The sale of the Porter Airlines terminal at Billy Bishop Toronto City Airport is moving quickly to a close, as buyers in Canada and abroad show intense interest in an asset said to generate $60-million a year from passenger fees and rents.
The airport isn't popular with all Torontonians, but it is very popular with potential buyers. The auction, first reported in August, could be done in a month, said one person familiar with the process. With infrastructure assets in heavy demand, the cash flow from the terminal is going to be very attractive to an infrastrucure-focused buyer. The terminal produces about $60-million a year, said a second person, who had been briefed on the numbers.
Porter has not confirmed the reported price tag of $500-million. It sounds like a big number, but given that profitability number and the valuations that airports fetch, it's very possible the final sale price could widen some eyes, especially considering the first phase of the terminal cost only $49-million. In deals up to 2011, Booz & Co. calculated that airports this size fetched 20 times operating profit when they hit the sale block. With low interest rates, multiples will remain sky-high.
Ontario Teachers' Pension Plan recently bought the half of Bristol Airport in the U.K. that it didn't already own. While the price was not disclosed, Reuters had pegged it at as much as £250-million ($453.2-million) – implying a value of £500-million for the whole thing. That's just shy of 20 times the airport's pre-tax profit.
Here in Canada, pension funds such as Ontario Teachers' Pension Plan and Canada Pension Plan Investment Board have showed keen interest in owning airport terminals. Overseas heavyweights include names such as Global Infrastructure Partners, which owns three airports in the U.K.
At the downtown Toronto airport, passengers flying out of the airport pay $20 on each ticket, billed as an "airport improvement fee." About 2.3-million passengers moved through the terminal last year. The bankers running the sale will no doubt be aware that the passenger numbers could rise shortly with the completion of the tunnel from the mainland to the island on which the airport lies.
In addition, airlines that use the terminal will pay rent. Porter plans to lease back space for the long term. Air Canada also flies to the airport.
What will Porter do with the money it brings in? The official line is that it will be used for expansion, but few would be surprised if some of the cash went to provide a little liquidity for the private equity funds that have been investors in Porter for eight years and counting. That would include Edgestone Capital Partners and Dancap Private Equity.