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Airport IPOs: Tricky takeoff for European airports

European airport IPOs and secondary share offerings are keeping equity capital markets teams busy. Vendors hope to raise up to e20 billion from selling shares in airports in the next few years. But the upcoming privatizations of Amsterdam's Schiphol airport and Milan's Società Esercizi Aeroportuali airport authority, along with a secondary offering by Unique, the manager of Zurich Kloten, seem set for a rough ride as local and political issues put a damper on investor enthusiasm.

Signs that trouble lies ahead for share offerings in European airports became evident with the less than spectacular performance of the initial public offering for Frankfurt's airport operator Fraport last month - one of Germany's biggest offerings this year.

The lead banks, Morgan Stanley and Dresdner Kleinwort Wasserstein, were forced to cut the indicative price for the issue to between e32 and e37, far below the e39 to e47 that they had been hoping to fetch for the near 30% stake. On June 11 2001, the first day of trading, Fraport shares had an unspectacular debut rising just above the issue price of e35 before stabilizing at e33.

Analysts say Fraport's IPO, which raised e914 million and will create Frankfurt Europe's second-largest listed airport operator after the UK's BAA, was hit both by depressed market conditions generally and concerns about local opposition to Frankfurt's expansion programme and a pilots' pay dispute at Lufthansa, Fraport's largest single customer.

Yet equity investors remain generally attracted to a sector considered recession-proof and capable of generating strong cashflows. With the rest of the world economy suffering from the US slowdown, European passenger traffic is still growing by 5% to 6% annually and cargo at an even faster rate.

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