FGP Topco Limited - is Heathrow's owner
British Airports Authority was privatised in 1987 as BAA
plc. In 2006 it succumbed to a hostile takeover bid and was acquired by a
consortium led by Spanish Ferrovial (62%) as FGP Topco Limited, the current
owner of Heathrow. The sale price of £10.1 billion was raised by Ferrovial's
cash of just £456 million which, with the consortium's loans, raised £4.3
billion of "equity" for control of the company. By the end of 2006 FGP
Topco Limited had borrowed the other £5.8 billion needed to complete its
In June 2006 FGP Topco had
acquired BAA's debt of £2.9 billion, while by the end of December 2006 it had
debts of £13.5 billion, with the difference of £10.6 billion paying off the
"equity" and borrowings used for the acquisition of BAA, thus getting
it for free. It owned seven major UK airports, until by 2014 those other than
Heathrow were sold, raising £4 billion. Ferrovial's stake is now reduced to 25%
as one of the 90% foreign shareholders. FGP Topco's financial statements are
signed off by Ferrovial's Jorge Gil.
As the "top company" in which the accounts of it
and the other 12 major subsidiaries are consolidated, it owns Heathrow Airport
Limited (number 12 in the chain) which is licensed to operate and be regulated
by CAA. BAA plc was delisted as BAA Limited and renamed Heathrow Airport
Holdings Limited (number 4 in the chain).
It has 4 finance companies. ADI Finance 1 and 2, (2 and 3
in the chain), Heathrow Finance plc (8 in the chain) and Heathrow Funding in
Jersey (joint 10 with Heathrow (AH) Limited). FGP Topco's current debt of £14
billion is raised by issuing bonds, 20% in the UK by Heathrow Finance plc and
80% offshore by Heathrow Funding Limited. In the prospectuses it states that
withholding tax on interest payments will not be payable and if it is the
bondholder will be compensated.
In each of the 13 main companies there are Profit and Loss
reserves, the aggregate of which is £22 billion. Rather than spend this on
capital expenditure it borrowed £14 billion, the financial costs of which were
set against the operating profits, producing losses for six of the ten years
from 2007 to 2016.
Over this decade, instead of paying corporation tax, it
has gained £860 million in tax credits and it has paid its bondholders around
£6 billion in interest, saving them perhaps £1 billion in withholding tax. It
paid its shareholders (90% foreign owned) £2.5 billion in dividends.
It was able to raise its debt as the CAA regulator sets
its allowable airport charges at a "price cap" in accordance with 7
Regulatory Asset Base (RAB) "building blocks" including capital
invested. From 2007 to 2016 the airport charges have risen from £8 to £23,
bringing them up to 65% more than competitive hubs in Europe.
The airlines have refused to pay additional charges to
fund the airport expansion, so the automatic regulatory raising of the price cap
will not transpire. The issuing of the bonds by the finance companies depends on
the agency ratings, which in turn depend on the maintenance of the
"regulatory environment" which cannot continue, if as promised by
Heathrow and demanded by the airlines, its charges will not rise.
The capital costs of the expansion are ill defined as £17.6
billion, but the Airports Commission added £13.4 billion of "core
capital" and £16.5 billion for asset replacement. Instead of the £5
billion for surface access costs TfL reckon it to be £18.6 billion. With
interest payments on contractors' progress payments, the £66.1 billion could
easily rise to £70 to £80 billion.
Heathrow's traffic is expanding without the runway with
the deployment of bigger aircraft and the 50% extra traffic claimed by the
building of the runway will be achieved instead by raising the average number of
passengers per flight to 255, while the ultimate 130 million passengers per year
can be achieved with 290.
The reluctance of the airlines to pay additional charges
will mean that the current financing entirely by debt cannot continue. While
capital spent on improving the handling of more passengers arriving and
departing per flight is recommended, capital spending on a runway that is not
needed cannot be justified, nor can it be raised without raising of airport
Topco's paid up shares total only £13.1 million for which investment they have
"earned" £3.02 billion in dividends (with £525 million paid in
2017). It is unlikely that they will raise the £20 to £30 billion of equity
needed to finance costs of £70 to £80 billion from such a low base and for a
runway which is not needed.
John Busby 17 June 2018