Viktor Orban’s radical right-wing government appears determined to renationalise the country’s main international airport operator Budapest Airport despite the fragile state of the state budget.

The government submitted a formal bid to buy a 51% stake in the airport from its international institutional investor owners last month.

It has also been looking for a "friendly co-investor" to take the other 49% of the airport for years.

The three-year saga over the sale of CEE’s fastest-growing airport hub before the pandemic has now taken a new turn after details surfaced recently about Hungary’s potential partner in the multi-billion euro deal.

According to VSquare, a network of investigative news sites in the Visegrad region, the professional investor could be none other than France’s Vinci Airports, a leading global player in the airport industry, operating 65 airports in 13 countries, and a subsidiary of listed concessions and construction company Vinci SA.

The news was surprising as other media had speculated that the Orban government would likely partner with Qatari or Chinese investors.

Sources speaking to VSquare said pressure from Western governments forced Hungary’s strongman, who has cosied up to Asian autocrats in recent years both politically and economically, to abandon that plan.

The French company’s involvement follows the intensified cooperation between France and Hungary in the field of energy, Telex.hu reported, recalling the recent agreement between the energy ministry and French nuclear company Framatome on the Paks nuclear power plant expansion.

The negotiations on the airport deal are now reportedly nearing the end stage, with the remaining details to be hammered out including payment conditions. A source said the parties could unveil the final agreement in early December. The purchase price would be above that predicted by industry sources, but no details were given.

According to earlier reports, the government’s formal offer was between €4bn-5bn for a 100% stake. The French company would get management rights and could provide financing to Hungary to acquire the majority stake as well.

Buyer’s remorse

Orban has been fixated on buying Budapest Airport because, though a majority stake was first sold by the previous Socialist-led government, it was his government that sold the remaining state shares.

A 75% stake in Hungary’s largest international airport was first acquired by BAA International Ltd at the end of 2005 for HUF465bn, or €1.85bn at the then exchange rate, and a year later re-sold to a consortium led by Germany’s Hochtief (now AviAlliance), which operates a number of airport hubs in Europe, for around the same price, €1.9bn.

It was Orban’s government in 2011, one year after sweeping into power with its first supermajority, which sold the remaining 25%-plus-one-vote stake in the company to Hochtief.

Reeling from the 2008-2009 global financial crisis, the government sought to generate funds to meet EU deficit targets. The sale price was HUF37bn, or just €132mn, or a fraction of the value of the present 51% offered by the government. 

Subsequently the Orban government tried to renationalise the airport but the soaring valuation seemed to put it out of the government’s reach.

A Hungarian consortium signalled interest in buying the airport in October 2020. The significant decrease in passenger traffic due to the pandemic enhanced the government’s chances, people familiar with the situation said at the time.

The consortium included oil and gas giant MOL and property developer Indotek, owned by Daniel Jellinek, who has risen to become one of the most prominent business figures over the past five years, through fostering close ties to Orban’s son-in-law, Istvan Tiborcz.

In the spring of 2021, the government mandated the former Innovation and Technology Ministry to begin talks on reacquiring a majority stake in the airport in May 2021, less than a year before the elections. At the time Minister Laszlo Palkovics said that privatising the company in 2005 "went against Hungary's strategic interests".

The sale procedure advanced to the due diligence stage and the Hungarian consortium reportedly offered €4.4bn.

The project was unexpectedly iced in December 2021, when French President Emmanuel Macron travelled to Budapest for a summit of V4 countries.

Orban announced that the buyback of the airport would be deferred until after the 2022 spring elections "given the high inflation and the uncertainty of financial markets". The cabinet had hoped to wind up the transaction before the election.

The Qatari connection

It seemed that the government had abandoned its plan in the wake of the Ukraine war and the energy crisis, but in January this year, Minister of Economic Development Marton Nagy confirmed that talks with the owners were set to begin again soon with the aim of closing the transaction before year-end.

A few months later, he noted that the “strategically important asset” must be Hungarian-owned and that Hungary was looking for a "friendly co-investor.” This came after Orban's visit to Qatar, where the prime minister spoke at the Doha Economic Forum, saying Budapest would welcome investors from Qatar.

Cooperation between Qatar and Hungary in the field of infrastructure is currently focusing on the air transport sector, Gulf News wrote on August 20, just before the Budapest visit of the Qatari emir. The two countries are currently discussing the possibility of attracting Qatari investments to this sector, Amir Sheikh Tamim bin Hamad al-Thani was quoted as saying.

Budapest Airport in numbers

Valuations of Budapest Airport have risen because it was the fastest-growing airport hub in the region before the pandemic, due mainly to the emergence of discount airlines. The rise of Wizz Air and Ryanair successfully filled the gap after the bankruptcy of state carrier Malev in 2012.

The collapse of the largest carrier at the airport had forced Budapest Airport to suspend numerous developments and implement drastic cost-cutting measures, including closing the airport’s Terminal 1.

The expansion of budget flights led to a massive increase in traffic through the airport, while new construction has also increased cargo capacity.

Between 2014 and 2019, traffic rose from 9.2mn to a record 16.2mn. In size, this ranks the Hungarian capital not far behind its V4 rivals in Prague and Warsaw.

Ebitda rose from €108.3mn to €229mn and revenues from €196mn to €333mn between 2014 and 2019.

During the pandemic (2021-2022) the company raked up €150mn in losses and returned to profitability in 2022 with a net profit of €80mn, impacted by one-off items.

The airport operator has been in the red for 10 of the last 15 years, with an aggregate after-tax loss of nearly a quarter of a billion dollars over that period.

