26th November 2007
Playing politics and high finance with people’s lives
It is now four years since the Government published its Air Transport White Paper (ATWP), calling for a new runway at Stansted by 2011/12 followed by another runway at Heathrow ‘as soon as possible after 2015’ provided this was compatible with meeting the statutory air quality standards around Heathrow. The ATWP also called for an end to uncertainty which blighted people’s homes and indeed their lives. However, there is now more uncertainty than ever.
Last week the Government announced that it was satisfied that a third runway at Heathrow could be built without breaching air quality standards and it threw its full weight behind proposals for a new Heathrow runway, emphasising the importance of Heathrow to London’s role as the world’s leading financial centre and to the UK economy as a whole.
On 22 November, the Secretary of State for Transport, Ruth Kelly, told ‘The Times’ that it was much more important to expand Heathrow than Stansted because of the economic benefits of adding capacity at Britain’s only hub airport, which has flights to all the major countries. This appeared to be a reversal of Government policy, as stated in the ATWP, that Stansted should have a new runway before Heathrow. Ruth Kelly issued a partial correction in a letter to ‘The Times’ the following day, insisting that plans for a second runway at Stansted had not been scrapped but interestingly not insisting that Stansted should have a new runway before Heathrow.
It has never been SSE’s policy to advocate expansion at Heathrow as an alternative to Stansted and whilst our main focus is upon opposing unsustainable development at Stansted, we stand shoulder to shoulder with the communities around Heathrow in opposing the unsustainable development of aviation. The climate change impact of air travel is of such magnitude that the growth in air travel must be curbed on these grounds alone until there is an effective solution to control and contain aviation emissions.
Meanwhile, BAA is also engaging in doublespeak. The initial 2011/12 target date for completion of a second Stansted runway, as set down in the 2003 ATWP, has been repeatedly postponed. BAA claims that its current target date is 2015. The planning application is expected very soon but BAA is sending out strong signals that applying for planning permission should not be viewed as a declaration of intent by BAA to actually build a second runway at Stansted. For example:
- Before the publication of the ATWP, BAA told the Department for Transport that a second Stansted runway would not be commercially viable without cross-subsidy – an option which has since been ruled out by the regulator (the CAA) [source: ‘Responsible Growth’, BAA, June 2003, para 7.51];
- BAA confirmed the above assessment, last year, telling the CAA that a second Stansted runway was not commercially viable because it would not generate a sufficient rate of return even to cover its cost of capital [source ‘Airports Price Control Review: Initial Proposals for Heathrow, Gatwick and Stansted’, CAA, Dec 2006];
- BAA told its debt providers last year that its “capital plans provide BAA with an ‘option’ to build, they are not a commitment to build;” [BAA ‘Debt Roadshow’, Slide Presentation, Jan 2006 (available from SSE on request)].
BAA’s FINANCIAL PREDICAMENT
Following the acquisition of BAA last year by Airport Development and Investment Ltd (‘ADI’) a company controlled by Spanish infrastructure company Ferrovial, BAA/ADI’s ability to fund the development of new runways at Stansted and Heathrow in the foreseeable future is extremely questionable. Even without any additional runways, BAA’s capital investment requirements are about £1 billion a year over the next seven years (to 2014/15). This is based on data published by BAA on 25 April 2007 setting out its capital expenditure plans (at 2007/08 prices) for Heathrow, Gatwick and Stansted. These capital expenditure plans exclude BAA’s four other UK airports. New runways at Stansted and Heathrow would take this to more than £2 billion a year.
We question BAA’s ability to fund this when:
- The current level of debt in ADI is in excess of £17 billion
[source: ADI Balance Sheet as at 30 September 2007];
- The annual cost of financing this debt is close to £1 billion, before capitalised interest and including amortised bank facility/arrangement fees;
- The annual debt financing cost is absorbing about 80% of BAA’s free cash flow;
- BAA’s credit rating has recently been reduced to junk status – downgraded by Standard and Poor’s on 21 November from BBB to BB-;
- BAA’s ultimate parent company, Ferrovial, has over £22 billion of debt – almost 4x its market value.
SSE believes that local residents are entitled to expect maximum information and transparency from BAA – at least as much transparency as BAA provides to its bankers and lenders – as to its future intentions.
One of the main purposes of the 2003 ATWP was to bring an end to uncertainty which blighted people’s homes and their lives. If BAA now recognises that developing a second runway at Stansted in the foresee-able future is no longer a viable or realistic prospect then it should say so – the sooner the better. What BAA must not do is to seek approval for a second runway purely on a speculative basis. This would only serve to prolong the uncertainty for this local community for many years to come.