The true scandal in Monday’s Commons vote on expansion at Heathrow wasn’t Boris Johnson’s absence but the fact that the government presented a plan that looks suspiciously like a charter for the airport’s private-sector owners to milk passengers and get other people to pay for their cost overruns.
Whatever your view on the expansion of Heathrow, it ought to be easy to agree that if a third runway is going to happen at a (current) official estimate of £14.3bn, it should be 100% clear who is on the hook if costs explode. The government has danced around the question, with transport secretary Chris Grayling offering vague lines about how a third runway must be “affordable” and be built “at a sensible cost” without defining what he means in figures.
The airports national policy statement – the key document in the process – was 91 pages of flimflam. It simply stated that the final proposal should be “cost-efficient and sustainable” and seek “to minimise costs to airlines, passengers and freight owners”, with the Civil Aviation Authority left to sort out the details. Good luck to the CAA but one suspects it will be no match for Heathrow’s battalion of lobbyists.
At a minimum, the government should oblige Heathrow’s owners – led by the Spanish firm Ferrovial, with a 25% stake, and the Qatar Investment Authority, with 20% – to inject many billions of pounds in upfront equity capital into their company to ensure the scheme can withstand the inevitable delays and surprises. As things stand today, Heathrow’s use of debt – £13.5bn at the last count – is so extreme that even Carillion’s bosses would have blushed at the leverage ratios. Unlike at Carillion, however, if a financial emergency were to materialise with the third runway, there isn’t a credible option of letting the company fail. The airport is too important to the UK – and the owners know it.
So, if costs explode and risk equity remains minimal, the CAA would be drawn into a negotiation. The owner would want higher landing charges from airlines to service its debts and the regulator would come under huge pressure not to thwart a project carrying so much political prestige. That negotiation, one can guess, would be one-sided.
Therein lies the scepticism from the airlines. Craig Kreeger, the chief executive of Virgin Atlantic, called in February for Heathrow to be forced to give a “passenger cost guarantee”, adding: “They have the most information on how likely the costs are to be deliverable – and they should bear the risks of their estimate being grossly, grossly off-target.”
The airlines are not disinterested players, of course, since a third runway would bring more competition for them – but it is surely reasonable to expect Heathrow’s owners to prove, upfront and transparently, that they will have a big cushion of risk capital in place. Simply pleading, as Heathrow does, that its owners are wealthy international investors with reputations to protect is not the same thing.
It is hard to escape the conclusion that delay, confusion and political in-fighting has served Heathrow’s owners well. Parliament has been asked for approval even before the airport has decided whether part of the M25 should be sunk into a tunnel to make room for the new runway or whether the runway should be built on stilts. That little detail may turn out to be important. Politicians seem so exhausted by the effort of getting the project across the line that detailed risk allocation has been left for later. One day, one suspects, the report from the National Audit Office will be a riveting read.
Where is the Brexit voice from UK employers?
First it was Airbus, then Siemens, now BMW. It would be useful if some large British-owned employers, if they feel similarly, spoke up about the potential damage to their supply chains from Brexit. A single clear statement from a large company is worth a hundred press releases from the CBI or any other trade body. Patriotism of self-preservation was understandable six months ago but now is not the time for UK employers to plead politeness. Find your voice.