Foster and Partners put the cost of building the airport, a London Circular Railway and a Road & Rail Lower Thames Crossing (including new Thames Barrier) at £50bn. Although I feel this cost is grossly understated and does not appear to include much of the infrastructure required to support an airport of the size proposed, where would the money come from?
Foster and Boris Johnson claim that there are foreign investment funds just itching to get involved. So is there a problem with funding?
Firstly the world economic downturn does not show any sign of turning around yet. The slowdown in Europe and America means that there is less demand for goods form the emerging economies (especially China) and their growth s slowing as well.
Secondly the key word is INVEST. They would require a return on that money, with interest. The airport will need to pay off those loans and interest through landing fees, and other facilities charges. These would be passed onto passengers through flight tickets, car park charges and general retail. Even money supplied through public funds would have to be borrowed and repaid with interest – but there a tight limits on what can be borrowed by government sources in any case and there will need to be significant infrastructure and services supplied by government sourecs to support it .
Finally Risk – The success of an airport is not guaranteed. In Canada a new hub airport was constructed and proved to be a white elephant. If further problems are identified during construction and there is a risk to the development and there are risks to repayment, this financial risk is reflected in the cost of the ‘investment’. The current Euro crisis demonstrates how the market works with borrowing costs rising for those countries most at risk of default.