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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7

OF THE MARKET ABUSE REGULATION (EU) 596/2014

Heathrow Finance plc (incorporated with limited liability under the laws of England and Wales)

(formerly BAA (SH) plc)

announces Consent Solicitation

in respect of certain Notes

28 January 2019. Heathrow Finance plc (the Issuer) announces today separate invitations (together the Consent

Solicitation) to Noteholders of each class of notes described in the table below (together the Notes and each class of

the Notes a Class) to consent to certain amendments to the terms and conditions of each Class, as proposed by the

Issuer (each a Proposal and together the Proposals) for approval by an Extraordinary Resolution at separate

meetings (including any adjourned such meetings) of the holders of each Class (each a Meeting and together the

Meetings), all as further described under "Summary of the Proposals" below.

Background

As explained more fully later in this announcement, a new accounting standard on leasing, International Financial

Reporting Standard 16 (IFRS 16), came into effect on 1 January 2019 and will be applied to Heathrow’s financial

statements going forwards. The new standard changes the balance sheet treatment of leases and, among other things,

removes the distinction made under the previous accounting standard (International Accounting Standard 17 (IAS

17)) between finance leases and operating leases.

Broadly, the effect of removing the distinction between finance leases and operating leases means that going

forwards Heathrow will be required to capitalise its operating leases, grossing up its balance sheet for both lease

assets and liabilities. Nothing in respect of Heathrow’s business, operations or cash flows will change or be affected

by the application of IFRS 16. The new standard is expected to have a negligible effect on Heathrow’s income

statement over the lease term, however, it will distort the calculation of certain ratios where only one side of the

calculation is impacted by the change because whilst the change will be reflected in Heathrow’s indebtedness, it

would not be matched by a corresponding increase in the value of Heathrow’s regulatory assets.

The terms and conditions of each series of Notes make reference to a set of common documents relating to Heathrow

Funding Limited’s secured corporate bond programme which, alongside the relevant terms and conditions, contain

the framework within which Heathrow has agreed to conduct its business.

The terms and conditions include a number of operational and financial covenants which were designed and drafted

at a time when IAS 17 (the previous accounting standard) applied in relation to the accounting treatment of leases

and it was not envisaged that the distinction between finance leases and operating leases recognised by IAS 17 would

cease to apply to Heathrow’s leases.

Now that IFRS 16 is in effect, Heathrow has been considering the optimal way of dealing with its consequences in

relation to the Issuer’s outstanding Notes and Heathrow Funding Limited’s programme. Whilst it has identified a

number of potential ways forward, Heathrow has determined that it would be best for all concerned if it were to

obtain the approval of relevant secured creditors in order to make certain amendments to the relevant provisions of

the terms and conditions as described briefly below and in more detail in the Consent Solicitation Memorandum.

It should be noted that Heathrow is able to and will continue to comply with its covenants irrespective of whether or

not the proposed amendments are implemented.

The proposed amendments

The proposed amendments seek to neutralise the impact of the introduction of IFRS 16 in so far as it applies to

Heathrow’s existing lease portfolio. Operating leases are not referenced in the drafting relating to the calculations of

the RAR ratios which refer only to finance leases so, until 31 December 2018, operating leases were not taken into

account for these calculations. The proposed amendments therefore seek to expressly exclude existing operating

leases from the relevant calculations going forwards (but not operating leases entered into from 1 January 2019

onwards).

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To provide Noteholders and other creditors with comfort to vote in favour of the proposed amendments, Heathrow

has discussed the proposed amendments with the relevant rating agencies and they have not indicated to Heathrow

that such amendments would negatively impact the current ratings of the Notes. Going forwards, the Investor Report

which the Security Group Agent delivers on a semi-annual basis to creditors will contain additional disclosure

regarding the aggregate lease liability of all leases classified as Existing Operating Leases and excluded from the

RAR ratio calculations.

Consent fee

To show Heathrow’s appreciation to Noteholders engaging with this request, the Issuer is offering a consent fee (on

the terms set out below and more fully described in the Consent Solicitation Memorandum) which the Issuer

considers to be appropriate considering the nature of the request and the comfort afforded to Noteholders. The

consent fee will be payable to Noteholders who vote prior to the Consent Fee Deadline, if the proposed amendments

are implemented.

Investment Association

We note that the proposed amendments have been considered by a special committee of The Investment Association

(the Special Committee) at the request of the Issuer. The members of the Special Committee, who hold, in aggregate

approximately 19.25 per cent. of the outstanding principal amount of the HFP 2025 Notes and approximately 15.00

per cent. of the outstanding principal amount of the HFP 2027 Notes, have informed the Issuer that they find the

proposals acceptable and that, subject to client and other approvals, they intend to vote in favour of the proposals in

respect of their holdings of Notes.

The Special Committee has advised the Issuer that this recommendation relates only to the proposals set out in the

Consent Solicitation Memorandum and not to any future offers or proposals which the Issuer may make. Noteholders

should, however, nonetheless undertake their own detailed assessment of the proposals.

Consent Solicitation Memorandum

This announcement does not contain the full terms and conditions of the Consent Solicitation, which are contained

in the consent solicitation memorandum dated 28 January 2019 (the Consent Solicitation Memorandum) prepared

by the Issuer. Subject to the restrictions described under "Solicitation and Distribution Restrictions" below,

Noteholders may obtain a copy of the Consent Solicitation Memorandum from the Tabulation Agent, the contact

details for which are set out below. Noteholders are advised to carefully read the Consent Solicitation

Memorandum.

