BAA is to pump some £500m into its London airports group, the operator said yesterday, in order to further reduce debt and to finance improvements at Heathrow, its flagship.
The money is coming from BAA shareholders, including the Spanish construction group Ferrovial, GIC, the Singapore government investment fund, and the state pension fund of Quebec, as well as from other parts of the BAA group.
BAA has been under pressure to improve Heathrow’s facilities for some time, but has found itself restricted by its debts – these total £9.6bn, with much of the borrowing dating from Ferrovial’s takeover of the company three years ago. The issue became more pressing last month when the Government told Britain’s biggest airports they needed to improve their financial strength.
The company said that the additional finance would make it easier to tap capital markets while still continuing to pay for airport improvements. It has promised to spend £1bn a year on work at Heathrow alone, with the construction of a new Terminal 2 its biggest priority.
BAA said lenders’ confidence in the company was in any case improving, with passenger traffic numbers at Heathrow now beginning to rise again.
BAA is also in the process of selling off Gatwick, and has agreed a deal that will see the airport sold to Global Infrastructure Partners, the current owner of City Airport, for some £1.5bn. That money will also be used to reduce debt, though the sale was forced upon the company by a Competition Commission ruling that its stranglehold on London’s major airports should be broken.
The Commission has also ordered BAA to sell Stansted, its third London airport, though BAA is appealing against this ruling. It has also been ordered to offload either Edinburgh or Glasgow airport, both of which it also owns.
The extra money will provide investors with some reassurance, given the anxieties surrounding BAA’s finances. Ferrovial, its majority shareholder, has been hit by a collapse in the Spanish construction sector, though BAA was given a boost last month, when Standard & Poor’s, the credit ratings agency, upgraded it from a negative outlook.
Heathrow reported a 1 per cent rise in passenger numbers last month, helping BAA to its best monthly performance since June 2008. However, passenger numbers across all BAA’s UK airports were still down by 1.4 per cent compared to October 2008, with Stansted and Glasgow reporting declines of 10 and 9 per cent.
Heathrow has benefited from a small but perceptible rise in long-haul traffic, while Stansted has been hit by a row between BAA and the low-cost airlines Easyjet and Ryanair, which are challenging its landing fees.