What made Budapest Airport so expensive, which the government wants to buy at any price?

• Last fall, it was leaked that a 4 billion euro buyback campaign was being prepared to acquire the Ferihegy airport, and later it was also revealed that this time the state’s business partner would not be the “omnivorous” real estate guru Dániel Mol and Dániel Jellinek, but foreign investors.
• In the first step, the Hungarian state will buy an 80 percent share in the airport, and 20 percent will belong to the French company Vinci Airports, and after the transaction is concluded, the state ownership may decrease to 51 percent, because the government would sell its share to a Qatari investor.
• 24.hu estimated that the purchase price to be paid by the Hungarian state could be around HUF 774 billion, based on the 80 percent share and Budapest Airport’s nearly 1.5 billion euro loan portfolio.
• Great Martin however, he recently stated that the price will be more favorable than “what appeared in the media”.

Although the Minister of National Economy did not give a specific figure on how much the government will spend on the purchase of the airport, he indicated that the 80 percent will have to be paid less than the HUF 774 billion we estimated. He did not mention how we will stand after the purchase of Qatar, but from the simple calculation of the wooden wedge, the price of 51 percent can be around HUF 500 billion.

So far, all that is certain is that 848.8 million euros, i.e. about 328.5 billion forints, have arrived in the account of the government’s “bulk purchase” company, Corvinus International Investment Zrt., with which the state can acquire the shares of Budapest Airport Zrt. (BA). As we wrote earlier, Márton Nagy decided on this before Christmas last year, and the founder’s resolution also stated that the amount was used to purchase BA’s 80 percent share. (Incidentally, several capital increases took place in Corvinus last year, but out of a total of almost 700 billion forints, only the aforementioned item of 848.8 million euros was separately indicated as being used for the acquisition of the airport.) As for raising funds, Nagy previously mentioned asset sales and loans, of which the sale of the state shares of Erste Bank, Vienna Insurance and Yettel took place.

On January 31, another capital increase took place in Corvinus:

• 23.22 percent of the shares of Antenna Hungária Zrt. (AH), still state-owned, were contributed,
• in addition, a cash increase of EUR 305 million was also made.

The state-owned minority stake in AH, the monopoly provider of national terrestrial digital television and analog radio broadcasting, which has also been involved in event organization for some time, was valued at HUF 167.5 billion, and the cash amount is around HUF 120 billion at the current exchange rate. Referring to a source close to the government, 444.hu explained that the new capital increase was also due to the purchase of the airport, as more money is needed. However, the Ministry of National Economy (NGM) did not give us this simple answer to our public data request. Regarding the new, roughly 290 billion, capital contribution, he stated that “in terms of the non-monetary financial contribution, no transaction arises, as a contribution was made”, and that the cash part of the capital increase “was not necessary for the buyout of Budapest Airport Zrt.”.

To our question whether the cash is needed for the acquisition of the Spanish locomotive manufacturer Talgo SA, if not for the purchase of BA, NGM refused to answer, citing that this data is related to decision preparation. In response to the acknowledgment, we asked if they had not yet decided on the purchase of the railway company, on what basis they decided on the amount of the specific capital increase, but we did not receive an answer to our clarifying question until the writing of our article.

Although we did not get closer to the exact purchase price of BA, it became clear that

no matter what the state of the budget, the government has not given up on investments, and in addition to BA, it is also diverting funds for other investments.

Gyula Budai already mentioned a thousand billion in 2012

To understand what makes the airport operator worth up to 4 billion euros, you have to go back more than two decades in time. In 1997, the Horn government signed a contract with a Canadian company, which built Terminal 2B for 100 million dollars, and in return received the right to operate the Ferihegy airport for 12 years. The first Orbán government deemed the contract disadvantageous, but did not cancel it, but instead, at the end of 2001, it forced out the investor by changing the law. It was established that the state establishes a state-majority or minority-owned economic or budgetary body for the operation of the airport, which cannot transfer the right of operation to a third party. The state airport operator was also established, so the foreign investor had to go. The move cost Hungarian taxpayers a lot: five years later, the international arbitration court awarded 76.2 million dollars (18 billion forints at the exchange rate of the time) in damages, including the plaintiff’s legal fees.

When the next MSZP-SZDSZ government started privatization in the mid-2000s, it gave a 100 percent guarantee:

in order not to scare away investors, the previous example promised full compensation in a government decision in the event of any impairment of BA’s right to manage assets.

The consultants, working for an unusually high fee of HUF 640 million in the conditions of twenty years ago, had to include a guarantee in the contract until the end of the 75-year concession in the event (also) that the current government made the airport operation impossible through legislative changes. In such a case, the purchase price would be returned as compensation, aggravated by the yield. It’s not about change, Gyula Buda In 2012, the Government Commissioner for Accountability put the burden on the state in the event of Malév’s collapse, resulting from the contract, at nearly HUF 1,000 billion. But the German main owner at the time also spoke of 1.5 billion euros, an amount of around HUF 450 billion at the exchange rate of that time.

