Up, up and away! New London airport would need up to £30bn public subsidy
MPs asked if any future owners could make adequate returns sufficient to obtain finance
Thursday 24 January 2013
A new hub airport for London would need public subsidy of up to £30 billion, according to new figures published today.
A Commons Transport Committee-commissioned report found that a "substantial" subsidy would be needed.
The MPs wanted to find out if a new hub airport to increase capacity to south east England would be commercially viable for a private investor. They asked if any future owners could make adequate returns sufficient to obtain finance.
Researchers for the economic consultants Oxera found: "Specifically all the scenarios have a negative value at a rate of return that a private investor would require and the analysis implies that substantial public support/subsidy would be needed (in the range of £10-30 billion in today's money for the base-case scenarios examined)."
The report adds that the project could still offer the public good value for money "depending on the scope of the wider benefits that the airport could facilitate".
Different potential situations in which that would have a direct impact on costs were looked into. These included airport design and the number of runways, demand forecasts and construction cost estimates which range across various proposals from £20-£50 billion.
Oxera considered various hub scenarios, rather than any of the actual plans which have been put forward. Researchers did not look in detail at the expansion of existing airports.
The potential impact on Heathrow and other airports were also imagined as this would also have an impact on commercial viability. Compensation to Heathrow needed to be arranged in scenarios where it had to close. Landing charges plus operating costs, all based on current Heathrow usage figures, were also viewed. Policy options towards existing airports was another factor.
The closure of Heathrow was among the potential situations imagined by the researchers which would influence financial viability and demand.
If Heathrow closed, all its traffic would move to the new hub airport. If Heathrow stayed open, the new airport would soak up all unmet traffic and attract some of Heathrow's existing demand.
Forecasts also suggested there could be "a degree of diversion" from London airports to the rest of the UK due to capacity constraints at the London airports.
Researchers also assumed that if there was no capacity constraint at the new hub then the airport could cope with unlimited demand growth.
Transport committee inquiry chairman Louise Ellman said: "The results suggest a new airport would require public investment and have considerable impact on Heathrow and other London airports.
"The research findings also shed significant light on the scale of investment required to deliver essential related surface transport links for any new airport.
"We hope this work delivers something new to a crucial debate."
The MPs are set to use information in their ongoing examination of aviation policy.
The report did not look at whether Government support for a new hub would offer good value for money or to suggest what the overall social and environmental benefits could be.
The Institute of Directors urged a comprehensive overhaul of aviation policy, including the construction of new runways at Heathrow and Gatwick Airports.
Corin Taylor, the IoD's senior economic adviser, said: "This analysis confirms our view that a new hub airport would need substantial public subsidy and probably require the closure of Heathrow.
"Expanding our existing hub airport would be cheaper, quicker and offer far better rail and road connections to the rest of the country."
- 1 King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
- 2 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 4 Presidential optical illusion offers clues to how brain processes faces
King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
Auschwitz liberation 70th anniversary: Woman sent to three Nazi death camps describes surviving gas chamber
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Ukip Jelly Babies cause uproar on Amazon
Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
£25000 - £35000 per annum: Recruitment Genius: A Front End Web Developer is re...
£250 - £300 per day: Investigo: Growing international marketing business requi...
£18000 - £22000 per annum: Recruitment Genius: An ORM Consultant is required t...
£21000 - £25000 per annum: Recruitment Genius: This leading provider of educat...