Airport expansion plans looking less likely due to Covid and climate awareness
UK airports continue to do badly, due to the pandemic and travel restrictions, and it is anticipated that they could lose £2.6bn between April and September, if Covid continues to limit travel. The industry is also, unwillingly, having to consider their role in worsening climate breakdown, and whether it is acceptable for the sector to be expanding. “Many investors and fund managers could question in future whether airports sit well within their portfolios”. Only Gatwick, which is 50.01% per cent owned by Vinci, has made use of the Bank of England’s Covid corporate financing facility, for temporary grants and loans. Most airport owners have pared down their operations, staffing and costs, and cut dividends, to save money. Lenders are appreciating that the airports have huge financial problems, that they cannot solve while Covid continues to limit air travel. But the FT says there will be limits to the goodwill by lenders, as it is no longer certain that airports will remain a safe investment, generating predictable and high income streams – or be acceptable ethically. Now ACI warned of a “severe airport investment crunch” in Europe as it had to take on more than €20 billion of additional debt last year. That makes expansion plans look doubtful.
Airport expansion plans grounded by Covid and climate change
‘Severe investment crunch’ and growing environmental concerns put projects at risk
By Gill Plimmer and Philip Georgiadis (Financial Times)
The image of the chief executives of British Airways, Virgin Atlantic and Heathrow standing on an empty runway last week to call for a reopening of international travel sent a clear message: airports are desperate to get back to work.
The pandemic continues to be dismal for airports — in the UK they stand to lose £2.6bn between April and September as prospects rise of a second summer without mass international travel, the Airport Operators Association has warned.
Airports are faced with the twin challenge of recovering from the pandemic and coping with climate change — putting the need for expansion into question at a time when the future of travel is uncertain.
So far, most of the UK’s privatised airports have managed not to lean too heavily on government; only Gatwick, which is 50.01 per cent owned by France’s Vinci, has made use of the Bank of England’s Covid corporate financing facility, which provides temporary grants and loans.
Instead, airport owners have reduced operating and capital spending to preserve cash, which together with equity injections and the suspension of dividend payments have so far supported companies’ cash flow.
“Lenders are treating borrowers very differently than post the global financial crisis,” said John Bruen of Macquarie Asset Management, which invests in the sector through AGS Airports, a 50:50 joint venture with Ferrovial that owns Aberdeen, Glasgow, and Southampton airports, as well as the much smaller Farnborough. “Back at that time it was quite a confrontational relationship; that’s far from the case now.”
“Lenders are basically saying it’s not your fault — we will talk sensibly about waivers and amendments and there is no one to blame”, he added.
Nevertheless, there will be limits to the goodwill. In pre-pandemic times, airports were seen as a safe investment — generating income streams that were relatively stable and predictable, and often linked to inflation. Most privatised airports are either owned outright or held on long term contracts and are protected by their monopoly positions as the exclusive provider in a particular region.
But on Thursday Airports Council International warned of a “severe airport investment crunch” in Europe after the industry was forced to take on more than €20bn of additional debt last year.
That has put expansion plans in doubt. Howard Davies, who led a nearly three-year, £15m inquiry into airport capacity, which recommended a new runway at Heathrow, this week said he was no longer sure whether it was needed. “Heathrow would be delighted to fill the two runways it has got,” he told LBC. See
“I suspect [Covid] probably has changed the profile of demand for aviation in the future.”
He said he would have to “redo the numbers” to see whether the economics of a third runway still made sense — but that if it was needed in the south-east, it should still be at Heathrow.
Still, most industry figures believe air travel will recover.
“Demand is expected to return to levels experienced before the pandemic by, or soon after, 2025 by which time congestion and capacity constraints will once again become an issue for the London market,” Gatwick’s chief executive Stewart Wingate told the Financial Times.
The government estimates that demand for flying in the UK will rise by 50 per cent from 2018 levels by 2050, and airports from Gatwick to Glasgow are pushing to be allowed to expand to take advantage.
