British aviation groups generally applaud Heathrow decision

While the political questions about today’s vote on Heathrow’s third runway expansion is far from settled, most airfreight groups around Great Britain are applauding the decision – at least cautiously – as a victory for U.K. air cargo and world trade.

“The decision to increase capacity at Heathrow is the right choice for the U.K. economy, the freight industry and the nation,” read a statement from the Freight Transport Association (FTA). “A third runway is essential for U.K. importers and exporters who rely on the expansion of Heathrow. About 40 percent of U.K. imports and exports by value are dependent on airfreight and the wide range of services provided by Heathrow to access our overseas markets.”

Chris Welsh, FTA Director of Global and European Policy, called the decision “excellent news for the freight and logistics industry and the country. This decision is even more vital in a post-Brexit world, where Britain’s capability to expand its trade and ability to compete in markets outside Europe is heavily dependent on connectivity to emerging markets.”

Freight and passenger operations “have a strong synergy at Heathrow,” Welsh said. “Airlines accepting freight in the belly hold of passenger planes can often make the difference between services being profitable or not.” The industry, he said, must look beyond Europe to emerging markets in Asia, South America and India.

According to FTA, Heathrow Airport currently serves 185 destinations in 84 countries, adding that “increased capacity will enable goods and passengers to be connected to scores of global destinations and support U.K. trade.”

SEGRO, the U.K.-based industrial warehouse developer, also supported the vote, saying a third runway “gives business confidence that the new government is serious about infrastructure delivery and maintaining Britain’s position as a global trader.” SEGRO has supported the plan all along, arguing that added capacity is crucial “for Britain to succeed in the global economy.” The company said 84 percent of its customers support the Heathrow expansion.

The British International Freight Association (BIFA), the trade association that represents the U.K.’s freight forwarding and logistics businesses, also welcomed the third runway decison for Heathrow, but has been more equivocal in its support, citing the long process ahead for implementation of the plan.

“Today’s news appears to be the beginning of the end of years of procrastination over the expansion of U.K. aviation capacity,” said Robert Keen, director general of BIFA. “If that is the case, it is long overdue good news for our 1,500 member companies who have been dismayed over the ongoing delay on such a huge issue.”

However, he added that the public consultation process will now begin before the Members of Parliament can make a vote on the project – an endeavor that may last until in the winter of 2017-18. “If that is the case, uncertainties remain,” he said. “Whilst the U.K. Transport Secretary, Chris Grayling, has hinted at an expedited planning procedure, with no reopening of high level arguments, the inevitable legal challenges and the convoluted parliamentary and planning processes that are also likely lead me to doubt that any expansion will be completed by the time that UK aviation capacity is predicted to run out in 2025.

“I hope I am proved wrong,” Keen added, “but I won’t be booking a ticket for the opening ceremony just yet.”

On the financing side, a recent report by S&P Group said the £20 billion third runway project can be financed without affecting Heathrow’s credit ratio. “The considerable volume of debt issuance for the project is manageable, and as long as it’s well-spread between investors should not lead to concentration issues,” the S&P report found.

Project financing would make Heathrow “one of the largest single-asset issuers of debt world-wide,” S&P continued. “For this reason the major threats of the project would be: an increase in financing costs during the peak construction period, an overrun of capital expenditure, opening the runway during a recession, and increased airport costs that deter airlines and passengers.”

S&P also said it expects “to see some capacity moving from Gatwick to Heathrow, especially in the short term.” Both British Airways and Virgin Airlines, the analysts added, would “more than likely” reconsider the scope of their Gatwick operations, and could contemplate more traffic moving into Heathrow.