Should airport valuations prepare for a hard landing?

Rejections of Bristol and Heathrow Airports’ expansion plans in the UK – alongside the impact of global health scares – cast a shadow on a popular infrastructure asset.

The past two weeks have seen a pair of pivotal UK decisions that could have wide-ranging repercussions for infrastructure development and private investment – in the country and beyond.

It all began with North Somerset Council’s decision to block the expansion of Bristol Airport, a site 70 percent owned by the Ontario Teachers’ Pension Plan and 30 percent by Australia’s New South Wales Treasury Corporation and Sunsuper Superannuation Fund. The plans would have included raising the airport’s passenger limit from 10 million to 12 million, with the site currently handling about 8.6 million.

Key to the council’s reasoning was the fact that “the detrimental effect of the expansion of the airport on this area and the wider impact on the environment outweighs the narrower benefits to airport expansion”, according to a statement from councillor Don Davies.

Today, the UK Court of Appeal decided in favour of a case led by Friends of the Earth and backed by London Mayor Sadiq Khan to rule against government plans for a third runway at Heathrow Airport.

In what is being hailed as the first judicial ruling based on the 2016 Paris Agreement, the Court of Appeal said the government’s 2018 decision to proceed with a third Heathrow runaway ran counter to government legislation on climate change passed following the Paris Agreement. The ruling highlighted this issue as key to what could spell the end to Britain’s largest private infrastructure project to date.

Spurred on by passenger demand, UK airports continue to expand, or desire to, with most major commercial hubs planning expansion. Fellow London titan Gatwick Airport has applied to authorities for permission to use its northern runway, previously not available for commercial use. At London Luton Airport, held in part by AMP Capital and the local authority, plans are underway to build a second terminal and lift passenger numbers from its 18 million cap, set by the local authority.

Hywel Rees, chief executive of AMP Capital’s Leeds Bradford Airport, told us last year that local authorities have incentives to back expansion: “The local authority wants growth and it gets a payment per passenger, so why would they want it to stagnate?”

The decisions by North Somerset Council and the Court of Appeal will provide some form of answer to Rees, as well as to bosses of other airports looking to capitalise on growing passenger numbers.

To be fair, AMP Capital is clearly thinking about its airports’ environmental footprint. In an emailed statement, a spokeswoman told us the firm is “continually seeking to ensure our airports pursue market-leading and best practice environmental initiatives,” citing several examples of how its UK airports are doing just that.

Whether those will be enough to avoid similar decisions to Bristol and Heathrow remains to be seen.

In the meantime, Rees’ use of the word “stagnate” will resonate with OTPP and Heathrow’s owners comprising Ferrovial, Qatar Investment Authority, CDPQ, GIC, Alinda Capital Partners, China Investment Corporation and Universities Superannuation Scheme.

But while stagnation may be easier to swallow for long-term direct investors, airports held by closed-end funds – with a need for a significant growth case to pitch when it comes time to exit – might find further ramifications from Bristol and Heathrow’s rejection more difficult to stomach.

They may also be confronted by the twin threat of climate change and global public health. While reactions to climate change have not translated to falls in passenger movements in airports, the current coronavirus crisis has been far more effective in halting global travel and denting the share prices of airlines. It is too early to assess the long-term effect of the virus, but a potential shift away from globalisation will add a further threat to the future of airport investment.

Last July, we analysed the continued rise in airport valuations and their unique attractiveness as infrastructure assets. If the Bristol and Heathrow cases become catalysts for further cancellations, these might have to prepare for a hard landing.

Write to the author at This article has been updated to reflect the Court of Appeal’s decision on Heathrow Airport on 27 February.

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