New London Hub Airport May Need $48 Billion Subsidy

A new hub airport for London would need a subsidy from government funds of as much as 30 billion pounds ($48 billion), a report into the commercial viability of the plan found.

The research, commissioned by the House of Commons Transport Committee from Oxera, an Oxford, England-based policy analyst, assessed scenarios and alternative plans for a new hub as a result of government opposition to the expansion of Heathrow, Europe’s busiest airport. The future of aviation in the U.K. is currently being reviewed by a commission headed by Howard Davies, a former chairman of the Financial Services Authority.

“This work was framed specifically to help the committee assess the commercial viability of a new hub airport by asking whether any future owners could make adequate returns sufficient to obtain finance,” the panel’s chairwoman, Louise Ellman, an opposition Labour Party lawmaker, said in an e-mailed statement. “The results suggest a new airport would require public investment and have considerable impact on Heathrow and other London airports.”

The constraints on Heathrow, which has only two runways and operates close to capacity, were demonstrated over the past week when snow and poor visibility forced the cancellation of hundreds of flights.

Public investment of between 10 and 30 billion pounds would be needed as none of the scenarios examined offered a rate of return that would be sufficient for private-sector investors, the report found. There would also need to be government subsidies to provide surface transport links, Oxera said.

This need not put an end to the plans, the report concluded. “From a public perspective, the project may still offer good value for money, depending on the scope of wider benefits that the airport could facilitate,” Oxera said.

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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