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Why selling Auckland Airport shares is a silly thing to do

Written By: - Date published: 7:21 am, December 20th, 2022 - 34 comments
Categories: auckland supercity, local government, Privatisation, supercity - Tags:

As part of the cost cutting Mayoral budget proposal Mayor Brown is recommending that Auckland Council divests itself of its airport shares. Currently it owns 266,328,912 shares, about 18% of the total shareholding. At current prices the shareholding is worth about $2.16 billion although such a large share sale would dilute the market.

Thanks to Covid recent returns have not been good. In 2020/21 AIAL lost $39 million. For the latest financial year as things returned to normal the loss was reduced to $11.6 million. I expect that AIAL is now back into the black and anticipate that an interim dividend will be announced reasonably soon. Generally announcements are made at the end of February.

Airport activity is certainly returning to normal. For October 2022 passenger throughput was 72% of the equivalent pre covid figure. The rolling average over the past 12 months was 43%.

In 2019, the last normal trading year, total dividends of 22.25% were declared. Auckland Council’s payout by my calculations was in the vicinity of $59 million.

The mayor has presented the sale as a quick way to save $88 million but this depends on what dividends are announced this year. The share price has gone through something of a surge recently with prices up 14% in the past couple of months so I anticipate that the analysts think that the news will be good.

Short term a sale may present a temporary cash benefit but long term these sell downs normally end in tears. Remember the great MOM share sale the Government completed in 2013? My calculations were that the $4.7 billion that was raised by the asset sales has cost us $6.5 billion by 2019. At that stage we, as in New Zealand Inc, had lost $2.3 billion in dividend payments and the shares that were sold were then worth $4.2 billion more than when we sold them. No doubt the current figures would be even more depressing.

My very strong view is that long term it is better for Auckland Council to retain the airport shares. This is why the wealthiest amongst us take such a long term view about shareholding and why there is an obscene amount of disproportionately wealth in New Zealand. Why shouldn’t our public entities that provide public services share in this wealth accumulation?

Are there other reasons for Council to retain the shareholding?

I believe there are some significant strategic reasons.

Firstly AIAL owns $3 billion in property around the airport. Having some influence over how this land is developed is not the sort of thing a Council should give up easily.

Secondly it is a major transport hub. Ensuring that it is integrated properly into the city is extraordinarily important.

Thirdly Auckland Council’s shareholding prevents takeover of the company by one entity. Admittedly it is difficult to anticipate this happening but Council’s current shareholding will mean that it cannot occur.

I believe there are solid reasons to retain Council’s interest in the airport. And the temporary cash benefit will disappear and then long term we will be left with an extra hole in Council’s income.

And for the scaremongering about debt Council’s latest annual report indicated it has an asset base of $70.4 billion and total borrowings of $10.4 billion. Debt is not at a crisis level.

The scaremongering follows the tried and true methodology employed by the right over many years. First declare a crisis, then offer up the sale of publicly owned assets as the solution. But it does not work. All that happens is that public control is lessened and as the hit wears off another crisis occurs requiring more sell offs emerges.

Please Auckland Council don’t do it.

Consultation will be opened in the near future. Be sure to have your say.

Reprinted from gregpresland.com

34 comments on “Why selling Auckland Airport shares is a silly thing to do ”

  • Comments are now closed

  1. Shanreagh 1
    20 December 2022 at 7:50 am

    He literally wants to get a quick buck, or billion. He and his advisers are clearly not au fait with holding shares as a matter of strategic importance or of wealth building (the question of dividends you have mentioned)

    He is questioning AuckCC input into child care facilities but not golf courses?

  2. Sacha 2
    20 December 2022 at 8:00 am

    Firstly AIAL owns $3 billion in property around the airport. Having some influence over how this land is developed is not the sort of thing a Council should give up easily.

    Secondly it is a major transport hub. Ensuring that it is integrated properly into the city is extraordinarily important.

