Heathrow Airport Saudi Arabia: Saudi wealth fund buys 10% in London airport - why and what is the PIF?

Saudi Arabia's Public Investment Fund (PIF) has entered into an agreement to purchase a 10% stake in London's Heathrow airport, marking a significant shift in the airport's ownership structure. The stake will take over from Spanish infrastructure giant Ferrovial, which has been a stakeholder since 2006. 

As part of the reshuffle France-based private equity fund Ardian will acquire an additional 15% in Heathrow's parent company, FGP Topco. According to Ferrovial, the £2.37 billion (€2.73 billion) deal is contingent on regulatory approval and if approved, it would mark the end of Ferrovial's investment in the UK airports operator. Its investment began at 56% and was gradually reduced to 25% by 2013. 

The reshuffle comes after Heathrow Airport has faced financial challenges due to significant debt and recent reductions in passenger charges by the Civil Aviation Authority. The average charge per passenger is expected to decrease from £31.47 (€36.47) in 2023 to £25.43 (€29.38) in 2024, remaining stable until the end of 2026. Heathrow's management had sought an increase in charges, while airlines proposed a cap at around £18.5 (€21.37).

PIF, the firm agreeing to purchase a stake in the airport, is one of the world's most active sovereign wealth funds with over £700 billion (€808 billion) in assets. It has been diversifying its portfolio with investments in sports such as football and golf. It bought Newcastle United in 2021 and recently became Aston Martin’s second-largest shareholder.

It is controlled by Saudi Arabia's Prince Mohammed bin Salman Al Saud, whose government faces accusations of human rights violations, adding a layer of complexity to the deal. Heathrow is a major destination for flights from the Gulf region, with Emirates, Qatar Airways and Etihad Airways all running multiple flights a day.

Saudi Arabia is in the process of expanding its airline industry as it tries to attract more business and tourism to the country. It recently created a new airline called Riyadh Air that will operate in addition to the existing flag carrier Saudia.

While Heathrow remains a major global gateway its growth has been hampered by the lack of progress on a third runway. This limitation on capacity has allowed airports in destinations like Turkey, Qatar, and Dubai to aggressively expand operations.

The Heathrow deal is subject to approvals and the rights of existing shareholders to participate as sellers or buyers under a prior shareholder agreement. 

Despite its divestment from Heathrow, Ferrovial remains committed to advancing its airport business. It holds stakes in other airports such as Aberdeen, Glasgow, Southampton, Dalaman in Turkey, and a share in JFK’s New Terminal One.