Scotland’s former top civil servant, Sir John Elvidge, is fronting a £500 million plus takeover bid for Edinburgh Airport, and has been told he will become the airport’s chairman if the bid is successful.
Elvidge is working with Global Infrastructure Partners, a New York-based private equity company backed by Zurich-headquartered Credit Suisse and Connecticut-headquartered General Electric on the planned deal.
GIP already owns Gatwick and London City airports in the UK and has been eyeing a takeover of Edinburgh Airport, the UK’s sixth busiest, for at least three months.
BAA, Edinburgh airport’s owner, last October announced it would sell the Scottish capital’s airport following a Competition Commission ruling. This fired the starting gun on a bidding frenzy which initially attracted 50 expressions of interest.
However the bids have been whittled down in recent weeks and only two now remain in the race. These are GIP and a consortium made up of South Korea’s Incheon International Airport Corp, JP Morgan Chase and US teachers’ pension fund TIAA-CREF.
These bidders have been given two weeks to finalise their bids, which are expected to be in the £500m to £600m range. “We’re still working towards final offers being tabled in mid-April with a view to agreeing a sale by the summer,” said a spokesman for BAA. Owned since 2006 by Spanish infrastructure group Ferrovial, BAA is being advised by investment bankers at BNP Paribas and Citigroup.
Elvidge, 61, who retired as permanent secretary in the Scottish government in June 2010, said: “My role is provisional on GIP being the successful bidder. I have no active role to play until the bidding process is complete.”
He said that he was first approached by Global Infrastructure Partners earlier this year. At that point GIP asked him if he “wanted to have a conversation about whether I was interested in playing a part.” He accepted in early March.
Aviation sources said that global infrastructure investors often appoint well-connected local figureheads with knowledge of the local political, business and transport situation to enhance their chances of success.
Elvidge recently added a section to the ‘experience’ section of his LinkedIn profile confirming the airport role. He wrote: “March 2012 – present: I am working with GIP on their bid to purchase Edinburgh airport from BAA. If the bid is successful, I shall chair the Edinburgh Airport Board.” However last Wednesday Elvidge deleted the entry.
US private equity firm Carlyle Group bidding alongside Edinburgh investment banker Sir Angus Grossart, pulled out of the auction last week, as did a consortium of 3i Infrastructure, M&G and the Universities Superannuation Scheme, whose bid was fronted by Richard Jeffrey, former chief executive of Edinburgh trams group TIE. A consortium led by Ben Thomson pulled out at an earlier stage.
These bidders either struggled to raise cash, felt the price too high or had concerns about the £10m plus cost of migrating IT systems off the BAA network. The Competition Commission is evaluating bidders’ ability to run the airport, in particular their systems and management capabilities, given they have just 18 months to ‘unplug’ the airport from BAA’s systems and Edinburgh is a vital part of Scotland’s transport infrastructure.
Elvidge retired from his £185,000-a-year job as permanent secretary in the Scottish Government in June 2010. He left the civil service with a pension pot of £1.7 million, and received a £225,000 tax-free payment on his departure, together with an annual pension of £75,000 for life. His seven-year stint as head of the civil service in Scotland was tinged with controversy amid allegations of political bias.
Elvidge was appointed an associate of Lord Sainsbury’s Westminster-based think tank, The Institute for Government, in August 2011 has been a director of International Futures Forum since January. He is also a director of the London-based charity StartHere. One ex-Scottish government civil servant claimed: “Elvidge is primarily motivated by a desire to maximize his post-civil service earnings. This is not about public service; it’s all about private gain.”
Passenger numbers at the airport, eight miles west of Edinburgh and owned by BAA since 1971, rose 9.2% to a record 9.4 million in 2011, and BAA predicts these will rise to 12.3m by the end of the decade. Edinburgh Airport produced earnings of £50m last year, on sales of £110m, prompting analysts to estimate it will be command £450m to £650m.
After a long inquiry that sparked numerous legal challenges, the Competition Commission ruled in 2009 that BAA’s near monopoly over UK airports was anti-competitive and ordered the company to sell Gatwick, Stansted and either Glasgow or Edinburgh. Last October BAA surprised analysts by choosing to offload Edinburgh Airport not Glasgow.
GIP, headed by New York-based managing partner Adebayo Ogunlesi, has already benefited from the Competition Commission’s decision to dismantle BAA, having snapped up Gatwick Airport for £1.15bn in 2009. The private-equity group has owned London City Airport since 2006.
Douglas McNeill, analyst at Charles Stanley Securities, does not believe last week’s elimination of two bidders means BAA will scrap plans to sell Edinburgh Airport. “In and of itself, fewer bidders is not an indication that things are going awry,” he said. Analysts also believe the fact BAA will be selling Stansted Airport later this year eases the pressure on infrastructure investors who wish to get their hands on a UK airport. Michael McGhee, London-based partner in GIP, declined to comment.
An edited version of this article was published in the Scottish Mail on Sunday on 1 April 2012