Auckland Airport Not a Political Plaything

 
 
Auckland Airport Not a Political Plaything

Some of the reactions to the offer by Dubai Aerospace Enterprise (DAE) to take a shareholding of 51% – 60% in Auckland International Airport Limited (AIAL) have been emotive rather than rational.

In some cases one might be forgiven for thinking that DAE planned to dig up the land and runway and ship it off to Dubai for use in reclamation!

AIAL was partially privatised in 1998 when the government sold its shares.  The Auckland and Manukau city councils retained a shareholding.

The sale was certainly not a ‘steal’.  In fact the company’s share price fell for a period after it was listed.  Despite real or imagined anti-privatisation attitudes, the sale was not controversial.  The company had languished under public ownership with little investment in facilities.  Under private management it has matched NZSX50 returns.

New Zealand First leader Winston Peters was Treasurer at the time of the sale.  The issue of whether any foreign ownership restrictions, such as a Kiwi share, should be applied was openly discussed with him.  He considered they were unnecessary and told parliament that the airport was a “non-strategic” asset.

Yet Mr Peters issued a statement on 7 August 2007 saying that the airport was a “strategic asset”, and that allowing it “to fall into foreign control is not in the national interest”.  Why is the media not scrutinising such an about-face?

Worse, Mr Peters proposed that the offer should be blocked by the New Zealand Superannuation Fund.  The Fund is deliberately set up at arm’s length from politicians.  It is charged to maximise returns on its portfolio, which requires prudent diversification.  It would be irresponsible to make the Fund a political football.

Politicking hasn’t ended there.  Government minister Phil Goff stepped in to say the government opposed the transaction.  Yet legislation requires foreign investment proposals to be considered against stated criteria, and due process – including final ministerial-level decisions –  has not yet taken place.  Mr Goff’s statement caused the share price to fall, and if acted upon would deprive thousands of New Zealand shareholders of the right to accept or decline the DAE offer.  This would be yet another unprincipled taking of investors’ property rights.

The Auckland councils have so far not taken a position.  Polls suggest majority opinion in Auckland is against the sale of their shares.  But have Aucklanders been asked whether they would prefer their councils to be passive investors in an airport company or to put the proceeds into infrastructure upgrading or lowering rates?  Looking at it another way, if the councils were not shareholders, would ratepayers wish to pay higher rates to be involuntary investors in an airport?

Claims have been made about more New Zealand assets coming under foreign control.  However, 35% of AIAL’s shares are already owned by foreign shareholders.  IF DAE succeed in acquiring more from New Zealand shareholders they will have to pay for them in New Zealand dollars.  Sellers of New Zealand dollars will acquire overseas assets in return.  Net foreign claims on New Zealand will be unchanged.

Moreover, any owner, foreign or domestic, must comply with the law of the land, so there is no loss of sovereign control. 

It is also populist to talk about ‘dividends flowing out of New Zealand’.  DAE shareholders would want to see a return on their investment just as New Zealand shareholders want to see a return on their investments in overseas companies.  Overseas owners commonly reinvest dividends in New Zealand to increase the value of their investments.

There seem no grounds for suggesting returns to DAE would reflect monopoly profits.  When privatised, AIAL was not classed as a monopoly by the Treasury.  In any event, any potential for monopoly profits should have been capitalised into the initial sale price, and the company is subject to Commerce Commission oversight.  Those expressing such concerns should be getting behind the idea of developing Whenuapai as a commercial airport.

Around the world, airports and ports are becoming linked through international ownership.  As a recent Australian Financial Review article noted, “Dubai already knows it’s welcome [in Australia]”.  DP World [Dubai ports’ owner] acquired P&O’s container ports at Sydney, Brisbane and Melbourne, and Australia’s main airports are privatised with significant foreign ownership.  New Zealand’s Infratil controls airports in the United Kingdom and Germany.  Should it have been blocked from doing so by their governments?

An overseas shareholding might bring AIAL considerable benefits in terms of airport management expertise, tourism growth, employment opportunities and external commercial relationships.  This is the case DAE has made to the AIAL board.  The responsibilities of the directors are to act in the best interests of all shareholders, and they unanimously supported the offer.  They will also have to consider any competing offers that materialise.   

The board and shareholders should be left to make their own decisions without political interference and subject to normal commercial rules. 

Roger Kerr is the executive director of the New Zealand Business Roundtable.

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