With such guarantees, it was not possible to corner the BA operators, and it is not really in their interest to part with the Ferihegy airport – explained our source familiar with the details of the privatization contract, why the bargaining reached 3, then 4.44 billion, and last year 4 billion euros. It is true that the bomb-proof contract does not protect the foreign concessionaire from the state’s punishment either, there have been examples of inconvenience in recent years, for example when during the Covid epidemic the government torpedoed the borrowing aimed at settling BA’s financial situation, which would have also covered the salaries of the workers.

Due to the dream guarantees and promising growth prospects at the time of privatization, the British BAA paid a top price for the airport operator. The EUR 1.9 billion EBIDTA (earnings before taxation, depreciation and interest payments) of more than 30 times was considered exceptionally high, compared to the 13-16 times multiplier of the deals concluded at the time. However, at the dawn of low-cost airlines, it seemed realistic to increase the number of passengers by up to 25-30 percent per year, as well as to reverse the roughly 70-30 ratio of landing fees and commercial income from airport shops.

Compared to twenty years ago, they now offer twice the price for Budapest airport.

There is still room for revenue generation in terms of both commercial activity and increasing passenger traffic – this is how the Hungarian investors explained the then 4.44 billion euro offer in the previous round. They calculated that by 2023, air traffic will return to the level before the Covid epidemic, after five years they calculated the number of passengers over 20 million and a 15-year payback.

Why did the Orbán government sell 25 percent of BA?

There is less talk about this recently, but the privatization was completed by the second Orbán government that year: the socialists sold 75 percent minus 1 vote of the BA shares, leaving 25 percent plus 1 vote in state hands. It was sold in 2011 for HUF 36.6 billion, after the Fidesz government exercised the sale option related to the privatization contract. The move was explained by the fact that they could not expect a substantial profit from the share, and the two board seats did not mean a serious say in the company’s affairs. There is truth in this, but the situation would be somewhat different if the offer had not been made for 100 percent, and the state owner would have had continuous insight into the company’s affairs through its delegates, the insiders believe.

Around 2011, the state really could not count on dividend income, because – although the company was profitable at the operational level – the profit was taken away by the repayment of the loan taken out for the purchase price, while the increase in turnover fell short of the plan. However, this situation has changed:

In 2016, BA turned a profit,

In 2018-2019, the company already showed a pre-tax profit of HUF 24 billion and HUF 29 billion, and in 2022 it expected a profit of HUF 30 billion. A stable annual dividend income of HUF 6–8 billion, with the development and investment costs borne by others, is not a bad setup, our source pointed out. Another issue is that the coronavirus epidemic brought a total loss of HUF 72 billion in the years 2020 and 2021, and the owners must also participate in the settlement of losses.

Sándor Demján would have gone to Ferihegy by express train

So far, we have not received a meaningful answer as to why it is so important for the Hungarian state to buy out the current foreign investors.

• A strategic facility, it determines tourist traffic, which is one of the driving forces of the Hungarian economy.
• It needs to be developed and invested in order to provide the best possible service and increase passenger traffic.
• A fixed track connection must be established between the airport and the city center.

These were the main arguments in favor of the purchase, but none of them have much to do with whether an airport is state, municipal, private or mixed. Under normal circumstances, both private and public owners are interested in the greatest possible profit, and to achieve this, it is advisable to increase traffic, create attractive conditions for passengers with new destinations, developments, and better service. For this, it is not necessary to take over an airport operator, just as it is not necessary to create a railway connection. By the way, there have been plans for the latter for quite some time:

• in the early 2000s, when BA was still state-owned, the late Sándor Demján proposed with Trigranit with a private investment of 60 billion,
• In 2006 – already after privatization – the John Koka led by his economic ministry, he was thinking about building a 40-45 billion dollar railway in a PPP construction (with the cooperation of the state and private capital).

The two plans have so much in common that nothing came of either of them.

Our sources interpret the airport buyout as meaning that the Hungarian government is not rejecting foreign and/or private ownership, since the current buyout is also being planned jointly with a foreign investor – they agreed on a 20 percent participation by the French Vinci – and the state will transfer an additional stake to a to a Qatari investor, and would keep only 51 percent. Rather, he wants to get rid of the current structure, in which any measure that disables the operator can end up in brutal compensation, but at the same time, the government does not have much say in the proceedings and the directions of development and the implementation of investments.

However, due to the expected increase in traffic and the plan of the Chinese freight center, there is a chance that huge constructions will begin at the airport in the near future.

At the time of privatization, in addition to the enormous revenue that saved the central coffers, the aim was that the imminent developments would be carried out by the concessionaire, so that these expenses would not burden the state budget in the following decades. The opposite is happening now, as the state steps in just when new investments are due. NER is known to love construction, the billions that can be made quickly by pouring concrete. In addition, there are those who make it likely that the state will not remain the majority owner of BA for long, and that it will end up in the economic moonlight.