Saudi Arabia’s rapidly growing Public Investment Fund (PIF) could become the biggest shareholder in the UK’s busiest airport if it goes ahead with the acquisition of Ferrovial’s 25% stake.

Reuters reported that the stake in the holding company, FGP Topco, could be worth at least EUR1.6 billion and PIF could bid jointly with private equity firm Ardian. If agreed, PIF would join a host of other state-owned investors in Heathrow’s list of owners, which include Canada’s CDPQ, the China Investment Corporation (CIC), Singapore’s GIC and the Qatar Investment Authority (QIA).

PIF’s interest in the airport – Europe’s second busiest after Paris Charles de Gaulle – comes just two months after Ranjith Powell was appointed the fund’s Head of Transportation, as well as a director of portfolio company Saudi Global Ports. Powell appears to be making his mark in the Saudi fund after joining from Abu Dhabi’s ADQ, where he served for 20 months as Investment Director with responsibility for logistics assets. Before that, the Australian national held senior positions in UAE airline Emirates and P&O Ports, which is owned by Dubai World via DP Ports.

The interest in the airport comes despite a 12.3% drop in passenger numbers to 19.4 million in 2021, according to data from the UK’s Civil Aviation Authority (CAA), a slightly worse performance than the average 12.0% decline across the country’s airport sector. Moreover, passenger throughput was a fraction of its 80.9 million peak in 2019, before the pandemic hit. The airport is making a turnaround, but in common with other airports it was affected by widespread staff shortages this year which forced it to cap flight numbers until October. The uncertainties have not gone away with soaring fuel prices posing another massive challenge to the airline industry’s recovery from Covid-19.

In this context, PIF’s big bid for Heathrow appears counter-intuitive, yet it is a testament to the Saudi fund’s strongly acquisitive nature and its desire to join a club of investors with exposure to the UK’s airport sector. Such risk brings with it some bargaining power on PIF’s side as well as the potential for significant growth, should it start to return to pre-pandemic levels of operation. As a real asset, an airport can retain value, even in the most difficult market circumstances.

Canadian and Australian public pension funds are traditionally the dominant SOI players in British airport infrastructure, although PIF’s Middle Eastern peers have also been active with QIA’s stake in Heathrow and Kuwait Investment Authority’s (KIA) share of London City.

The nature of investment in British airports by SOIs is varied, ranging from investments in holding companies such as FGP Topco in Heathrow, to indirect stakes such as AusSuper and CBUS in Manchester Airport Group via IFM Global Infrastructure Fund as well as ADIA, CalPERS, Future Fund and NPS via Global Infrastructure Partners (GIP).

In the case of London City, Canadian public pension funds AIMCO, OMERS and OTPP teamed up with KIA’s infrastructure arm Wren House to form a consortium that bought out GIP and Highstar Capital.

Australian funds Tcorp and SunSuper (now Australian Retirement Trust (ART) following its merger with QSuper last year) bought their 15% stakes in Birmingham and Bristol Airports from OTPP, while Japan’s GPIF gained exposure to the two provincial airports via fund-of-fund schemes.

Scotland’s busiest airport in the capital Edinburgh is also 81% owned by GIP with Australia’s Future Fund and ART owning the remainder.