Airport expansion plans based on Covid and climate change

The image of the CEOs of British Airways, Virgin Atlantic and Heathrow standing on an empty runway last week to call for the reopening of international travel has 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 for a second summer without mass international travel, the UK warned. Airport Operators Association.

Airports face the dual challenge of recovering from the pandemic and dealing with climate change – questioning the need for expansion at a time when the future of travel is uncertain.

So far, most of the UK’s privatized airports have managed not to rely too much on the government; only Gatwick, 50.01% owned by France’s Vinci, has resorted to the Bank of England’s Covid corporate finance facility, which provides grants and temporary loans.

Instead, airport owners have cut operating and capital spending to preserve cash flow, which, along with equity injections and the suspension of dividend payments, has so far supported companies. business cash flow.

“Lenders treat borrowers very differently than after the global financial crisis,” said John Bruen of Macquarie Asset Management, which invests in the industry through AGS Airports, a 50/50 joint venture with Ferrovial which owns Aberdeen Airports. , Glasgow and Southampton, as well as the much smaller Farnborough. “At the time, it was a pretty confrontational relationship; this is far from being the case now.

“The lenders are basically saying it’s not your fault – we’ll talk about the waivers and the changes reasonably and there’s no one to blame,” he added.

However, there will be limits to goodwill. Before the pandemic, airports were viewed as a safe investment – generating relatively stable and predictable income streams, and often linked to inflation. Most of the privatized airports are either wholly owned or owned under long term contracts and are protected by their monopoly position as exclusive supplier in a particular region.

But on Thursday, the Airports Council International warned of a “serious airport investment crisis” in Europe after the industry was forced to incur more than € 20 billion in additional debt last year.

This cast doubt on expansion plans. Howard Davies, who has led a nearly three-year, £ 15million airport capacity survey that recommended a new runway at Heathrow, said this week he was no longer sure it was needed . “Heathrow would be delighted to fill the two runways it has available,” he told LBC.

“I suspect [Covid] has likely changed the demand profile for aviation in the future.

He said he would have to ‘crunch the numbers’ to see if saving a third runway still made sense – but if it was needed in the south-east, it should still be at Heathrow.

Yet most industry figures believe air travel will pick up.

“Demand is expected to return to pre-pandemic levels by 2025 or soon thereafter, when congestion and capacity constraints will again become an issue for the London market,” said Gatwick Managing Director Stewart Wingate, at the Financial Times.

A British Airways Airbus A319 takes off from Heathrow. The third runway proposed by the airport may not be necessary anymore © John Sibley / Reuters

The government estimates demand for UK flights will rise 50% from 2018 levels by 2050, and Gatwick airports in Glasgow are pushing for permission to expand to take advantage of this.

While many development projects have been suspended by the crisis, none have been abandoned.

Industry 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 pushing to reconfigure their airfields to allow more take-offs and landings. Southampton Airport recently obtained a building permit to extend its runway by 164m to accommodate larger planes.

Even though more of these projects are approved after the pandemic, they still face a big hurdle due to the focus on climate change. The campaign group, Airport Expansion Opposition, has already announced plans to take legal action against the extension in Southampton.

Ministers also this year included transport in UK carbon budgets and net zero targets. The government’s own committee on climate change said any airport expansion should be offset by capacity reductions elsewhere.

“There will be continued pressure to approve major projects in accordance with these global climate goals,” said Eleanor Reeves, partner at the Ashurst law firm.

The aviation industry argues that expansion is not incompatible with action on climate change, highlighting a decarbonization plan that includes a target of net zero by 2050.

“There is no silver bullet to solving aviation and climate change, but it is doable,” said Andy Jefferson, program director of Sustainable Aviation, an industry umbrella group made up of manufacturers. , airports and airlines.

The strategy includes more efficient flights, but also relies heavily on new, unproven technologies such as electric planes, as well as sustainable fuels, which are not yet commercially viable.

But there are also signs that investors are increasingly supporting environmental activists.

“Many investors and fund managers might wonder in the future whether airports fit well in their portfolios,” said David Lowery, head of research at data analyst Preqin. “Depending on their severity, these assets may well be completely off the radar.”

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