“After almost twenty years, the airport has returned to national majority ownership” – Minister for National Economy Márton Nagy announced the deal in which the Hungarian state and French company Vinci jointly bought out the foreign operators of Budapest’s Ferenc Liszt International Airport.
State acquires airport it has already owned
This is like renting out my apartment in the long term, with the tenant paying in advance, and then paying them even more to leave before the contract expires
– this is how our source, an expert in transportation infrastructure investment, interprets the transaction.
In his view, it is misleading to talk about repurchasing the airport, given that the Hungarian state retained ownership of Ferenc Liszt International Airport even after the privatisation of the operating company. In his statement, Márton Nagy criticised the Gyurcsány government’s move from twenty years ago, citing a squandering of national wealth and botched privatisation. The professional investor obtained a 75 percent minus one vote share of Budapest Airport Plc. along with the operational rights for 75 years in late 2005. The investor paid HUF 464.5 billion upfront for these shares and rights, but the airport itself, including its infrastructure, runways, buildings, parking lots, etc. all remained state property following the transaction (Somewhat similarly to the case of motorways: although they are developed and operated by concession companies linked to Lőrinc Mészáros and László Szíjj, they remain state-owned.)
The agreement stipulated that the investor would receive the airport’s operational revenues while covering costs and making necessary investments and developments, thus sparing the state these expenses for decades. Upon the contract’s expiration in 2080, operational rights would revert to the Hungarian state, with the infrastructure remaining its property along with the completed developments. Meanwhile, the state could continue to enforce its will as a regulator by defining the airport’s operational framework.
What exactly have Márton Nagy and his team purchased for 1400 billion?
The announced purchase price of 4.54 billion euros is even higher than the amounts leaked during the previous acquisition attempts. Last September, Bloomberg published articles about a price of 4 billion euros, but the final sum is greater than even the 4.44 billion euros (which the parties would not deny) circulating the press around the time of the 2021 attempt.
As with the new ownership structure 80 per cent belongs to the Hungarian state and 20 per cent to French Vinci, the burden on the budget amounts to a total of 1416.5 billion forints. Of this, 967 billion is to be transferred straight away. And while the assumed loan can wait, that too must be paid off eventually.
Previously, based on the then-4 billion euro purchase price, we estimated that the acquisition would cost a total of 774 billion forints, to which Márton Nagy replied that the price would be more favourable. The ministerial math works out if we ignore the loan part and go with the scenario that only 51 per cent will remain in state hands, with Qatari (or other) investors buying 29 per cent from the Hungarian state in the future. In this case, the immediate expenditure would indeed be smaller at 616.6 billion forints – amounting to HUF 903 billion once the loan is taken into account.
pointing to the EV/EBITDA ratio of 24.6. This metric, used to determine real market value, shows the ratio between the company’s total value and its earning capacity. (For those interested in details: the ratio is calculated by dividing the 3.1 billion euro purchase price plus the 1.44 billion euro loan assumption with the operating result increased by depreciation – 123.6 and 61 million euros, respectively. Back in 2005, the ratio stood at 31, a world record at the time. However, amidst current market conditions, an EV/EBITDA of 24.6 also represents the market’s peak – as evidenced by several examples in Telex’s article.
When comparing prices, it should be noted that the privatisation process was completed in 2011 – by the Orbán administration. They then sold the state’s 25 per cent plus one vote stake in Budapest Airport for 36.6 billion forints. At that time, 69 years remained of the concession operation, meaning that the entirety of the airport operator was valued at HUF 500 billion.
Now, the government of Viktor Orbán has bought 80 per cent of the remaining 56-year concession for 1416.5 billion forints. Going from here, 100 per cent in the company is valued at 1770.6 billion forints, three and a half times the previously mentioned 500 billion. What the Hungarian state had once sold for 75 years, raking in a record sum (and at the same time freeing itself from the investment costs of hundreds of billions in developments during the lease period),
And these costs may not be all. Although it has not been yet stated how the French investor and operating partner, Vinci Airports, will participate in the deal, it is certain that they expect a return on their investment. Vinci will partake in operating the airport, and will most likely charge a fee for the service. A few weeks ago, rumours surfaced that Vinci might withdraw from the deal due to the Hungarian state wanting to dictate everything. The French company has not responded to our inquiry, but it is not out of the question that the rumours were based on disagreements over operating fees.
An issue of sovereignty
“The ownership of the airport is a matter of sovereignty, holding strategic significance not only due to passenger transport and tourism but also cargo transport” – the ministerial statement justified the massive deal. There have not seemed to be any issues with these so far, as the airport has been winning one award after another, passenger traffic has doubled since privatisation, and cargo traffic has also been breaking records year after year. As for national security, it is decreed by law that the military may use the airport without any sort of restriction, regardless of the owner’s identity.
Foreign investors will continue to be interested in Budapest Airport Plc., and the company will be financed by international banks all the same. The Hungarian state will have to coordinate with at least one, possibly two, foreign investment partners and must adhere to strict obligations towards the international banking consortium. Since there have been no news of the loan having been repaid, it is assumed that the tripartite agreement with the banks and the borrowing operator company remains. The lease agreement is acting as collateral for the loan, meaning that in case the banks perceive problems with either repayment or operation, the state will have to ensure an appropriate operator acceptable to the financial institutions.
Based on all this, it appears that the airport’s purchase is not a question of sovereignty. Rather, the big question is:
Business plan for connecting Western and Eastern capital
We will have to wait until early July to find out what the Orbán administration plans to do with the Ferihegy airport after repurchasing Budapest Airport Plc. So far, not much beyond the purchase price has been revealed about the “most complex and highest-value economic transaction since the regime change”. The buyers – the Hungarian state and co-investor-operator Vinci Airports – will present their business plan next month, shedding light on how they will strengthen the “linking of Western and Eastern capital, as well as cutting edge technology in our country”, and what it means to have an “airport serving the population and the economy at a high quality”, as expected by the government. It may also be revealed
- how they plan to boost tourist traffic,
- what cargo developments are to be expected,
- whether a Chinese elevated rail will indeed be built leading to the airport, or if it will rather connect to the railway network as per the EU agreement,
- how much Vinci will charge for operation,
- and when the announced Qatari investor would enter and what their role will be.
So far, there has been no mention of return on investment calculations in official statements. However, government-affiliated Nézőpont Institute has recently released an analysis suggesting that the airport is a good long-term investment and that the 3.1 billion euros purchase price could pay off in 25 years. The institute estimates that with capacity expansion investments, the airport could handle 30 million passengers by 2030, a significant leap from the airport’s current record of 2019, which saw 16.2 million passengers. Should the airport’s traffic develop as forecasted – maintaining the same profitability ratio – the annual after-tax profit could reach 150 million euros with 30 million passengers, as per Nézőpont’s calculations.
