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Landing Slots To Become Valuable Assets For UK Airlines

by Robert Lee,, London

14 May 2008

Professional services firm, Deloitte is expecting that certain UK airlines will start to value all of their landing slots as assets on their balance sheets.

Commenting on the move, Graham Pickett, aviation partner at Deloitte observed that: “With such high demand for landing slots, many airlines have realised the slots they hold are very valuable. For the most part, 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 GBP25mn and GBP30mn.

This is based on analysis of slot purchases in the last six months, such as Continental Airlines, which paid USD209mn for four pairs of take-off and landing slots to GB Airways, Air France and Alitalia. The value of slots varies primarily depending on the time of day they are for.

According to Deloitte, whilst EU regulations are in place to ensure that 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.

“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," Graham Pickett added.

“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," he concluded.

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