Fitzpatrick takes a run on the wing

MIKE Fitzpatrick has come a long way since he played ruckman for Subiaco and captain/coach of Carlton in the amateur footy days. A Rhodes scholar at Oxford, Fitzpatrick chose investment banking as a career. He is the founder and managing director of Hastings Fund Management, which has a small stable of investment thoroughbreds.

One of them, publicly listed Australian Infrastructure Trust (AIF), owns 25 per cent of Perth Airport, and has a 5 per cent stake in Melbourne, as well as holdings in the Darwin and Alice Springs airports.

Fitzpatrick took a great mark last month when he bought the UK-based British Airports Authority, into AIF as an investor and operator. BAA, acknowledged as the world’s leading airport manager, brings extra money and muscle to the company at an interesting time.

The government is selling off Sydney’s Kingsford-Smith Airport for what is expected to be something north of $4 billion. By opting for a trade sale rather than an IPO, the mandarins have robbed the stock market of an interesting float. Salomon Smith Barney, which won the mandate for the sale, advised this was the best route for taxpayers.

The privatisation of Sydney Airport is a bit of a dog’s breakfast. Foreign ownership will be restricted to 49 per cent. Individual airlines can only have 5 per cent. Major investors in other airports, like AIF, can only take 15 per cent, but they would be allowed 12 months to divest some holdings in order to qualify for more.

Potential buyers circling ready for the bidding later this year include Changi Airport of Singapore and Schipol of Amsterdam.

Airports are natural monopolies, and there was keen interest when Melbourne, Brisbane and Perth were offered for sale in 1997. One negative has been that landing fees and other aeronautical charges are controlled by our old friend Allan Fels, head of the ACCC. In recognition of the fact that landing fees in Australia are less than half the world average, Fels will allow Sydney to lift its charges by 70 per cent. The new structure will apply to all operators by next year. Currently airports only get about one third of their profits from aircraft services. They rely on duty free and other retail stores, car parks and land development for the gravy.

Perth is about to spin off an unlisted property company to accelerate some $250 million in proposed freight and logistic projects, and there is still a massive land bank around the airport.

Sydney Airport handles about 23 million passengers a year, eight million of them on international flights, as well as half the country’s airfreight. Its profits under the revised ACCC ruling will rise from $190 million to $260 million.

The new owners will also be offered first shot at developing and operating a second airport within 100km of Sydney, although it will be years before political controversy allows that project to get off the ground.

AIF is in a win-win situation. If it gets a slice of Sydney that is a positive. If it does not, it will still be the only publicly listed company offering significant exposure to the sector. Almost 38 per cent of its $400 million portfolio is represented by airports, the balance is in toll roads and seaports, power utilities and telcos.

The stock market liked the BAA link, and AIF shares have since moved up from $1.78 to $1.96 where the yield is an unfranked 8 per cent.

A word in your Shell-like…

JOHN Edwards, chief economist of HSBC, says by procrastinating over the Shell bid for Woodside “the government is doing more damage to the overseas perception of Australia’s openness to foreign investment than any government for over a quarter of a century.”

Could not have put it better myself. The faceless Treasury bureaucrats on the Foreign Investment Review Board have had four months to make up their minds on the acceptability of the offer. The FIRB was supposed to make its recommendation to Peter Costello and that should have been that.

Instead dozens of politicians have felt free to stick their oar into the debate, often unencumbered by the haziest notion of what is involved.

If Costello is at all well versed in Shakespeare, he should have been pondering the line from Macbeth “ If it were done when ’tis done, then ’twere well it was done quickly.”

No doubt he, like Geoff Gallop and many others, is fervently hoping BHP will come up with an offer that would see Shell off. They were still talking to Woodside this week.

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