January 24, 2013 3:30 pm

Report says hub could need £30bn subsidy

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A new hub airport to replace Heathrow is not commercially viable and could only be built by committing up to £30bn of public subsidy, according to a new report.

Oxera, a consultancy, said between £10bn and £30bn of taxpayer support would be needed for a new hub, although it stressed the project could still offer value for money by boosting economic growth.

However, this scale of public subsidy will aid efforts by Heathrow Airport Holdings, the owner of capacity-constrained Heathrow, to persuade ministers to allow it to expand.

At the last election, the Conservatives and Liberal Democrats said they were against a third runway at Heathrow, but some senior Tories – including George Osborne, the chancellor – are preparing for a U-turn.

David Cameron, the prime minister, was initially keen on a proposal for a new hub in the Thames estuary but he has cooled on the idea because of the £50bn price tag.

Sir Howard Davies, a former boss of the CBI business lobby, is chairing an independent commission that has been asked to recommend solutions to the UK’s capacity crunch.

Having examined proposals for a new airport with between two and four runways, and different forecasts for passenger growth, Oxera concluded: “Expected revenues would be less than expected costs and that a new hub airport would not be commercially viable . . . for construction of a new hub airport to go ahead, substantial taxpayer support is likely to be needed.”

Oxera estimated a four-runway hub could generate £29bn of revenue, principally from charges paid by airlines, between opening in 2025 and 2060.

But it would incur £13.4bn of operating expenses over this period, on top of £43.7bn of construction and other costs, including compensation for closing Heathrow.

By these calculations, costs exceed revenue by £28.1bn, and Oxera said the shortfall would need to be made up from public subsidy.

Lord Foster, the architect, has proposed a hub airport in the Thames estuary which would cost £20bn. But the price tag reaches £50bn when other infrastructure including a high-speed rail link is included.

Oxera said a £20bn airport could be financed by the private sector, but added that road and rail infrastructure would need taxpayer support.

Heathrow Airport Holdings said: “At a time of austerity it is doubtful that any option that requires up to £30bn of public subsidy is a genuine choice for government.”

It added that the private sector would pay for new runways at Heathrow – these funds would likely come from charges paid by airlines, led by British Airways.

Lord Foster’s team working on the estuary airport proposal have said that public subsidy may be needed, although last year they outlined how charges paid by airlines, plus the closure and redevelopment of Heathrow, could cover the cost of the £20bn hub.

Huw Thomas, a leading member of the team, said expanding Heathrow was “not a credible solution” to the UK’s long-term aviation needs.

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