Heathrow owners urged to stop huge payouts to investors – and strengthen its own finances instead

The Sunday Times says in 2017 Heathrow’s debt totalled £13.7 billion, and it is under pressure to cut its huge dividends for its shareholders, if it was allowed to build a £14bn? (£17bn?) 3rd runway. Ministers and airlines are demanding that Heathrow keeps landing charges down, which would mean the regulator, the CAA, capping dividends. Instead the airport would have to use spare funds for the runway project, and to strengthen its finances. Heathrow paid over £3bn in dividends since its buyout in 2006. Combined with a huge building projects, including two terminals, this has increased its debt to £13.7bn. Last year Heathrow paid more than £560m in interest, plus £525m in dividends, and it approved another £114m payout to shareholders last month. The Sunday Times says that could leave its balance sheet vulnerable if the runway project hits difficulties or the aviation industry suffers a downturn. The runway would almost double the size of Heathrow’s £15.8bn asset base. The shareholders gain from take-off and landing charges, which add about £20 to each passenger’s ticket.  A cap by the CAA on Heathrow’s gearing (a measure of debt as a proportion of the value of assets) would ban dividends if borrowings went above a certain level. Heathrow’s gearing is now 87% (far higher than similar businesses) and it wants to increase this ratio up to 93%.

Heathrow owners urged to stop huge payouts to investors

By John Collingridge (Sunday Times)
March 18 2018,

Heathrow’s debt totalled £13.7bn last year

Heathrow is under pressure to cut blockbuster dividends for its shareholders while it builds a £14bn third runway.

Ministers and airlines are demanding that Europe’s busiest airport holds down charges — which could see the industry watchdog, the Civil Aviation Authority (CAA), cap payouts. Heathrow could be forced to divert spare funds into the new runway, and to strengthen its finances. Heathrow paid more than £3bn in dividends since its debt-fuelled buyout in 2006. Combined with a huge building projects, including two terminals, this pushed debt to £13.7bn last year.


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Sunday Times commentary on Heathrow: the cash machine with an airport attached

The Sunday Times reports that under a complex (perverse) incentive system, Heathrow is encouraged to spend as much as it can on developing the site. Heathrow’s investors earn returns based on the size of its “regulatory asset base” (RAB), under a formula set by the CAA.  So the more the airport spends, the more its owners can earn. It gives an example of £74,000 to cut down 3 trees, which is at least 20 times the normal price. These costs of developing the airport are recouped through passenger charges, and also set off against UK tax. The Sunday Times questions the efficiency, governance and transparency of the management of Heathrow.  It says the airport is demanding an insurance policy against the risk that the project goes wrong, and wants the CAA to ensure it will be compensated by airlines and passengers if there are unanticipated difficulties (eg. construction delays, or lower than anticipated passenger numbers or revenue).Scrutiny of Heathrow’s spending has inadequate, there is no audit of the RAB, to show how the figure of £15.8bn for the expansion project is calculated, and Heathrow has not provided a detailed cost breakdown for the runway plans. There are past examples of excessive costs eg. the T2 car park at £61,000 per place, or a smoking shelter at T2 that which was priced at £450,000, but finally cost £1m.

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