Beijing Airport pays the price for Terminal 3

The market is punishing Beijing Capital Airport for the high price it agreed to pay for Terminal 3, but the long-term benefits may eventually overshadow the short-term expense.

The airport said in late January it would acquire the world's largest stand-alone terminal from its parent for 26.9 billion yuan (HK$29.9 billion), a price that was 22 per cent higher than it budgeted in December 2006.

Its shares have plunged more than 46 per cent this year after analysts downgraded the airport to sell or underperform after the acquisition price became public.

The planned acquisition is estimated to be completed in June but no later than October, pending approval from the National Development and Reform Commission.

The huge spending will result in an almost 40 per cent drop in net profits this year and a further 2 per cent drop in 2009, according to a Bloomberg estimate. Depreciation costs will increase about 250 per cent to almost 1.8 billion yuan next year compared with last year. Interest expense would rise from 333 million yuan to 621 million yuan this year and more than triple to 992 million yuan next year.

What intensifies the concern in the market is slow passenger growth and a decrease in aircraft landings and departures in the first two months of the year. Passenger volume has grown only 3 per cent so far this year compared with double-digit growth nationwide. Aircraft movement in Beijing dropped 4 per cent from the same period last year.

'I have lowered my full-year aircraft movement and passenger growth to 11 per cent from 15 per cent and 15 per cent from 18 per cent respectively due to the weakness in the first two months,' said Ally Ma, transport analyst for Citigroup.