Ferrovial threatens to pull out of Heathrow if CAA does not let it make large enough returns

Heathrow’s biggest shareholder, Ferrovial, has warned that it could sell its 25% stake if returns are squeezed by the aviation watchdog. This casts doubt about the 3rd runway. Ferrovial says it would not put money into the runway, (costing between £14 and £32 billion) unless the Civil Aviation Authority (CAA) grants it “attractive returns”. The CAA ruled in December that Heathrow could not spend more on early construction in order to ensure the runway was built by the end of 2026 as planned. That means that the 3rd runway will now not be completed until 2028 – 2029, at the earliest, and not 2026 as Heathrow and its investors had hoped.  The CAA currently has a consultation, that ends on 5th March, on Economic regulation of Heathrow, on the “regulatory framework and financial issues”. The CAA effectively decides how much money Heathrow can make through a complex tariff. This is usually updated every 5 years, although this has been extended by 2 years.  A controversial regulatory scheme incentivises the airport’s owners to build, spend more, as then they earn more in returns – the passenger flight charges, now about £20 per passenger.  If Ferrovial decides to pull out, it would invest in schemes elsewhere. 
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Heathrow owner Ferrovial stokes row over third runway cost

The Sunday Times

2nd February 2020

Heathrow’s biggest shareholder has warned that it could sell its 25% stake if returns are squeezed by the aviation watchdog.

The move by Ferrovial casts more doubt over the airport’s plans for a third runway. The Spanish infrastructure giant told investors that it would not put money into the runway, which Heathrow claims will cost £14bn, unless the Civil Aviation Authority (CAA) grants it “attractive returns”.

Ignacio Madridejos, boss of Ferrovial, said the company was “open to rotate . . . if we see we cannot get an adequate return”.

That implies Ferrovial, which led the £10.3bn takeover of former airports monopoly BAA in 2006, would sell its stake or stop investing and plough the cash into schemes elsewhere.

Heathrow’s third runway is one of the UK’s most divisive infrastructure projects. Willie Walsh, boss of British Airways owner IAG, has accused the airport of pushing up costs by “gold-plating” projects.

A controversial regulatory scheme incentivises the airport’s owners to build — meaning the bigger the project, the more they earn in returns. Those returns come from charges levied on every flight, currently about £20 per passenger.

However, the CAA is expected to cut investors’ returns significantly.

A spokesman for Ferrovial said: “We are happy with our stake in Heathrow and the opportunities an expanded Heathrow presents for all stakeholders.

“We are confident the regulator will create a framework to encourage and incentivise investment. If the regulatory outcome does not provide a suitable return, we will consider alternative options to expanding Heathrow.”