31st January 2008

More ‘ifs’ and ‘buts’ on Stansted new runway plans

In a further sign that BAA cannot make up its mind on the viability of a second runway at Stansted, the airport operator has warned its economic regulator the CAA of the need for a price settlement which delivers investment in new runway capacity. (Note 1) The clear implication is that BAA won’t build a new runway at Stansted unless the CAA allows a dramatic increase in the prices BAA is allowed to charge airlines and passengers.

In 2006 BAA told the CAA that a second Stansted runway was not commercially viable because it would not generate a sufficient rate of return even to cover its cost of capital. (Note 2) Since then BAA had been pinning its hopes on having Stansted removed from the regulatory framework so that it could raise airport charges to justify the cost of a second runway. However, Transport Secretary Ruth Kelly vetoed that proposal earlier this month. (Note 3)

Stop Stansted Expansion (SSE) Economics Adviser Brian Ross commented: “From our point of view there is nothing new or surprising in this latest statement from BAA but it completely contradicts the message coming from BAA management at Stansted, namely that ‘BAA is absolutely committed to the G2 project’.” (Note 4)

Mr Ross continued “Either BAA is trying to bluff the CAA or it is not ‘absolutely committed’ to a second runway.”

It is not only the CAA who are receiving this ambivalent message from BAA. The airport operator has also been assuring its lenders that its investment plans represent ‘an option to build, not a commitment to build.’ (Note 5)

BAA has a debt mountain of over £12 billion, and its Spanish parent company, Ferrovial, has net debt of £23.4 billion. Ferrovial’s share price has halved over the past nine months and its debt is now a staggering 5.2 times the market value of the business. (Note 6)

Mr Ross concluded “This latest statement from BAA is the clearest evidence yet that its resolve to build a second runway at Stansted is faltering and, given all the circumstances, we do not find that at all surprising.”

BAA is expected to submit its much-delayed planning application for a second runway at Stansted in March. SSE views this as a speculative exercise rather than a genuine signal of BAA’s intent.

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