FREE

AIA (Athens International Airport) | Low-risk but limited near-term lift-off; Initiate with Hold

Prime asset, flexible model, and benign regulation – Athens International Airport S.A. (AIA) operates Greece's largest airport (>31m pax, >155 destinations) holding an exclusive concession until 2046. AIA serves as the primary gateway to the Greek islands and the main hub for international flights, thus facing relatively limited competition from regional airports. Regulation is quite benign and far less complex than in most other EU airport cases, being predicated on a dual-till system. The latter is quite unique in that it stipulates a max return for air activities at 15% on regulatory equity (rather than RAB) which is indexed with inflation (thus offering a “real return”). In addition, the regulatory framework provides for a carry forward mechanism allowing AIA to recover under-earnings of previous years, thanks to which it has been enjoying returns on air activities far higher than the regulatory cap (>23% in 2022-24e). Upside is uncapped for non-air activities (mostly retail, parking, real estate), and is where the optionality from future growth stems from.

… but near-term outlook looks subdued as air activity profits “normalize”; c4% net profit CAGR over 2027e-2035e – Despite the defensive profile of the business, the abnormally high returns over 2022-25e mean that the near-term profit outlook (to 2026e) is negative (contrary to the case for most international airports). We estimate adj. EBITDA will settle down to €374m in 2026e, namely at levels below the respective figures of 2023-24e, rising to >€380m from 2027e onwards as non-air profits ramp up following the completion of AIA’s 1st expansion phase (e.g. new multi-storey parking facility in 2026e) and on improving mix. Post normalization of profitability in 2025e – after the depletion of the carry forward balance – air activities are poised to grow at c2.5-3% on our estimates (i.e. inflation) while non-air is set for c6% growth between 2028e and 2035e. These add up to group net profit CAGR of c4% over 2027-2035e.

Heavy investment plan to increase capacity; debt financing and strong operating cash flow mean compelling dividends – AIA is at full nominal capacity and is about to implement a heavy expansionary capex program (€1.4bn by 2035, at 2022 prices) to ramp up capacity to 40m pax (+60%). With 100% of expansionary capex being funded by debt and recovered at cost, AIA’s strong operating cash flow generation profile (>€1.0 per share post 2027e) will translate into quite a compelling dividend policy (100% of profits). We estimate DPS of €0.7 in the next 2 years, namely c9% yield (following €0.33 for post-IPO shareholders in 2024), higher than the case for other airports. Leverage will stay