T5 expansion means Spanish bidder for BAA faces extra £8.5bn debt burden

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The Independent Online

Ferrovial, the Spanish construction giant mulling a bid for the airports group BAA, will face the additional financial burden of having to take on £8.5bn of debt, it has emerged.

The fine print of a recent BAA bond issue shows that the owner of the UK's three big south-east airports expects its debt to equity ratio to rise to 108 per cent once the £4.2bn construction of Heathrow's Terminal 5 is complete in 2008/09.

Analysts believe this may limit the ability of the Ferrovial consortium to finance any bid for BAA by gearing up the company's balance sheet with extra debt.

Ferrovial has remained silent about the financial partners who will form part of its consortium, although speculation about their identities has ranged from Goldman Sachs, ABN Amro and Guy Hands' Terra Firma group, to the Port of Singapore Authority and Canadian private equity backers.

At a takeover price of 900p, which some analysts believe BAA would command, the cost of acquiring the business and taking on its debt would exceed £18bn. This figure does not take into account the £2.2bn BAA is planning to spend initially on the second runway at Stansted or the £1.5bn it is considering investing in a brand new terminal dubbed Heathrow East.

Expenditure on Terminal 5, which opens in March, 2008 as the new home at Heathrow of British Airways, is now running at its peak level of £4m a day. The terminal, the largest construction project in Europe, covering a site the size of Hyde Park, is three-quarters complete and is on time and inside budget.

The main terminal building is the size of 52 football pitches and will have a capacity of 35 million passengers, making it the world's fifth biggest international airport in its own right. The BA Club Class lounge alone will cover an area equivalent to two football pitches.

In addition to the main terminal building, designed by Sir Richard Rogers, the complex will also feature two giant satellites where passengers board their aircraft, a six-platform railway terminus, 150 shops, a 4,200-space car park and a 600-bed hotel.

The sheer volume of goods and materials being used in the construction is the equivalent of two fully laden lorries entering the site each minute for four and a half years. A workforce of 8,000 are employed directly at Heathrow building the terminal, but the total number of jobs dependent on the project, including those at outside suppliers, is estimated at 52,000.

Tony Douglas, the head of the Terminal 5 project who has just taken over as managing director of Heathrow, says costs have been kept within budget because BAA is treating it as if it were a North Sea oil platform with large pieces of equipment, such as escalators, pre-fabricated off-site and shipped in whole. "If we had built T5 to UK construction industry norms, then it would be costing £1bn more than it is," he said.

Despite this, little expense is being spared. The £250m baggage handling system is a state-of-the-art facility imported from the Netherlands, while the tracked transit system, which will ferry passengers from departure lounge to plane, has been designed by Bombardier of Canada. The covered atrium which will link the car park and rail station to the terminal building will feature giant water fountains and marble floors, while giant video screens mounted on the walls will displaying passenger information.

Mr Douglas said he was most proud of the automated baggage system, part of which has already been completed and handed over to BAA even though there are still more than two years before the terminal opens. He said that the reason most new airports opened late or over-budget was because their baggage handling systems were only installed right at the end of the construction programme.

BA expects to handle about 30,000 passengers a day, 80 per cent of whom will have bought e-tickets and so can check in their own baggage, cutting down queuing times and the need for so many check-in staff.

An airport in its own right

* The 265-hectare site is the size of Hyde Park

* The main terminal building is the size of 52 football pitches...

* ... and British Airways' Club lounge alone will take up two of those pitches

* The project provides 52,000 jobs, 8,500 of them directly on-site

* Spending is currently running at a peak rate of £4m a day

* A fully-laden lorry enters the site every 31 seconds