Saudi Arabia could take ‘effective majority control’ of London Heathrow

Saudi Arabia could take effective majority control of London Heathrow, the UK’s major airport, with other investors considering selling their stakes, according to reports.

The oil-rich state’s Public Investment Fund (PIF) allied with private equity investor Ardian to announce the purchase of a 25% stake in the airport last month from Ferrovial, the Spanish infrastructure giant that had been the primary owner of Heathrow for 17 years.

According to a report in the Sunday Times, at least one other shareholder is close to selling their stake, while other investment funds could follow.

Under the terms of the airport’s shareholder agreement, other investors – including international pension funds with total holdings approaching 35% – are entitled to sell at the same price, which values Heathrow at about £9.5bn, seen as a generous valuation.

An unnamed head of one investor told the Sunday Times: “At that price, we are a seller.”

Representatives from the Saudi PIF and Ardian declined to comment. Heathrow also declined to comment. The Saudi PIF and Ardian will hold their stakes separately, but the Saudis are limited partner investors in Ardian’s infrastructure funds.

The other investors in Heathrow’s parent company are led by the Qatar Investment Authority, which has a 20% stake, and is understood to be reluctant to sell to the Saudis. Five other shareholders own between 10 and 12.6%, including China and Singapore’s sovereign wealth funds, who are also regarded as unlikely sellers.

The other three investors are pension funds from Canada, Australia and the UK: the Caisse de dépôt et placement du Quebec, the Australian Retirement Trust, China Investment Corporation and the UK’s Universities Superannuation Scheme, who all did not comment.

Moves towards Saudi control of Heathrow could prove controversial, although the UK has been far more relaxed about Middle Eastern power over ports than, for example, the US previously had been. Dubai-based DP World owns UK maritime ports and has been selected to run freeports in the UK.

The oil-rich PIF is one of the world’s most active sovereign wealth funds, with more than $700bn (£551bn) in assets. Its most notable investments have been in sport, including buying Newcastle United football club, and taking over professional golf. PIF is controlled by Saudi Arabia’s crown prince, Mohammed bin Salman, whose government has been accused of numerous human rights violations.

Heathrow’s passenger numbers trebled in 2022 as international travel rebounded from Covid. It made an adjusted loss of £684m last year, compared with a loss of about £1.3bn in 2021.

The airport has been locked in ongoing difficulties in pushing through its proposed expansion, with legal battles against its planned third runway and the immediate imperative lessened with traffic still below 2019 levels.

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The airport has also claimed that the level of landing charges set by the UK’s aviation regulator, the Civil Aviation Authority, cut by a fifth next year, will disincentivise investment, although airlines still claim that they are too high.

Under Heathrow’s funding model, as Britain’s main hub and an effective monopoly, charges are agreed and set by the CAA largely in line with the airport’s regulatory asset base, or RAB. That means spending on infrastructure is largely repaid by charges, making the airport an attractive long-term investment for wealth funds.

Heathrow did not pay a dividend in 2023 but the CAA forecast that it would pay out up to £1.5bn in the years to 2027 as business returns to normal after the pandemic.

Chief executive Thomas Woldbye, who took over in October, is expected to oversee upgrades to facilities over the next three years including to airport security programme and a new baggage system for Terminal 2.