Big-league investors bail out of disappointing venture.

What happens when some of the world's richest investors come together and buy into a market-leading company with tremendous growth potential?

Frustration and lackluster financial results.

And that's why Airport Group International Inc. has been quietly put up for sale.

The Glendale-based owner/operator of airports has hired investment bank Donaldson Lufkin & Jenrette to handle the sale, and bids are due by the end of February, said Patrick Cowell, AGI's chief executive.

It's a far different scenario than the one that enticed billionaire George Soros, GE Capital, Bechtel Enterprises and others to invest millions into AGI in the mid-'90s when its then-parent, Lockheed Corp., looked for additional capital. They were attracted to the vast potential presented by governments around the globe, including the United States, which have been moving to privatize their airports.

But the privatization effort has been much slower than anticipated, and competition for airports and airport-operating contracts is heating up.

"The prices of these airports is so great that in order to be successful in this business you have to be fully committed," said Cowell. "If you want to get management contracts, you have to be willing to put up a lot of money to buy your position."

And some AGI shareholders are unwilling to pour more money into the business.

Lockheed Martin Corp. remains the biggest stakeholder in AGI, with around 38 percent, followed by Soros Fund Management with 28 percent. GE Capital controls just over 9 percent and Bechtel around 5 percent.

"Lockheed and Soros are really not in this business," said Cowell. "Lockheed wants to focus on aerospace and Soros said they were just traders interested in liquidating their position."

Neither Soros Fund Management nor Lockheed Martin returned calls last week.

David Feldman, a Paris-based consultant with Mercer Management Consulting, said that while Soros may be looking for a short-term profit, airport-related investments such as those undertaken by AGI require commitments of up to 40 years.

Soros' skepticism was evident as far back as 1997. In the summer of that year, AGI successfully bid for a 50-year leasehold on Perth Airport in Australia. But Soros declined to participate in the deal, arguing that the price was too steep. That forced AGI to scramble to find another investor.

Such internal dissent became more frequent over the months and led to the sale discussions.

"We went out to raise money last year, but instead of people wanting to put money in, people were saying that they were more interested in buying the company," said Cowell.

That includes a consortium of two existing shareholders, GE Capital and Bechtel.

The fact that AGI has targeted airports that are in need of facility upgrades is an added attraction for both General Electric, which produces communication equipment used at airports, and Bechtel, a leader in airport construction.

Another potential buyer is overseas rival BAA plc, the privately held unit of the British Airport Authority, which is the leader in airport management and AGI's biggest competitor. Mike Bell, president of BAA America, declined to comment on the AGI sale.

AGI's business plan had projected annual revenues of $700 million and net income of $30 million to $50 million by 2000. But in 1997, revenues were only $138 million, and net income was around $2 million, up from a $10 million net loss in 1996 but still off target.

Cowell said 1998 results, which had not been released as of last week, will show that revenues were little changed from a year earlier, though 1998 net income was up about 200 percent, which would be $6 million.

AGI currently owns long-term leases on nine airports around the world, including Luton Airport in the United Kingdom and Perth Airport in Australia. It has contracts to handle part or all of the operations at more than 20 other airports, including Burbank Airport and Los Angeles International Airport.

Whoever ends up buying AGI will face a much more competitive environment than in years past.

Besides AGI and BAA, there are a slew of smaller companies, including a number of recently privatized European airports, scrambling to win a piece of the business.

"The problem is that there are more and more people entering the business," said Feldman. "These competitors are bidding higher for projects that may not be worth it. For AGI, which doesn't have a large home-base airport to support it financially, it puts them at a relative disadvantage."

The overall U.S. market, meanwhile, has been a disappointment.

In November 1996, federal legislation was passed to allow five U.S. airports to be privatized. The hope was that the legislation would lead to a flood of applications for privatization in what is seen as the world's most lucrative airport market.

So far, however, not a single U.S. airport has been privatized, and the one closest to being privatized has been a disappointing slap in the face to AGI.

Stuart Airport, a state-owned facility located 60 miles north of New York City, is currently awaiting Federal Aviation Administration approval for its privatization.

AGI looked to have the inside track to win the 99-year lease on that airport, because it had been managing the airport for years. But the state of New York recently awarded that lease to British-based National Express.