A British Airways aircraft, operated by British Airways Plc, prepares to land at London City Airport, near to the Canary Wharf business, financial and shopping district, in London, U.K., on Wednesday, Oct. 28, 2015.Chris Ratcliffe/Bloomberg
An investment group stacked with Canadian pension funds is swooping in to acquire the U.K.'s London City Airport.
After months of circling the asset, the airport's auction has been won by Ontario Teachers' Pension Plan, Ontario Municipal Employees Retirement System's Borealis Infrastructure and Alberta Investment Management Corp., according to a source familiar with the deal. The Wren House, an arm of the Kuwait Investment Authority, was also part of the successful consortium.
The property has been reported to be worth about £2-billion ($4-billion), although the deal's exact value is not set to be formally announced. The sellers are Global Infrastructure Partners, which has a 75-per-cent stake in the business, and private-equity group Highstar Capital, which owns the remaining quarter.
Located near Canary Wharf, the airport caters to London's business passengers, with frequent flights to other business hubs such as Edinburgh, Amsterdam, Dublin and Zurich.
Airports have attracted attention from major international private-equity and pension fund investors in recent years. The properties are attractive for the steady stream of income they generate. Research shows that the number of miles passengers travel is likely to increase in coming years.
These airport assets, like other prized pieces of global infrastructure, are being bought and sold at high multiples. Pension funds make for patient investors, but many are also looking to make improvements on the way assets such as toll roads, bridges and ports are run.
Controversy erupted over the price of London City after Willie Walsh, chief executive officer of British Airways' parent company, told the Financial Times that the airline might remove its planes from the airport if fees were hiked to cover the cost of the deal. London City is not subject to the same user-fee caps as some other airports in England.
British Airways has a strong voice as the largest airline at London City, where the company recently celebrated its busiest summer yet. But London City's rates are already the second highest in the U.K. after Heathrow Airport, so incoming investors are unlikely to increase charges significantly.
Plane landing fees and other aeronautical channels are just one of the ways investors make money from airports. Other income streams include duty-free shopping, parking and on-site hotels – areas in which investors look to add value and capitalize on a captive audience. London City recently launched valet parking services, for example.
Increased retail sales potential is an important factor for this airport, which has been expanding its terminal and aims to grow the number of passengers passing through. In 2014, a record 3.7 million business and leisure passengers travelled through London City, and that climbed to 4.3 million passengers in 2015.
Teachers has experience implementing these sorts of growth plans, with existing investments in four other airports, including Birmingham and Bristol in England.