Aena bind

Spanish airports: Spain hopes to raise euro14 billion this year by partially privatising airports and the lottery company. This is easier said than done. The privatisation of loss-making airport group Aena – the largest in the world by passenger volume – is riddled with complexity.

The government wants to sell up to 49 per cent of the company, and also allow private concessions to run the Madrid and Barcelona airports independently. Which should come first?

It would be hard to sell a stake in the holding company while the concession value of its two largest airports is unknown. Doing the big concessions upfront would make more sense and would attract strong interest from infrastructure operators.

But it could then leave a mis-match collection of 45 other airports in the holding company.

There are a few gems, such as Mallorca or Alicante, but many others are loss-making.

The second problem is valuation. The government hopes to raise nearly euro9 billion from the 49 per cent stake, valuing the company at about euro18 billion. To get there, investors must make some pretty racy assumptions. A report commissioned by the government estimates the group's Ebitda potential at euro1.8 billion, assuming tariffs rise from their currently low base. Apply a multiple of 10 times – the average for listed airports – and the enterprise value is euro18 billion.

The snag is that Aena made just euro574 million in Ebitda in 2009. It also has an estimated euro12 billion of debt, though it may end up staying with the government and not in the newly privatised company.

There is some growth potential, for example by better exploiting commercial space at the airports. Madrid-Barajas, which carries 50 million passengers a year, has spare capacity.

Following the merger of British Airways with Iberia, it might pick up the slack from Heathrow, which is bursting at the seams with only a third of transfer passengers.

Aena could also cut costs, and shut unviable airports. But this may be hard in regions where airports are treated as sacred cows.

Fortunately, the privatisation of the money-spinning lottery company is more straightforward and bankers say it will probably exceed the 5 billion euros the government hopes to get from the sale of a 30 percent stake. Privatising the airports at a decent price, however, may take longer.