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Heathrow expansion plans 'prohibitive'

Heathrow planes

Airline operator International Airlines Group (IAG) chief executive Willie Walsh has said that if plans to expand Heathrow get the go ahead, alternative proposals for the airport should be examined.

“If you look at Heathrow, you’ve got to open your mind,” he said. “If it gets the nod, you’ve got to look seriously at both of the options.”

IAG is the parent company for airlines British Airways, Aer Lingus, Iberia and Vuelling.

Heathrow Hub has proposed an alternative option to building a new runway, which involves extending the northern runway. It reacted to Walsh’s comments by saying that its independent proposal should be “put back on the table”.

In a statement Walsh claimed that the cost of the new third runway was “prohibitive”. “We have to look not only at whether the demand exists – which I believe it does – but whether you can match that demand with something that’s affordable,” he said.

Former JP Morgan global capital markets chairman Ian Hannam, is one of the Heathrow Hub concept’s financial backers. 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 third 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.”

Hannam said that the Heathrow Hub proposal was simpler, with phase 1 costing only £3.7bn, compared to the proposed £23bn for a new third runway. He stated that the alternative scheme could easily be financed in the bond or bank debt markets backed by Heathrow Airport’s current and forecast cashflows and limited amounts of new equity.

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

“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.

He said that the last thing chancellor George Osborne, prime minister David Cameron and UK taxpayers would want on their hands was “another costly infrastructure project” which the private sector was unwilling to finance without assistance.

“I urge them to listen to Mr Walsh’s wise words,” he said.

The comments come a week before the New Civil Engineer Airports conference, which will take place at the America Square Conference Centre on 25 and 26 May.

Book your place here.

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