    I agree with the financial reasoning, but both of these are purely about planning and if anything are constrained by a conflicting minority stake in the organisation being regulated.

    • Sacha 2.1
      20 December 2022 at 8:02 am

      The energy companies on the other hand were a disaster to privatise when the regulations are so useless about long-term fitness for purpose – as the Greens pointed out at the time.

      • tc 2.1.1
        20 December 2022 at 9:41 am

        Or a really great investment given the dividends v profit we've seen.

        Disaster for consumers and energy supply planning etc which nact don't give a f about.

        • Sacha 2.1.1.1
          20 December 2022 at 1:05 pm

          The high dividends are purely because the companies have been turned into an investment class rewarding short-term payouts over long term purpose.

        • Incognito 2.1.1.2
          20 December 2022 at 1:37 pm

          Nope, Auckland Airport has been a slightly below average performer in the NZ market since the Auckland City amalgamation.

  3. tc 3
    20 December 2022 at 9:38 am

    Predictable that Wayne does what's he doing just before the break.

    Continues hide and keys work in trying to sell akls assets. Watch the media pile on over the break it'll be entertaining.

  4. Ad 4
    20 December 2022 at 10:08 am

    AIAL are their own Requiring Authority so there is no regulator-owner conflict.

    AIAL are back in growth cycle so selling is utterly stupid re future dividends.

    AIAL is NZ largest single carbon emitting business outside Fonterra and this shareholding is the only public lever.

    AIAL is a very poweful transport planner and operator, quite outside AT control. The shareholding is the biggest lever.

    AIAIL used to be 100% in public control, and sale of airport and seaport cuts off the remaining public lever over two critical businesses.

    Where is Labour Government in this?

    Another Marden Point strategic loss without a fight?

  5. Thinker 5
    20 December 2022 at 11:05 am

    And if you can fool the people into thinking the airport shares are worth selling, you are on the continuum to promote the privatisation of Port of Auckland.

  6. Thinker 6
    20 December 2022 at 11:18 am

    … Then outsource staff functions from inside the council.

    Despite neoliberalism being proved to be a bad thing for the bottom 90 % there are still people who can profit from it.

    Think about that when you think about whether to have a say about the budget.

  7. tinderdry6 7
    20 December 2022 at 12:02 pm

    Some very good arguments for retention of the shareholding, even though I still support the shares being sold.

    "And the temporary cash benefit will disappear and then long term we will be left with an extra hole in Council’s income."

    The cash benefit that will not disappear is the savings in debt servicing costs. With interest rates rising for the foreseeable future, this saving will be significant.

    "And for the scaremongering about debt Council’s latest annual report indicated it has an asset base of $70.4 billion and total borrowings of $10.4 billion. Debt is not at a crisis level."

    This is a council, not a commercial enterprise. That asset base is made up of parks and reserves, the port, shares in the airport and so on. The majority of Auckland Council's assets are not revenue earning, and so using this asset base to somehow suggest the level of debt is not 'at a crisis level' is not correct. My view is the level of debt is holding up rates at a level that for many Aucklanders is a crisis.

    • mickysavage 7.1
      20 December 2022 at 8:20 pm

      Family homes do not produce any income but contribute greatly to family security. The difference is?

      • tinderdry6 7.1.1
        21 December 2022 at 8:45 am

        But family homes CAN produce an income. If I'm in debt and interest rates are rising, I can rent out a room for extra income. I guess the council could start charging for access to parks, beaches etc (as they do in places overseas) but I'd prefer they sell AIA shares.

    • joe90 7.2
      20 December 2022 at 9:12 pm

      the savings in debt servicing costs.

      Savings for who?

      Expecting contemporary users to bequeath debt free assets to future users is a fucking have. Final debt payments should coincide with the end of an asset's useful life. Replacement assets should be paid for by contemporary users.

      Conversely, future users shouldn't be deprived of returns from dividend generating assets just because you want rates relief.

