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London City Airport, with Canary Wharf in the background, has been working to expand its terminal to show investors it still has room to grow.Chris Ratcliffe/Bloomberg

Airports have a knack for getting major international private equity and pension-fund investors to line up at the gate.

London City Airport is the latest to attract attention – and Canadians are rumoured to be among the bidders.

Airports are one part of a trend in which institutional interest in infrastructure investing has ramped up in the past few years, driven by the hunt for yield in an environment of lower interest rates and the potential to hold assets for the longer term.

But there are reasons investors are looking to airports over shipping ports, bridges or toll roads.

For one, global airline revenue is up and the number of miles passengers are travelling is forecast to climb 7 per cent this year, according to a 2015 airline industry trend report from PricewaterhouseCoopers.

The study points out that disposable incomes in emerging markets are rising, allowing more travel, and lower fuel costs are also helping encourage more people to take flight.

"Increased demand for air travel requires not only additional aircraft, but also infrastructure investment to support the operation of those aircraft, including airport expansions and efficiency-based improvements to air traffic control," the study states.

And investors have been scooping up assets around the world, particularly in Europe. Pension funds like the steady stream of income that airports bring in.

Revenue comes in part from aeronautical channels, such as plane landing fees, which can be influenced by regulation in some regions. Then there are the non-aeronautical channels, such as duty-free shopping, parking and on-site hotels – areas in which investors look to add value and capitalize on a captive audience.

London City, located near Canary Wharf, has been reported to be worth £2-billion ($4-billion).

Ontario Municipal Employees Retirement System's infrastructure arm, Borealis Infrastructure, is said to be taking a run at London City with German insurance and asset management giant Allianz. The two have partnered on infrastructure investment in the past and OMERS has expressed an interest in boosting infrastructure investments this year.

According to reports, the Ontario Teachers' Pension Plan is also interested in the asset and would likely bring partners to the table.

The Canadian investors face international competition from Australian investors and other global groups. Teachers already has investments in four airports, in Birmingham and Bristol in England, and Brussels and Copenhagen.

London City did not always have a swarm of bidders. The airport had not yet made money when moustachioed Irish businessman Dermot Desmond bought it from a construction company that developed it in 1995 as the city was recovering from recession. The media-shy Mr. Desmond never said how much he paid, but estimates hovered around about £23.5-million.

Mr. Desmond sold it in 2006, when Global Infrastructure Partners, backed by Credit Suisse and GE Infrastructure, and U.S. insurer AIG went halves on the asset, which was valued at close to £750-million. In 2008, a beleaguered AIG sold its half of the airport for an undisclosed sum, one of many assets it shaved off as part of a bigger effort to repay the government for a bailout. Later, private-equity firm Oaktree Capital Management LP took a minority stake. "Frankly, the most attractive time to invest in airports was probably 20 years ago, and I only say that because the number of people flying has only increased," said Andrew Claerhout, senior vice-president of infrastructure at Teachers. But even though the low-hanging fruit has been picked, he still thinks airports are an "outstanding investment, because you get the stability of owning an essential piece of infrastructure that's serving a local population with the ability to continue to up our game and make the goods and services available to fliers better."

London City has been working to expand its terminal to show it still has room to grow. It expects to improve upon the 3.7 million passengers that travelled through the airport last year by 10 per cent this year – that is more people that might pay £34.65 a day to park, or grab a latte at Caffe Nero.

These investments can experience turbulence. Airport operators have to deal with rising sensitivities to noise and air pollution as well as terrorism and security risks.

Airports in Canada are also in need of investment, according to a recent report from Fitch Ratings. The firm's research shows that passenger traffic has climbed in the past 15 years, and that could mean new infrastructure investments are needed. And investors are stepping up. AGF Management Ltd. and a consortium of other investors had the winning bid for the passenger terminal at Billy Bishop Toronto City Airport earlier this year. One executive said such assets are "hard to come by."

But slower economic growth in Canada may stall some airport improvement projects, said Seth Lehman, senior director of Fitch's global infrastructure group. "Certainly, the Canadian economy is starting to slow down almost to flat. If this were to persist, some airports might re-evaluate the timing of projects," he said.

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