Heathrow Airport Ltd’s new 3rd runway “now costly and difficult” to finance, says financier Ian Hannam

Dino D'Amore
By Dino D'Amore May 16, 2016 15:47

Heathrow Airport Ltd’s new 3rd runway “now costly and difficult” to finance, says financier Ian Hannam

Ian Hannam, ex-global chairman of capital markets at JP Morgan and chairman of Hannam & Partners has responded to the recent statement by Willie Walsh, chief executive of IAG that the costs of Heathrow Airport’s new third runway are “prohibitive” and that the Heathrow Hub extended runway independent proposal should be “put back on the table”.

Hannam is a financial backer of the Heathrow Hub extended runway concept, an independent and cheaper alternative to the third runway. He said: “Mr Walsh’s intervention is significant; IAG is Heathrow’s biggest customer and would effectively pay more than half the construction costs of Heathrow expansion via increased air passenger charges.

“Heathrow Airport Ltd shareholders would be required to support the raising of substantial equity and debt to meet the overall £15.7bn cost of the 3rd runway. This is much larger than normal capital market activity. The payback period for them will be lengthy and the likelihood is that they would not receive dividends for many years while construction takes place and then new routes are added.

“The Heathrow hub proposal is simpler, with phase 1 costing only £3.7bn. This could easily be financed in the bond or bank markets off Heathrow Airport’s current and forecast cashflows with only limited new equity.

“The Treasury should also be concerned that the cost, political risk and complexity of Heathrow Airport’s third runway means the private sector will struggle to finance it, especially the equity component.

“I worked with Eurotunnel – a project of equivalent scale – for more than 10 years and my experience is the third runway will require Government support  directly or indirectly in addition to significant increases in passenger fees which would be paid by airlines and, ultimately, consumers. The last thing George Osborne and David Cameron and UK taxpayers want on their hands is another costly infrastructure project which the private sector is unwilling to finance without assistance. I urge them to listen to Mr Walsh’s wise words.”

Dino D'Amore
By Dino D'Amore May 16, 2016 15:47