      • tinderdry6 7.2.1
        21 December 2022 at 8:50 am

        "Savings for who?"

        For Council, and ultimately ratepayers.

        "Expecting contemporary users to bequeath debt free assets to future users is a fucking have. "

        If those assets are earning revenue to fund debt servicing and repayments, that's fine. But the idea that parks etc should be subject to debt is nonsense.

        "Final debt payments should coincide with the end of an asset's useful life."

        What is the 'end of the useful life' of a beach? A park?

        "Conversely, future users shouldn't be deprived of returns from dividend generating assets just because you want rates relief."

        If the dividend generating assets are loaded with debt, if the debt servicing costs are more than the income stream, if Council has no effective control over the asset, then sell.

        • joe90 7.2.1.1
          21 December 2022 at 9:23 am

          For Council, and ultimately ratepayers.

          So, rate's relief.

          But the idea that parks etc should be subject to debt is nonsense.

          I made no mention of parks etc being subject to debt, you did.

          What is the 'end of the useful life' of a beach? A park?

          A park or a beach is an inter-generational amenity, not a tradable asset.

          then sell.

          Greedy boomers too fucking cheap to pay their own way can't keep their stickies off the kid's piggy bank.

          Righto /

          • tinderdry6 7.2.1.1.1
            21 December 2022 at 9:43 am

            "So, rate's relief."

            Yes.

            "I made no mention of parks etc being subject to debt, you did."

            "A park or a beach is an inter-generational amenity, not a tradable asset."

            Exactly! Yet above you argued "Expecting contemporary users to bequeath debt free assets to future users is a fucking have", and "Final debt payments should coincide with the end of an asset's useful life." Parks don't have a useful life. beaches don't have a useful life. And yet it is these assets (and others) that the author of the post argued justify the current level of council debt.

            "Greedy boomers too fucking cheap to pay their own way can't keep their stickies off the kid's piggy bank."

            I don't know about 'greedy boomers'. What I do know is that Auckland Council is in a precarious financial position, because the city is billions of dollars in debt. and is living beyond its means. The airport is a non-core asset, costing ratepayers around $88m per year in debt servicing, with no foreseeable dividend stream and the likelihood of even more capital input required. As Mayor brown has said "There are better uses for ratepayer capital".

    • Thinker 7.3
      21 December 2022 at 12:28 pm

      … But the Airport Shares are one asset that the council owns that IS revenue earning.

      So, why sell them and be left to finance future generations of Auckland citizens through rates alone?

      Hoist by your own petard.

      • Tinderdry6 7.3.1
        21 December 2022 at 12:58 pm

        The AIA shares currently generate no income, and there is no foreseeable change to that. But they cost ratepayers $88m per annum in debt servicing. It’s a no brainer.

        • Thinker 7.3.1.1
          21 December 2022 at 1:10 pm

          If there's no income for the foreseeable future, why would anyone want to buy the shares from the council?

          They’ve been down to around $7.60ish and now around $8. There must be some really stupid investors out there, me included.

          • tinderdry6 7.3.1.1.1
            21 December 2022 at 2:42 pm

            "If there's no income for the foreseeable future, why would anyone want to buy the shares from the council?"

            People buying without financing the purchase via debt and relying on the share price uplift meeting or bettering alternative investments. There are plenty of cashed up investors who just like a punt.

    • Thinker 7.4
      21 December 2022 at 12:55 pm

      Tinderdry,

      Your response actually incorporated another solution to the supposed cash crisis.

      Thinking about comparing the council with the typical household, if the family had a debt crisis and owned lots of non-revenue-earning assets and some revenue-earning assets, wouldn't they divest the high-value non-performing assets first?

      In my response to the consultation I'm going to suggest selling off some of the high value neighbourhood parks in the Eastern isthmus. Not only would that generate cash to pay down debt but it would also reduce the annual cost of running Auckland Inc. Meanwhile the airport shares will soon be contributing to the coffers again.

