Although airport deal activity is increasing in Europe, with a number of airports potentially being put up for sale, the slowing pace of growth in passenger numbers in a difficult economic climate means that the high transaction multiples seen before the financial crisis are unlikely to be achieved again for around a decade, according to PwC valuation experts.
When credit was plentiful and passenger traffic was growing, transaction multiples in excess of 25x EV (enterprise value) to EBITDA (earnings before interest, tax, depreciation and amortisation) were not uncommon for European airports. However, PwC expects that, based on current market evidence, higher growth regional airports are likely to transact in a range of 14x-18x EBITDA, and larger more mature ones in a range of 10x-14x. These are the key findings from a paper Has the trend line shifted? The impact on airport valuations from PwC’s airports valuations team.
Unregulated airports are arguably at the riskier end of infrastructure investments, but have nevertheless proven to be an attractive asset, offering a moderate degree of cash flow certainty and also greater growth potential than some more traditional infrastructure assets. However, unlike those traditional assets, airports serve airlines as their primary clients and therefore share in the fortunes and woes of a highly cyclical industry.
Airport valuations depend on future cash flows which are in turn underpinned by passenger demand for travel. While airport cashflows have historically shown resilience in downturns, recent evidence suggests that airport performance is not as immune to wider market volatility as perhaps once thought.
Romil Radia, valuations partner, PwC said: “The speed of passenger traffic growth at airports hinges on the pace of economic recovery. It is unlikely the numbers will revert to their historical trend line before 2022-24, reflecting the fact that the fall in traffic since 2007 has been markedly sharper than in previous recessions. It may even be the case that traffic never returns to the historical long-term trend. “That being the case, owners of airports will need to think carefully about how to extract value from their investment and look at innovative ways of driving up revenues. We are already seeing this at airports where there is greater focus now on increasing airside ‘dwell time’, for example, to promote retail and leisure spend from time spent waiting for flights.”
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