Auckland Airport buys Queenstown stake for $27.7M

Auckland Airport (AIA) will buy 24.99% of the Queenstown gateway using existing cash. The target company has approval from majority owner Queenstown Lakes District Council to allow AIA to increase its stake to 30%-35% up until June 30 next year, paying $7.47 a share and a lump sum of $2.2 million for the extra shares.

The Auckland and Queenstown airports "will work closer together to grow New Zealand tourism," AIA chairman Tony Frankham said in a statement. ""Our shared goal is to grow passenger volumes at both Auckland and Queenstown airports through strengthened air services development and dual-destination tourism promotions."

The price for the initial quarter stake represents an enterprise value to EBITDA multiple of 13.1 times forecast 2010 earnings and 11.2 times 2011 earnings. Queenstown Airport's EBITDA rose to about $9.1 million in the year through June 30, from $7 million last year. Earnings before interest, tax, depreciation and amortization are forecast to reach $10.6 million in 2011.

The investment comes after AIA spent A$132.8 million buying a 24.55% stake in North Queensland's Cairns and Mackay airports in a bid to attract more tourists from Asia. That foray, funded via a discounted share offer, met a mixed response from analysts and investors, though the company's stock is rated 'outperform,' based on nine recommendations compiled by Reuters.

Shares of AIA have gained 26% in the past 12 months, about three times as much as the benchmark NZX 50 Index. The last traded at $1.93.

AIA and Queenstown have agreed to work together "to drive more tourist traffic into New Zealand and through the two airports," the AIA statement said. They will seek operational synergies and tie-ups in aeronautical operations, retailing and property development.

The alliance may boost passenger through Queenstown Airport by 176,000 a year within five years, over and above existing growth forecasts. That could translate into more than $150 million annually into the local Queenstown economy, it said.

The alliance makes "perfect sense" as 70% of visitors to New Zealand currently arrive through the Auckland gateway, said Queenstown Airport chairman Mark Taylor.

The equity capital from AIA would allow Queenstown to "fund growth of the airport's operating capacity without increasing financial risk through borrowing more extensively," Taylor said.

It would also give Queenstown Airport a stronger capital structure, allowing it to pay dividends to the district council for the first time.

Queenstown Airport's international passenger numbers have quadrupled over the past five years while domestic traffic climbed 22%. In the year ended June 30, there were 811,000 passenger movements, of which 704,000 were domestic and 107,000 international.