      I might also suggest comparing the trend in business rates vs residential rates to check that everyone has been contributing equally since the start of the super city.

  8. Tony Veitch 8
    20 December 2022 at 3:03 pm

    Of course selling the Auckland Airport shares is a silly thing to do!

    That's why the right (great economic managers, a la Key) will go ahead and sell them!

  9. tsmithfield 9
    20 December 2022 at 3:12 pm

    From a straight economic perspective selling shares can be beneficial depending on the level and cost of debt.

    This calculation would also need to include an expectation of earnings from the shares going forward.

    So, say the expected yield on the shares is 5%, and the cost of debt servicing is say 8%, then it can make sense to sell the shares. Though, if the yield is low, the price to be received back from a share sale is also likely to be low. And also a reason why share prices tend to decline as interest rates go up.

    Another way to look at it is whether the invested funds can be put to better use. So, lets say the counsel is spending $100m pa on fixing leaks in pipes, and a sale of shares allows those leaking pipes to be replaced, then the savings on maintenace costs might be better than the return on share dividends.

    But it is all contingent on the circumstances, and I don't think counsels should be ideologically wedded to a philosophy of holding shares in entities just because they can.

    Based on the dividend quoted in the article, holding the shares looks to be a good bet unless there is a compelling reason not to. Having said that, as the value of the shares increase, the percentage return on those shares will decrease, all things being equal.

  10. millsy 10
    20 December 2022 at 5:25 pm

    Auckland Council (AC) owns 18% of the shares in AIAL. It is the biggest shareholding, according to the companies register.

    There is a little point in the AC owning the shares, as it has little control over company affairs, as it has to take into account the interests of the 82% of the private shareholders that do own it.

    This is indeed one of the rare occasions where I do actually think that it isnt such a big deal of the shares are sold. That horse bolted in the 1990's when the Shipley government sold its shares in the airport, with "Banksie" selling off Auckland's shares not too long after.

    • tsmithfield 10.1
      21 December 2022 at 10:44 am

      One of the things about the AIAL is that it is probably a very good "buy and hold" from an investment perspective.

      The airport isn't going anywhere, (unless a volcano opens up under it which is always a possibility in Auckland!). And people will be flying for the forseeable future. So, it is very low risk from an investment perspective.

      I haven't got a horse in this race, not being from Auckland. But, the council probably missed a trick if they didn't buy shares when the share prices were low due to the airport being virtually closed down during Covid. That was because Covid was going to end sooner or later, and the share price was bound to bounce back.

      They probably could have made a tidy profit for ratepayers by buying when the price was low and then selling again when the price recovered.

  11. Mike the Lefty 11
    21 December 2022 at 12:47 pm

    Wayne Brown demonstrates clearly the ideology of the political right – they always choose short term gain at the price of long term loss because it wins more votes and by the time the long term loss occurs they can blame it on the left.

  12. tsmithfield 12
    21 December 2022 at 2:51 pm

    The other thing is that companies don't have to pay dividends. After the Covid disruptions the AIAL may prefer to build up cash again to replenish reserves rather than pay dividend.

    I see some comments above about AIAL not being in a position to pay out dividends for some time yet. If that is the case, then selling the shares might be the right thing to do.

    It is hard to know, without full knowledge of the facts.

    If Aucklanders will be funding the shares for a reasonable period of time ahead without any return, they may well prefer the shares to be sold to reduce the interest burden they need to fund in the meantime.

  13. Thinker 13
    21 December 2022 at 5:19 pm

    My last effort on this post:

    1. (Tinderdry) – few people would buy shares in companies that aren't likely to pay their way, simply on the basis that other people will outbid you, but it does happen. It's called the "Greater Fool Theory" and it's highly unlikely that Auckland Council could sell 18% of the entire shareholding of the airport on this basis.

