UK Dilutes Proposed Airport Insolvency Rules

October 13, 2009

The British government on Tuesday watered down proposed new solvency rules for big airports, dropping plans for a special administration regime to ensure airports stay open even if their operators go bust.

The industry had claimed the government’s original plan would have meant that investors in airport infrastructure projects could demand higher returns, pushing up the cost of financing development projects.

“The government has concluded that the implementation costs of introducing Special Administration would outweigh the benefits, and could significantly restrict airport operators’ ability to commit to ongoing investment in the airport infrastructure,” the Department of Transport said.

The move is a boost for debt-laden airport operator BAA — which runs Heathrow, Gatwick and Stansted airports –, whose bond ratings were at risk of a downgrade if the original plan had been introduced.

“We view this is an extremely important de-risking event,” said a Macquarie Equities Research analyst in a note to clients.

BAA, which is controlled by Spanish builder Ferrovial and owes lenders some GBP10 billion pounds (USD$15.9 billion), said the change would make it easier to complete the planned refurbishment of London Heathrow airport.

BAA said the revised proposal “removes key uncertainties for BAA and its creditors and underlines the need for the regulator to ensure airport operators have the necessary resources to operate and invest in their airports”.

In place of the special administration regime comes a package of proposals, including a new minimum creditworthiness requirement for operators.

The government is also planning to give the Civil Aviation Authority (CAA) responsibility for ensuring airport operators can finance their day-to-day activities.

The CAA said that did not mean it was required to maintain airport financing in all circumstances.

(Reuters)