Thursday, 28 November 2013

Is this really a good deal?

Not for the Scottish taxpayer. From the TVNZ website,
Infratil, the Wellington-based infrastructure investor, has sold its unprofitable Glasgow Prestwick Airport to the Scottish government for 1 British pound.

The transaction was completed over the weekend and will see the airport transferred to TS Prestwick Holdco, an entity wholly-owned by the Scottish Ministers, for a cash consideration of 1 pound.

The purchase price reflected the need for more investment, and the Scottish government is seeking a commercial partner to operate the airport on its behalf, it said in a statement yesterday.

"This acquisition secures continuity of service and we will now begin work with our local partners on developing our vision for the business so we can maximise its contribution to the local, regional and national economy," Deputy First Minister Nicola Sturgeon said.
I can't but help thinking that there is a message in the fact that someone will sell you an airport for one pound. If we think of the sale price of an asset as the present value of the future income stream for the asset then selling the asset for such a price should be a warning to the Scottish taxpayer. It is very unlikely that the taxpayer will ever see a reasonable return on their (forced) investment.

This looks like a bad deal for three related reasons: 1) Prestwick loses money, 2) it is not obvious what the new owners can do that Infratil didn't do to make it pay and 3) it is far from clear that politicians can run the airport better than a private operator. The very fact that a private buyer could not be found is a worrying signal as to the future prospects for the airport.

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