Could Heathrow ever afford to build a 3rd runway?
The possibility of more airport expansion, and growth in the number of flights and passengers, is a serious problem of increasing carbon emissions. Heathrow is to have a new chief executive, Thomas Woldbye, from Copenhagen airport in October – replacing John Holland-Kaye. He has to decide whether to try to get a 3rd runway. As well as the increased CO2, Heathrow has the problem of paying for its expansion. Could it ever afford it? Since it got final approval for expansion in February 2020 (Appeal Court), costing about £14 billion, the costs of construction and financing will have hugely increased. Heathrow has vast debts, which it has increased to raise the regulatory value of their assets. Heathrow now has £16bn of borrowings and posted a loss this year largely due to the rising cost of its inflation-linked loans. The team working on the expansion was disbanded a few years ago, and there are no current estimates of the cost. The forecast for the demand for flying, oblivious of the climate destabilisation now underway, is for over 50% more passengers by 2050. The airport’s shareholders and board are yet to decide whether to push forward with a 3rd runway, and over what timeframe. . Tweet Will Heathrow’s third runway finally go ahead? A new chief executive and a boom in travel could resurrect the stalled project. But rising costs and environmental concerns stand in the way By Philip Georgiadis and Gill Plimmer in London (FT) 28.9.2023 The view from Heathrow airport’s 87 metre-high control tower stretches more than 20 miles, overlooking the constant flow of aircraft taking off and landing. For nearly two years during the pandemic, those skies were unusually quiet. But the travel industry has since roared back to life, propelling the UK’s biggest airport towards its largest passenger numbers since 2019 and near its maximum capacity of 480,000 flights a year. While the boom in trade is welcome, it has also reignited one of the thorniest public policy debates in the UK: how best to expand the capacity of London’s five major international airports — or to what extent it should be increased at all at a time of rising anxiety over the industry’s environmental impact. At the centre of that equation is Heathrow, which has dropped from the second busiest airport at the turn of the century behind Atlanta’s Hartsfield-Jackson to eighth place, trailing Istanbul and Dubai. It is a sobering demotion for Britain, the country that co-developed the supersonic Concorde jet, turned terminals into attractive shopping destinations and led a drive towards cheap package holidays and budget flights. Now its airports have suffered a series of recent embarrassments, from the failure of the air traffic control system in August to Gatwick this week cancelling flights because of staffing shortages at air traffic control. What happens next for Heathrow will fall to its incoming chief executive, Thomas Woldbye, from Copenhagen airport, who must decide how best to proceed with government-approved plans for a third runway. The decades-long discussion appeared to come to an end when the UK parliament voted in favour of the major expansion in 2018 and for other airports serving the capital such as Gatwick and Stansted to upgrade existing airfields. But just as Heathrow was poised to apply for planning permission, the outbreak of Covid-19 plunged commercial aviation into a battle for survival. Now there are new calculations to be made, not least how to square expanding flight capacity with lowering emissions, and how to pay for the new runway and surrounding infrastructure at a time when inflation has pushed up financing and construction costs. For Sir Howard Davies, chair of the commission that guided the Conservative government’s airport policymaking before the pandemic, the final decision from Heathrow’s shareholders on whether to expand the airport represents a wider judgment on the future prospects of the UK and its capital city. “Until recently, no one has lost money by betting on London. It has been the big growth city in Europe, and it was right up until Brexit. Is it now?” he asks. “I think [the Heathrow expansion] has become more of a symbolic decision.” But many in the wider business community believe it is crucial for the third runway to go ahead if Britain is to compete with the rest of the world. “Expansion at Heathrow airport is vitally important for the UK economy and remains a priority for businesses,” says Alex Veitch, head of policy and insight at the British Chambers of Commerce. Opened in: 1946 as London airport, on the boundaries of Hillingdon, west London. It is operated by Heathrow Airport Holdings Limited, formerly BAA plc, which is owned by a consortium of investors led by the listed but family-controlled Spanish construction company Ferrovial Expansion plans: In 2018, Heathrow won government backing for a third full-length runway allowing it to increase capacity by 260,000 flights a year. Under the plans, Terminals 1 and 3 would eventually be demolished and Terminals 2 and 5 would be expanded in a three-decade-long project The first passenger flight took off from Heathrow in 1946, then called London airport, destined for Buenos Aires. The event heralded a period of rocketing growth in civil aviation with Britain at the forefront. But as travel became more affordable and demand grew, so did the need for more capacity. Plans to allow Heathrow to expand its relatively small footprint compared with other big airports began in earnest 20 years ago, but were almost immediately beset by political opposition, not least from voters living underneath the airport’s flight paths. By 2019, the airport laid out its plan for one of the most expensive private sector infrastructure projects in the UK with an estimated cost of £14bn. As well as a 3.5km runway and taxiways on land to the north-west of the airport’s current boundary, the work would involve diverting the nearby M25 motorway into a tunnel to make room for the expansion. In the process, 750 homes, a primary school and an energy plant would be demolished. The upgrade, however, would help the airport meet demands for flying, projected to rise in the UK by 52 per cent by 2050, according to government forecasts in July. John Holland-Kaye, Heathrow’s chief executive who will leave in October, has been a key driver of the third runway. He insists that the airport “definitely” needs to expand, arguing that the pandemic is but a blip in the longer-term trend of ever-growing demand for travel. “When it comes to Heathro