    2. There are some shares that don't pay dividends. As their assets grow, the value per share goes up and investors get an untaxed capital gain rather than a taxed annual income. But they don't invest unless they expect to get a return of some kind. Auckland Airport's had a bad couple of years because of covid but it isn't an airline, it's a port. Much of its income comes from land holdings – developed and developing. An extra runway will boost the utility of the airport and the demand for/value of the income-producing land.

    3. Councils aren't like households, although wily politicians like to make the comparison. They always need to borrow because they need to build the infrastructure for new developments before those developments happen, then they get rates and other income from those developments.

    4. Most of the responses to this post take the assumption that Wayne Brown will sell the shares and use the proceeds to pay down debt. Watch carefully for the proposed rates increase for 2023. If the proposed increase is less than inflation, then by default Brown is net-subsidising part of what the rates increase should be by selling assets. Getting political points by appearing to do something that most people wouldn't do in their own lives.

    5. Loop back to 4…

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    BeehiveBy beehive.govt.nz
    4 days ago

  • Tax incentive to boost housing passes third reading
    Legislation to enable more build-to-rent developments has passed its third reading in Parliament, so this type of rental will be able to claim interest deductibility in perpetuity where it meets the requirements. Housing Minister Dr Megan Woods, says the changes will help unlock the potential of the build-to-rent sector and ...
    BeehiveBy beehive.govt.nz
    5 days ago

  • Law levels playing field for low-emissions commuting
    A law passed by Parliament today exempts employers from paying fringe benefit tax on certain low emission commuting options they provide or subsidise for their staff.  “Many employers already subsidise the commuting costs of their staff, for instance by providing car parks,” Environment Minister David Parker said.  “This move supports ...
    BeehiveBy beehive.govt.nz
    5 days ago

  • 40 years of Closer Economic Relations with Australia
    Today marks the 40th anniversary of Closer Economic Relations (CER), our gold standard free trade agreement between New Zealand and Australia. “CER was a world-leading agreement in 1983, is still world-renowned today and is emblematic of both our countries’ commitment to free trade. The WTO has called it the world’s ...
    BeehiveBy beehive.govt.nz
    5 days ago

  • Amendments to mass arrivals legislation
    The Government is making procedural changes to the Immigration Act to ensure that 2013 amendments operate as Parliament intended.   The Government is also introducing a new community management approach for asylum seekers. “While it’s unlikely we’ll experience a mass arrival due to our remote positioning, there is no doubt New ...
    BeehiveBy beehive.govt.nz
    5 days ago

  • Progress on public service pay adjustment
    The Government welcomes progress on public sector pay adjustment (PSPA) agreements, and the release of the updated public service pay guidance by the Public Service Commission today, Minister for the Public Service Andrew Little says. “More than a dozen collective agreements are now settled in the public service, Crown Agents, ...
    BeehiveBy beehive.govt.nz
    5 days ago

  • Further legislation introduced to support cyclone recovery
    The Government has introduced the Severe Weather Emergency Recovery Legislation Bill to further support the recovery and rebuild from the recent severe weather events in the North Island. “We know from our experiences following the Canterbury and Kaikōura earthquakes that it will take some time before we completely understand the ...
    BeehiveBy beehive.govt.nz
    6 days ago

  • Duty relief for cyclone-affected businesses
    Further assistance is now available to businesses impacted by Cyclone Gabrielle, with Customs able to offer payment plans and to remit late-payments, Customs Minister Meka Whaitiri has announced. “This is part of the Government’s ongoing commitment to assist economic recovery in the regions,” Meka Whaitiri said. “Cabinet has approved the ...
    BeehiveBy beehive.govt.nz
    6 days ago

  • Thousands of sole parents to be better off after child support changes
    More than 41,000 sole parent families will be better off with a median gain of $20 a week Law change estimated to help lift up to 14,000 children out of poverty Child support payments will be passed on directly to people receiving a sole parent rate of main benefit, making ...
    BeehiveBy beehive.govt.nz
    6 days ago

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