If only!

Council may sell airport stake
08 July 2005
By ROELAND VAN DEN BERGH

Wellington City Council may consider selling its international airport stake as a result of its battle with majority shareholder Infratil over dividend payments, deputy mayor Alick Shaw says.


The issue has come to a head after the council turned down a $5.7 million dividend payment for the year to March 31, its share of the $17.3 million tax paid profit, while it considered an Infratil proposal to swap its shares in the airport for convertible notes.

Convertible notes provide a fixed rate of return, but at a lower yield.

The process should give some indication what the airport was worth, Mr Shaw said.

"It will enable councillors to think about whether or not this amount of capital is properly employed there, or may be better employed in paying for the infrastructural needs of the city."

Based on Infratil's purchase price of $98 million for its 66 per cent holding in 1999, the council's stake would have been worth about $50 million at the time. The council has earned about $20 million in cash on the investment in that time.

"There are issues also in respect of our being able to protect our position into the future, which are not going to be discussed in an open forum," Mr Shaw said.

AdvertisementAdvertisementThe council also missed out on a dividend last year after Infratil decided to invest profits back into the airport, which was planning capital expenditure of about $200 million to develop the international terminal and upgrade the runway.

"I suspect that this debate will have the effect of persuading more to at least think about that possibility" of selling the airport, Mr Shaw said. "I'm not very happy having a truck load of capital tied up in something that doesn't give us a cash flow."

Mr Shaw said he would personally consider a sale, "but there will be substantial opposition to the sale of an asset".

The council has budgeted for a return of $4 million a year from the airport, or about $23 per ratepayer, in its long-term council and community plan that is due for review next year.

Failure to earn a dividend from an investment for two years in a row made it more difficult to include future earnings in forecasts used to set rates.

Total investment income represented between 2.5 per cent and 3 per cent of rates income.

Selling the airport would also significantly reduce the council's borrowings, Mr Shaw said.

Infratil executive Tim Brown said the company would be interested in taking full ownership of the airport if the council decided to sell. Discussions with the council about the structure of its investment in the airport had been on going for a number of years.

"It has been a slow process," Mr Brown said.

Having the council as an investor had benefited Infratil because both investors had the same interests for the airport.

The dividend issue was only a small part of the relationship, Mr Brown said.