picks. According to Deutsche Bank estimates, the airport's shares are currently trading at a forward price-to-earnings (p/e) multiple of 15 based on 2025 earnings projections. The investment bank has projected a dividend of 0pc per share for 2025, which is equal to about half of the yearly cash flow and represents a yield of about 7pc on the current share price. As capital expenditures increase over the next few years, free cash flow will be somewhat strained, but the business can tolerate more debt on the balance sheet. As capital expenditures continue, net debt is predicted to reach a peak of between 50 and 60 percent of assets by the end of the decade.
Euros for the share price of Athens International Airport.
An alluring substitute.
TAV Airports (Istanbul: TAVHL) is another airport vehicle listed here. TAV serves 110120 million passengers annually through its 15 airports spread across eight countries. It recently invested £120 million to acquire Kazakhstan's most prestigious airport, but in 2025, it should make £129 million in earnings before interest, taxes, depreciation, and amortization (Ebitda). An excellent illustration of how lucrative these unusual assets can be for investors is the 1,200 percent increase in the shares over the last five years.
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