Might Heathrow only be able to afford its 3rd runway scheme, by being allowed another 25,000 annual flights well before runway was ready?
The Times’ Chief Business Commentator, Alistair Osborne, has written on the deeply unclear finances of a possible Heathrow 3rd runway. Alistair suggests, one way the airport could try and get in some extra cash, early in the building programme (when no airlines can use the new runway yet) is increasing the current numbers of flights and passengers. Heathrow loves to say it is full, but it is not. Each year the number of passengers creeps up – there is spare terminal capacity. But if instead of the current cap of 480,000 annual flights, Heathrow could get consent for an extra 25,000 (ie. to 505,000), it could add perhaps 6-7 million more passengers, up from the current 78 million or so. That could bring in much needed income, to help fund the vast project – including what to do with the M25. But adding 25 million more annual flights means about 65 more per day. Heathrow hopes to appease the ire of badly impacted local residents, by saying they would start flying at 5.30am rather than the 4.30am start now. But there would then be plane after plane after plane then, when people are still trying to sleep. And the airlines don’t like the idea, as it upsets their lucrative long haul schedules, and causes less resilience if there are delays, at the peak periods.
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Heathrow playing numbers game
6th November 2018
So, it’s not just the airlines, local councils and anti-runway campaigners. No, even the Civil Aviation Authority can’t fathom how Heathrow plans to finance its £14 billion third runway. And that’s the outfit that regulates airports.
Richard Moriarty, the CAA boss, has just relayed as much in a letter to the transport department. Indeed, he’s even threatened enforcement action against Heathrow unless it “urgently and demonstrably” spells out its solution to the great aviation conundrum: how it can spend that sort of money on a new landing strip without jacking up landing charges.
It’s key to the big promise of transport secretary Chris Grayling: that Heathrow can deliver the runway by 2026 while keeping the present £23 per passenger charge “close to current levels”.
So what is Heathrow’s plan?
Well, in fairness to the airport company, it’s got a rudimentary one — though whether it’ll fly is a different matter entirely. And it does mark a departure from the Heathrow mantra that the airport is already full — because it’s built on adding 25,000 extra flights a year before the runway is even built.
The maths goes something like this. Heathrow is presently capped at 480,000 flights a year. From that it delivers about 80 million passengers, underpinning annual revenues of £2.9 billion. Knock off the £1.1 billion operating costs, the present £800 million a year capex and a hefty interest bill — the sort that comes with £13.8 billion net debt — and it’s hard to see where the money comes from to fund the runway. Not least when the costs of building the thing arrive long before the extra passengers.
It’s not as if Heathrow can simply borrow the money, either. Against its £16.1 billion regulated asset base, it’s already 86% geared. Raise leverage and it will jeopardise the investment grade credit rating that the company’s vowed to maintain.
But, say, it can persuade first the planning inspectorate and then Mr Grayling to raise the cap to 505,000 flights a year, potentially lifting passengers to 85 million-plus.
Without raising charges, it would have extra readies to help bankroll the runway — not least the trickier £7 billion first stage, including such joys as re-routing all 12 lanes of the M25. In an ideal world, Heathrow would dovetail the ramp-up in investment with a rise in passengers.
This is the plan Heathrow is kicking around with the airlines, aiming to get the cap lifted in 2022. But there are clear obstacles.
Local residents will object to 25,000 extra flights, an issue Heathrow hopes to head off by agreeing to start operations an hour later — 5.30am rather than 4.30am.
But the airlines may oppose that, given it’ll disrupt schedules, particularly out of Asia. And the airport’s biggest customer, the BA-owner IAG, is known to be concerned that squeezing in extra flights will lower Heathrow’s resilience, with any disruption forcing even more cancelled flights.
And, say, Heathrow can’t lift the cap. What other option for its owners than writing a big equity cheque? It’s not as if financing is the only headache, either, for a runway scheme already facing a five-pronged judicial review. Air pollution and noise could also ground it. There’s a long way to go before this project takes off.
alistair.osborne@thetimes.co.uk
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See earlier:
Times reports that Heathrow is hoping to get 50 more flights per day 2020 – 2024 before 3rd runway
Heathrow flights are capped at 480,000 flights per year – which was set as a condition of the Terminal 5 planning consent in 2001. Heathrow now wants to increase the number of flights by about 19,000, giving a total of about 499,000 per year – which means about an extra 50 planes per day, taking off or landing. This would happen relatively soon, and about 4 years before a 3rd runway was operational – during its construction stage. The cap of 480,000 can only be lifted if there is a planning application for a 3rd runway, and that could take several years to start – maybe not till 2020. Heathrow is attempting to gloss over the inevitably increased noise by its chairman Lord Deighton saying the increase “would be accompanied by sweeping mitigation measures outlined by the airport in May, including a ban on night flights.” If that was true, it is likely to mean the loss of the half day of respite people east of the airport get, from runway alternation, when runways switch at 3pm each day. This is hugely valued by tens or hundreds of thousands of people. Its reduction or removal would be fiercely opposed. Heathrow is trying to persuade government etc that more flights is vital to “show that Britain was “open for business” after the Brexit vote. A card they repeatedly play nowadays.
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See earlier – on fears of “mixed mode” operation of Heathrow runways, rather than the current “runway alternation”:
‘More air traffic through Heathrow – losing runway alternation – would ruin quality of hundreds of thousands of lives’
The Standard reports that the all-party 2M group of London Councils, including Wandsworth, Richmond, Hounslow and 17 more, have warned the Airports Commission that allowing both runways to be used for arrivals and departures at same time (= mixed mode) would be ‘devastating’ to thousands of Londoners. Alternating runways at 3pm each day gives residents a break from aircraft noise and removing this would destroy the quality of life of hundreds of thousands. The 2M group represents 20 councils and 5 million people under the flight paths. It is warning that allowing more plane traffic through ending runway alternation and having mixed mode instead would be as damaging as building a 3rd runway, and have a devastating impact. On a typical day the first planes approach over South and West London from 4.30am. Intervals between aircraft are around 90 seconds.The 2M group want guarantees that alternating runways and limits on night flights will not be sacrificed so Heathrow can handle more flights.
https://www.airportwatch.org.uk/2012/11/mixed-mode-runway-alternation/
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Heathrow proposals for pre-runway flight increase, to try and win Government backing for runway
Heathrow will be putting forward some proposals at the Conservative party conference, to be allowed to start increasing the annual number of flights from 2021 by 25,000 per year (about 68 more per day). “New technology and better use of existing runways will achieve this.” (ie. largely loss of runway alternation part of the day, and narrow flight paths?). Heathrow is selling this as a way to start to give a quick “Brexit boost”, even before its hoped for 3rd runway is operational. Heathrow is claiming that the “environmental constraints” will all be met (it is unclear how this will be done) with no more noise problems, no more air pollution problems etc. All that is proposed is more money for home noise insulation, (£60 million – it has already said it will spend £700 million) and a congestion charge – no details – for vehicles travelling to and from Heathrow. The plans will be subject to consultation and Government approval. There is a mention of talks with government in future to perhaps delay the start of scheduled flights to 5.30am from the current 4.30am. The main thrust of Heathrow’s plans is to say the extra flights will be vital for the economy, with slots set aside for domestic flights. There would be a £10 domestic passenger discount to support “small and large exporters, boosting competition.” There are claims of 5,000 more local jobs over 5 years by this pre-runway expansion, and extensive economic benefits for all the UK …. £1.5 billion in the period 2021 – 2015.
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