Although many development projects have been put on hold by the crisis, none have been abandoned.
The industry’s plans range from a megaproject at Heathrow, where a third runway would cost £14bn, demolish homes and bury a section of the M25, to more modest proposals to lift caps on passenger numbers at airports including Bristol.
Others, including London City and Gatwick, are pressing to reconfigure their airfields to allow for more take-offs and landings. Southampton airport was recently given planning permission to extend its runway by 164m so it can take bigger planes.
Even if more of these projects are approved after the pandemic, they still face a big hurdle from a sharpening focus on climate change. The campaign group, Airport Expansion Opposition, has already said it plans to launch a legal challenge against the extension in Southampton.
Ministers, too, have this year included transport in the UK’s carbon budgets and net zero targets. The government’s own Climate Change Committee has said that any airport expansion would have to be balanced by capacity cuts elsewhere.
“There will be continued pressure on approving major projects in line with these overarching climate targets,” said Eleanor Reeves, a partner at law firm Ashurst.
The aviation industry argues that expansion is not incompatible with action on climate change, pointing to a decarbonisation plan that includes a net-zero 2050 target.
“There isn’t a silver bullet in solving aviation and climate change, but it is do-able,” said Andy Jefferson, programme director of Sustainable Aviation, an industry umbrella group of manufacturers, airports and airlines.
The strategy includes more efficient flying, but is also heavily reliant on unproven new technologies such as electric aircraft, as well sustainable fuels, which are not yet commercially viable.
But there also signs that investors are increasingly supportive of environmental campaigners.
“Many investors and fund managers could question in future whether airports sit well within their portfolios,” said David Lowery, head of research insights at data analyst Preqin. “Depending upon how serious they are, these assets may well be off the radar entirely.”
Southampton legal challenge against airport decision by Eastleigh Borough Council
The local campaign against the expansion of Southampton airport, AXO, has now decided to make a legal challenge against Eastleigh Borough Council, and their decision to allow extension of the runway. That extension would have the effect of increasing the number of flights using the airport, and allow flights to more distant destinations – increasing the overall carbon emissions. Decisions such as these, resulting in more climate heating, need full scrutiny and that can now only happen by Judicial Review. The opponents of Southampton Airport expansion have instructed a legal team led by Leigh Day and David Wolfe QC to pursue the case, and are launching a public appeal for money to help finance the action. AXO believe strongly that the council’s decision was wrong both in the way it was taken and the arguments to justify it. The airport has greatly overstated the economic benefits of expansion, which will adversely affect the quality of lives of around 46,000 residents, whilst hugely underplaying the environmental impact. Hence they are calling for the decision to undergo independent scrutiny. There is a crowdfunder, to raise £10,000, to help pay the legal costs.
Howard Davies, whose “Airports Commission” decided a Heathrow 3rd runway was needed and justified, now says it no longer is
Back in 2015, Sir Howard Davies chaired the Airports Commission, which had been given the task – by George Osborne – of making the case for a 3rd runway at Heathrow, so the Conservative government could press ahead with it, once they were out of coalition with the LibDems, who opposed it. Sir Howard had financial connections which might be considered to make him biased towards the airport. In July 2015 the Commission produced its report, recommending Heathrow’s 3rd runway, as a way to meet anticipated air travel demand in the south east. Now, with the impact of the Covid pandemic, and Heathrow struggling with 72% fewer passengers in 2020 than in 2019, Sir Howard has admitted that no extra runway is now needed, nor will it be for some time. In 2015 he believed there was an economic case for it, and spending up to £18 billion on the expansion. Now, even with the cheaper planned scheme at about £14 billion, he has said: “I would have to redo the numbers to see if the economics made sense.” The whole Airports National Policy Statement was based on building a 3rd Heathrow runway, on the recommendation of Sir Howard Davies, before deciding on airport policy for the whole of the UK.