14/08/2015 - 15:03

$150m Hedland airport deal

14/08/2015 - 15:03

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The Town of Port Hedland has received three bids, each worth more than $150 million, for a long-term lease over its airport, with the council due to make a final decision on the privatisation deal later this month.

The Town of Port Hedland has received three bids, each worth more than $150 million, for a long-term lease over its airport, with the council due to make a final decision on the privatisation deal later this month.

The likely deal means Port Hedland will have made faster progress on asset sales than the Barnett government, which has a $5 billion privatisation program but has yet to complete any major deals.

The Town of Port Hedland has been tight-lipped on the bidders, other than confirming they are long-term investors such as superannuation funds, international pension funds, and sovereign wealth funds that already own airports in Australia.

A report in today's Financial Review speculated the bidders include AMP Capital and Airport Development Group, which is jointly owned by IFM Investors and Palisade Investment Partners.

The council agreed in June to pursue a long-term leasing deal, after evaluating ownership and management options over the preceding two years.

That decision followed substantial growth in traffic during the past decade, with the airport’s revenue increasing to $19.2 million in 2014-15.

Despite the increased revenue, the airport has not been a money-spinner for the council, with a net deficit of $700,000 expected for the just-completed financial year.

One of the major reasons for that outcome has been a requirement for hefty capital expenditure of about $12 million per year.

The council’s proposed deal would involve a 50-year lease and a commitment by the lessee to spend a further $40 million on developing the airport terminal and other facilities over the next five years.

Business News understands three non-binding bids had been submitted by the deadline, on Wednesday.

The bids were in excess of an independent valuation conducted by the WA Treasury Corporation.

A final decision will be made at a council meeting to be held on August 25.

The council, led by mayor Kelly Howlett, has been engaged in community consultation over how the proceeds from the leasing deal would be handled.

“Initial bids are in excess of $150 million, so we are talking about a sizeable premium that we will need to invest wisely for our community,” Ms Howlett said.

Law firm Herbert Smith Freehills is advising the council on the potential long-term lease.

The long-term lease being considered by the council is similar to those used at 24 Australian airports since 1997.

The federal government sold Perth airport in 1997 and Jandakot airport in 1998 under long-term leasing deals.

Ascot Capital owns Jandakot, while Perth Airport has seven shareholders, all of which are long-term investment funds.

Specialist infrastructure investment group Hastings, owned by Westpac, runs three of those funds, which collectively own 59.9 per cent of the airport.

Perth Airport’s second-biggest shareholder is the federal government’s Future Fund, which has a 29.7 per cent stake.

While Port Hedland is heading down the leasing path, the City of Busselton recently secured state government funding for a $59.7 million upgrade of its airport.

The Busselton upgrade will include the lengthening and widening of the runway and expansion of the car park and terminal.

The changes are designed to accommodate direct interstate flights, which are expected to bolster tourism activity in the state’s South West.

It also follows a major $42 million upgrade at Onslow airport, which is nearing completion.

The Onslow project was originally budgeted to cost $30 million, with most of the money coming from Chevron, which is developing the nearby Wheatstone gas project.

The state government kicked in extra funding last year to enable completion of the project.

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