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UK airlines start to value landing slots as assets on balance sheets
Published: 12/5/08
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Published: 12/5/08 Deloitte is expecting that certain UK airlines will start to value all of their landing slots as assets on their balance sheet annual results.
Commenting on the move, Graham Pickett, aviation partner at Deloitte said: “With such high demand for landing slots, many airlines have realised the slots they hold are very valuable. For the most part2, these are not included as assets on an airline’s balance sheet. It is important that this value is fairly recognised so that airlines have the potential to use them as security against borrowings.”
Deloitte has calculated that in Europe the most valuable landing slots are those at London Heathrow, followed by Charles de Gaulle, Gatwick and Frankfurt. Based on a recent transaction the implied value of a pair of peak time slots at London Heathrow is currently worth between £25 and £30 million3. The value of slots varies primarily depending on the time of day they are for.
Whilst EU regulations are in place to ensure landing slots are allocated fairly, they have generally failed to significantly erode the presence of the ‘national flag’ carrier airlines at key airports.
At Heathrow, for example, this summer there are a total of 9,562 slots available. 99% of these are held by legacy/ flag carrier airlines - those already established at the airport. 41% of Heathrow slots are held by British Airways. BMI hold a further 11% and Virgin Atlantic hold 3%. Deloitte’s research shows that just 1.0% of slots are available for allocation to new entrants and many of these are unusable because of their timing or other factors.
With the introduction of the Open Skies Agreement and limited scope to increase capacity at Heathrow and Gatwick airports, in particular, due to air traffic congestion, Deloitte expects the value of landing slots to remain high.
Graham Pickett said: “The Open Skies agreement should lead to greater demand between airlines for landing slots at Heathrow. London Heathrow is seen as the ‘Crown Jewel’ for landing slots. Where previously just four airlines could operate flights from Heathrow to the US, the Open Skies agreement opens the market to new entrants and we expect other airlines to look to acquire slots here.
“However, airlines keen to rival the incumbent players may find it difficult to secure landing slots. Trading in slots, a bit of a grey area in terms of regulation, can be an extremely expensive business. There could, however, be the potential for airlines to use landing slots as security against borrowings if they can now recognise them all on balance sheet at valuation. It will be interesting to see what position airlines finally take and how banks regard such assets over the coming months.”
For further information, read our executive summary and download our report Open skies - Is it time to recognise valuable airport slots on balance sheet?
Ends
Notes to editor
Commenting on the move, Graham Pickett, aviation partner at Deloitte said: “With such high demand for landing slots, many airlines have realised the slots they hold are very valuable. For the most part2, these are not included as assets on an airline’s balance sheet. It is important that this value is fairly recognised so that airlines have the potential to use them as security against borrowings.”
Deloitte has calculated that in Europe the most valuable landing slots are those at London Heathrow, followed by Charles de Gaulle, Gatwick and Frankfurt. Based on a recent transaction the implied value of a pair of peak time slots at London Heathrow is currently worth between £25 and £30 million3. The value of slots varies primarily depending on the time of day they are for.
Whilst EU regulations are in place to ensure landing slots are allocated fairly, they have generally failed to significantly erode the presence of the ‘national flag’ carrier airlines at key airports.
At Heathrow, for example, this summer there are a total of 9,562 slots available. 99% of these are held by legacy/ flag carrier airlines - those already established at the airport. 41% of Heathrow slots are held by British Airways. BMI hold a further 11% and Virgin Atlantic hold 3%. Deloitte’s research shows that just 1.0% of slots are available for allocation to new entrants and many of these are unusable because of their timing or other factors.
With the introduction of the Open Skies Agreement and limited scope to increase capacity at Heathrow and Gatwick airports, in particular, due to air traffic congestion, Deloitte expects the value of landing slots to remain high.
Graham Pickett said: “The Open Skies agreement should lead to greater demand between airlines for landing slots at Heathrow. London Heathrow is seen as the ‘Crown Jewel’ for landing slots. Where previously just four airlines could operate flights from Heathrow to the US, the Open Skies agreement opens the market to new entrants and we expect other airlines to look to acquire slots here.
“However, airlines keen to rival the incumbent players may find it difficult to secure landing slots. Trading in slots, a bit of a grey area in terms of regulation, can be an extremely expensive business. There could, however, be the potential for airlines to use landing slots as security against borrowings if they can now recognise them all on balance sheet at valuation. It will be interesting to see what position airlines finally take and how banks regard such assets over the coming months.”
For further information, read our executive summary and download our report Open skies - Is it time to recognise valuable airport slots on balance sheet?
Ends
Notes to editor
- A slot is the right to land or take-off from an airport including having access to the airport terminal for the passengers and crew. Often industry commentators refer to pairs of slots. Pairs refer to a take off and a landing at a particular airport at a particular time of day.
- If an airline purchases a new landing slot from another airline, then it will be capitalised on the balance sheet. However, the value of legacy slots already owned by the airlines has not, until now, been recognised.
- Value of Heathrow slots – the value of £25-30 million is based on analysis of slot purchases in the last six months, such as Continental Airline who paid US$209m for four pairs of take-off and landing slots to GB Airways, Air France and Alitalia. Further examples of Heathrow slot sales are available in Deloitte’s client report.
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other’s omissions. Services are provided by member firms or their subsidiaries and not by DTT. Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. The information contained in this press release is correct at the time of going to press.
Contact us for more informationThis article illustrates the point I want to make.
Slots combine terminal gate space with a time. The more desirable slots are timed for departures and arrivals in "prime" hours. So slots have a widely variable value at the same airport depending on time.
The fact is that one pair of slots may be valued at $30m at Heathrow... another pair of slots may have zero or no market value because the time is awkward.
If our slots were more valuable... that would have been reflected in the competing BA bid. Those two airlines are in mortal combat.
As they apparently were not more valuable BA did not bid more.
End of story.
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