Groupe ADP mid-year results

Khair Mirza (Kuala Lumpur, Malaysia)

 

Traffic Performance

Groupe ADP (“ADP”) is an international airport operator is based in Paris, where it operates its flagship assets Paris Charles de Gaulle (“CDG”) and Orly Airport (“ORY”). Internationally, ADP is involved in 26 airports and 14 countries (293m pax consolidated and 84m pax unconsolidated).  Of these, 14 are operated through its 46% shareholding in TAV Airports Holdings, the largest airport operator in Turkey. ADP also has a cross-shareholding of 8% and strong industrial cooperation framework agreement with Schiphol Airport, Amsterdam.

ADP’s traffic numbers for 1H2019 were deeply affected by the closure of Ataturk International Airport, in Istanbul, Turkey which officially closed on 6th April 2019 when all operations transferred to the greenfield Istanbul Grand Airport about 40 km away. For Y-o-Y (Jan-Jun) traffic, this contributed to a 9.3% drop in total ADP traffic, falling from 130 mppa to 114 mppa. Excluding this extraordinary event, traffic grew by 2.9%, driven mainly by strong growth in Antalya (+12.7%) and Santiago (+11.3%) but dragged down by Ankara (-20.4%) and Izmir (-9.9%).

Meanwhile, in Paris, Paris Aeroport (CDG + ORY) grew a combined 4.8% Y-o-Y (Jan-Jun), with relatively robust growth recorded at CDG (+6.4%), which was ahead of ORY (+2.5%). Strong growth was recorded to destinations in Africa and Latin America each growing 17.2% and 14.6% respectively. Paris Aeroport’s growth is highly respectable compared to London Heathrow (+1.8%), Amsterdam Schiphol (+1.4%) and Frankfurt (+3.0%) but slightly lower versus Madrid (6.6%). The higher-than-expected growth for Paris Aeroport in 1H2019 has led to ADP revising its forecasted growth to between +3.0% and +3.5% from +2.5% and +3.0% previously.

TAV Airports Holdings, even after excluding Ataturk, reported lower traffic figures compared to 1H2018, mainly due to a 20.4% and 9.9% drop in traffic in Ankara and Izmir, coupled with a flattish performance at Bodrum (+2.6%) and Medinah (-0.3%). Relative to the growth from 2017 to 2018, these numbers are significantly down where tremendous growth was reported at all TAV airports including Ankara (+26.7%), Izmir (11.3%), Bodrum (24.1%) and Medinah (7.3%).

Corporate Developments

ADP’s own privatization plans will be delayed as French courts recently approved plans for a public referendum on the government’s planned sale of some/all of its 50.6% stake in the state-controlled airport operator. The government is looking to monetize its stake worth approximately EUR7.8 billion in ADP and other state assets to create an innovation fund and to pare down public debt. Opposition parties meanwhile argue that such sales would erase an important income stream to state coffers.

Vinci has long made public its interest to purchase ADP to add a crown jewel to its rapidly expanding portfolio of airports, which include recently acquired London Gatwick, a bevy of French airports such as Lyon and Nantes, as well as Cambodia’s three airports and Portugal’s 11 airports, amongst others. Vinci, which is mainly involved in construction, already owns 8% of ADP and believes that the company is the prime candidate for the government stake, as CEO Nicolas Notebaert recently claimed that a consolidation would contribute towards an undoubted global leadership in the sector.

There will be a lot of suitors for the government’s stake in ADP other than Vinci. Private equity giants such as Paris-based Ardian and Italian infrastructure group Atlantia are names being bandied about in the market but may face an uphill task to unseat Vinci as the favourites. Partnering with a financial investor would make most sense for any interested airport operator, considering the price-tag which will likely be north of EUR8 billion. Vinci would be familiar with this model as their recent acquisition of a 50.01% stake in London Gatwick was done with Global Infrastructure Partners (“GIP”) holding the rest.

In conclusion, despite a key drop in traffic stream stemming from closure of Ataturk, ADP remains an attractive proposition for investors. Despite the potential snag at state level regarding its privatization, the government has clearly made its intentions known favouring a sale. Investors eyeing prized airport assets in one of the prestige capitals of the world should remain optimistic that growth continues its uptick notwithstanding the slowdown contributed by TAV.

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