Passenger traffic has yet to recover to pre-pandemic levels, reaching 12.2mn last year, or 75% of 2019’s numbers. In its latest forecast, management expect it to reach or exceed pre-pandemic levels next year.

Cargo traffic climbed 6% to 194,000 tonnes last year, which is 44% above 2019 levels, reflecting Budapest's efforts to establish itself as a key air cargo hub in the Central and Eastern European region, serving as a primary gateway for Chinese merchandise.

Owners feel the pressure

The airport’s recovery has reinforced the determination of its institutional owners to hold out for a high price. At present the airport is majority-owned (55.44%) by AviAlliance, a German-based airport management company owned by Canada’s Public Sector Pension Investment Board, Singapore's state investment fund GIC (23.33%) and Canadian pension fund Caisse du Quebec (21.23%).

The owners have long been under pressure from the Hungarian government to sell their stakes. The narrative was the same as in the case of other foreign companies operating in strategic sectors, with the government or its favoured companies allegedly resorting to bullying.

The airport has faced a number of on-site inspections and in the past few years government officials have accused management of not developing the airport fast enough.

Management has rejected these claims. Last year, the company made infrastructure investments worth a total of €47mn, bringing the total value of the developments to more than €270mn between 2018 and 2022.

Terminal 1 is expected to be completed by the summer of 2025, "at the latest" and the airport is making preparations for the construction of Terminal 3, which it aims to complete by 2030. The delay in the reopening of Terminal 1 would have a direct and significant impact on the growth of tourism in Hungary, it added.

Creating national champions

Taking over Budapest Airport would fit well into the Orban government’s strategy since he returned to power in 2010 of creating domestic-owned national champions, preferably owned by people close to the government in key sectors – energy, banking and the media and telecommunications.

In the energy sector, state giant MVM became the prime service provider of gas, electricity and heat. The merger of three mid-sized banks led to the creation of the second-largest commercial lender behind OTP, MBH Bank.

Orban’s allies controlled 80% of Hungary’s media landscape before transferring their ownership to a public foundation (KESMA).

In the telecommunication sector, Lorinc Meszaros’ right-hand man, Gellert Jaszai has built up an info-communication giant, 4iG. The company is expanding in the Balkans is now the majority owner of Vodafone Hungary.

Taking over Budapest Airport would allow the government to carry out investments, which it claimed were held back by the present owners, and make Hungary a leading airport hub in the CEE region.

Shadow finance minister of Hungary’s largest opposition party DK, Zoltan Bodnar said the government’s plans to take over the airport would open up a lot of opportunities for suppliers linked to the ruling party. He did not rule out that eventually, the government would transfer ownership to private companies close to the government.

Bodnar and other opposition leaders have called it unethical that the government is dishing out hundreds of billions of forint for prestigious investments and projects like the purchase of Vodafone, as Hungary’s public services are grappling with financial problems. 

According to Minister of Economic Development Marton Nagy, Hungary would pay for the airport operator from budgetary resources, development bank money and proceeds from the sale of non-strategic assets. There was no indication whether Budapest would tap development bank funds from Hungary or from abroad.

On the same day as reports surfaced over the formal bid, Hungary stepped out on the international bond market with a 10-year €1.75bn bond issue, which may be used to cover part of the transaction.

Hungary’s budget has been under great pressure since Orban’s spending binge before the April 2022 general election. Hungary’s government recently revised its 3.9% deficit target for this year to 5.2%, and other investment plans have been put on hold because of the freeze of EU aid over Orban’s violations of EU norms on the rule of law.

Enter France

France’s Vinci has emerged as a potential frontrunner to buy the airport alongside growing bilateral ties between Hungary and France.

These ties have come a long way since the 2022 French presidential elections, when Orban openly endorsed Macron’s far right challenger.  Marine Le Pen secured a €10.6mn loan for her campaign from then-state-owned MKB Bank, which would not have been possible without the approval of the prime minister, who, according to media reports was an intermediary in the deal.

Hungary's strongman is still hoping for a breakthrough of eurosceptic parties in the EP elections and to forge an alliance with other radical right-wing forces, as currently Fidesz is without a faction in Strasbourg after leaving the EPP in 2020.

At the same time, Orban has been systematically working to strengthen economic and political ties with Paris after relations with Germany soured following a shift to the left in 2021. Germany's three ruling parties stepped up pressure on Chancellor Olaf Scholz to “thoroughly” scrutinise Hungary's rule-of-law reforms and tie the disbursement of EU funds to reforms.

Hungary’s leader, who has become the longest-serving prime minister in the history of the country, has found a solid ally in Macron in energy issues. Hungary and France have found common ground in the debate over whether nuclear energy should be incorporated in the EU Green taxonomy as both countries rely heavily on nuclear energy.

Hungary has also made some concessions to French companies in the energy sector.  Veolia has successfully run in renewable tenders, while Germany’s E.ON has failed and is facing headwinds.

Telex.hu has recalled that Pascale Andreani, former French ambassador to Hungary between 2018 and 2022, has played a major role in improving bilateral ties. The diplomat, who worked in the OECD and at the UN earlier, has been working for Framatome since March 2023.

Hungary and French state-owned nuclear company Framatome have recently signed an MoU on expanding an earlier partnership that focused on training and research and development to include the long-term operation of nuclear power plants and the supply of nuclear fuel and implementing next-generation technologies.

After the German government blocked the transfer of the delivery of a control system to Paks 2, Hungary agreed with the French company to take over the role of its German partner, Siemens Energy.

As Germany’s indulgence of the Hungarian strongman comes to an end, it appears that France, as always putting business first, is now ready to step into its place.