The owners of Heathrow, who have done very nicely for themselves over the years, have an extraordinary ability to believe the world owes them a living in all circumstances. Take their reaction on Tuesday to the Civil Aviation Authority’s ruling that the airport can’t have a gold-plated pandemic bailout from passengers, but can have some assistance.
That was the gist of the CAA’s award of £300m as a “limited, early adjustment” to Heathrow’s regulated asset base, which will mean roughly 30p added to landing and take-off charges (currently £21) from next year.
Heathrow had been seeking £2.6bn, including £800m immediately. Those numbers always looked absurdly cheeky, or “disproportionate and not in the interests of consumers”, in the CAA’s coy language. To believe Heathrow, though, you would think the sky had fallen in. The CAA’s stance, it said, “undermines investor confidence in UK regulated businesses, and puts at risk the government’s infrastructure agenda”.
It does nothing of the sort. For starters, Heathrow’s expected losses of £3bn during the pandemic need to be put in context. The airport has been able to raise debt at low interest rates throughout. Bond market investors can see that Heathrow, even without a third runway, remains a very safe lending proposition under all plausible regulatory conditions.
Heathrow’s petulant reaction may have been provoked by the CAA’s hint that, if funding becomes a problem, the shareholders, led by the Spanish infrastructure group Ferrovial and Qatar’s sovereign wealth fund, could try injecting fresh equity. “Any risks to … actual financing are a matter for its shareholders, not for consumers to resolve,” said the regulator.
Quite right, too. Airlines’ shareholders have dug deep via rights issues but Heathrow’s investors, who have enjoyed £4bn of dividends in recent years, have yet to inject fresh equity. In a financial quarrel in which neither side looks pretty, any sympathy lies with the airlines: even allowing Heathrow to claw back £300m through higher charges could be viewed as generous.
As for the airport’s wider claim about investors going cold on UK regulated businesses, that is double dose of nonsense. In the water sector, the worry is about regulatory weakness after four companies ran off to the Competition and Markets Authority following the latest price review and were given improvements. In the energy sector, National Grid, a firm not beyond the odd grumble itself, is spending £7.8bn on an electricity business, Western Power Distribution, which suggests a certain underlying faith in the stability of the UK utility scene.
Heathrow’s owners would be well advised to count their blessings as the economy reopens. They cannot expect special pandemic privileges.
BP investors need to see which way the wind blows
BP’s early return to share buybacks should make life marginally easier for its chief executive, Bernard Looney, as he tries to whip up enthusiasm for investment in off-shore wind and solar. Shareholders like the familiarity of returns of excess capital.
Looney, though, should be careful not to claim too much too soon for his “performing while transforming” strategy. The large $3.3bn profit for the first quarter was the product of a higher oil price, an “exceptional” performance in gas trading and fatter margins in refining. In other words, there was nothing to be learned about the returns BP can expect to achieve in renewables.
Net zero by 2050 is BP’s only credible strategy, a point some critics tend to ignore. But the prices paid for off-shore wind licences in the UK in the last auction still look very high, a penalty, perhaps, for being late to the game. The likely long-term performance won’t be clear for half a decade at least.
City’s post-pandemic plan hardly a headline-grabber
The City of London Corporation, governing body for the Square Mile, has embraced the new sport of anticipating “post-pandemic economic and social trends”, which usually means having a guess at how many office workers will operate from home in future.
Some of the ideas sound interesting: tweak a few rents to attract tech and creative businesses in order to liven up the commercial landscape; throw weekend and evening events so the place doesn’t resemble a ghost town at those times. Traffic-free weekends may help.
The supposed headline-grabber – more residential housing – looks modest, however. The proposal is for 1,500 new homes by 2030. That would be an increase of a fifth from current levels but it also works out at only 166 new residential units a year over the period. Will anyone notice?