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