Overseas investors demand new deal on fees to expand Heathrow

Chinese, Qatari, Canadian and Spanish infrastructure investors could be the big winners from the recommendation by Sir Howard Davies to build a new £18bn runway at Heathrow.

A handful of the world’s biggest investors have been buying stakes in Heathrow Airport in recent years, in anticipation of permission being granted to expand the London airport’s capacity.

Heathrow’s investors include an arm of the Chinese government, one of Canada’s biggest pension funds, the Singaporean sovereign wealth fund and the Qatari sovereign wealth fund, as well as the main pension fund of British universities.

But the investors want a 20-year deal on the landing fees that the airport can charge owners if they are to commit the billions of pounds of debt and equity that will be required to build Britain’s first new runway for more than 70 years.

Any deal would irritate airlines who already pay steep fees to land at Heathrow and who have not all benefited from the rebuilding of Terminal 2 and the construction of Terminal 5.

At present, airport fees are set every five years but Heathrow says that cycle would be “unsuitable” for at least 15 years. It wants fees suspended from the point when investors first commit to the new project to the point where passengers are using the new runway.

“Since the major cost of funding the expansion will be ultimately borne by the passengers, it is essential that the final scheme is viable and cost-effective and does not burden today’s passengers with excessive airport charges,” the airlines’ body said.

John Holland-Kaye, Heathrow’s chief executive, said the plans will meet carbon, air quality and noise targets, and “provide the greatest benefit to the UK’s connectivity and long-term economic growth”. Business supporters of Heathrow, including the CBI, the British Chambers of Commerce and the manufacturers’ organisation, the EEF, called on the Government to get diggers on site by 2020.

Ferrovial, Heathrow’s biggest shareholder, owns a 25 per cent stake, having sold down its interest in recent years. It led a consortium of investors to buy BAA (British Airports Authority), which included Heathrow, in 2006. Heathrow’s expansion will need about £16bn of private funding over the next 15 years, much of which will come from existing investors.

The Airports Commission report confirms that there is an appetite in the investment community for such a huge project: “The Commission’s discussions with plausible future investors so far suggest that there remains substantial interest in investing in a scheme at Heathrow, although the structure of the regulatory system would be a key factor in their decision-making.”

Sovereign wealth funds and Asian funds have been particularly keen on buying large infrastructure assets in recent years, as they move to secure long-term stable income in an environment where global interest rates remain at all-time lows.