Timetable for this Consent Solicitation

The full timetable for this Consent Solicitation is set out later on in this announcement. Broadly, assuming that it

proceeds as the Issuer expects, the key dates for the Consent Solicitation are:

Launch of Consent Solicitation 28 January 2019

Consent Fee Deadline 4.00 p.m. (London time) on 20 February 2019

Expiration Deadline 4.00 p.m. (London time) on 27 February 2019

Meetings From 4.00 p.m. (London time) on 28 February

2019

Results announcement As soon as reasonably practicable after the

conclusion of the Meetings

Payment of the Consent Fee Expected to be 8 March 2019

Capitalised terms used in this announcement but not defined have the meanings given to them in the Consent

Solicitation Memorandum.

THE NOTES

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No. Issuer Description of the Notes ISIN

Outstanding

principal amount Notes

1. Heathrow

Finance plc

GBP250M 5.75% Senior

Secured Notes due 2025 XS1120937617 £250,000,000

HFP 2025

Notes

2. Heathrow

Finance plc

GBP275M 3.875% Senior

Secured Notes due 2027 XS1622694617 £275,000,000

HFP 2027

Notes

Full Background to the Proposals

1. Background

1.1 The Heathrow group (the Group) has multiple sources of funding:

(a) The Group has a secured corporate bond programme (the Programme) which was established in

2008 to provide a common creditor platform to support the Group’s funding requirements. The

obligors in respect of the Programme are Heathrow Airport Limited, Heathrow Express Operating

Company Ltd, Heathrow (SP) Limited (formerly known as BAA (SP) Limited) (the Security

Parent) and Heathrow (AH) Limited (formerly known as BAA (AH) Limited)1 (the Obligors).

Heathrow Funding Limited is issuer under the Programme (Heathrow Funding Limited and the

Obligors together the Security Parent Group). The Programme documentation includes a number

of common documents which together contain the framework within which the Obligors are

obliged to conduct their business, including various operational and financial covenants (the

Common Documents).

(b) In addition to the Programme, the Issuer has issued the Notes and incurred other financial

indebtedness. To ensure the terms of the Issuer’s financing are consistent with the terms of the

Programme, certain provisions in the Common Documents are imported into the documents which

govern the Issuer’s debt. For example, the operational and financial covenants in the Conditions of

the Notes broadly correspond to the covenants included in the Common Documents (as described

further below).

1.2 The principal business of the Group is to own, operate and develop Heathrow airport. From time to time, to

facilitate the development and/or operation of the airport, the Group enters into, and will continue to enter

into, lease agreements.

1.3 As at the date of this Consent Solicitation Memorandum, Heathrow Airport Limited and Heathrow Express

Operating Company Ltd have entered into a number of leases in the ordinary course of their business. The

Security Parent Group’s leases include:

(a) a lease for the distribution of electricity at Heathrow airport with UK Power Networks Services

Limited (UKPNS) which expires in 2083;

(b) real estate leases, principally the lease for the Group’s head office;

(c) train and track access leases in respect of Heathrow Express trains and routes; and

(d) vehicle leases.

1 Gatwick Airport Limited and Stansted Airport Limited were also Obligors under the Programme but have since been sold. As

such, data referred to in this rationale covers the period from 2014 onwards.

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All of these leases were classified as operating leases for the purposes of IAS 17 (see paragraph 2.2 below).

The Issuer has not entered into, and does not intend to enter into, any leases.

1.4 Lease rentals for the majority of lease agreements are fixed (with indexation in certain cases). A few of the

Security Parent Group’s leases have a variable rental element, which is linked to volume and/or

performance based measures.

1.5 The aggregate balance of the Security Parent Group’s operating leases has remained largely stable over the

last four years, as shown by the chart below. The changes that are shown are largely driven by updates to

the future rentals assumptions used to calculate aggregate lease commitments. The nature and type of assets

leased by the Security Parent Group has been broadly consistent over the last four years.

1.6 The Security Parent Group’s unaudited 2018 operating lease commitments are shown in the chart below.

Unlike the 2014 to 2017 figures disclosed in the chart at paragraph 1.5 which were (in the case of the

UKPNS Lease) discounted (see paragraph 1.7), the 2018 commitments show undiscounted figures for all

leases. The increase in the aggregate balance of the Security Parent Group's operating leases for 2018 is

predominately due to a new lease of trains to replace the Heathrow Express trains from First Great Western

Limited.

1.7 The commitments in respect of all the operating leases (with the exception of the UKPNS Lease) have

historically been disclosed in the Security Parent Group’s consolidated financial statements as undiscounted

amounts. In prior years, the disclosure of the UKPNS Lease commitment was discounted at the Security

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Parent Group’s incremental borrowing rate as the estimated future cashflow and included the year on year

expected change in RPI. This approach was adopted as, due to the unusual and long-term nature of the

UKPNS Lease, management believed it was better represented as the present value of the expected total cost

of the UKPNS Lease. In 2018, the total commitment under the UKPNS Lease will reflect the undiscounted

cash flow of the fixed lease rental and will exclude the expected future RPI impact to more closely align

with the requirements of IAS 17.

1.8 Going forwards, the Security Parent Group will continue to use leases as part of its operations and

development of its business, as and when appropriate. The commercial terms of each lease agreement are

considered on a case by case basis by the Security Parent Group, informed by business need, market

conditions, overall cost, and compliance with relevant requirements. There are no limits on the types of

assets, tenor or value of the Security Parent Group’s leasing arrangements however, as with all contracts

entered into by members of the Security Parent Group in their ordinary course of business, the terms are

subject to robust review internally and, depending on the nature of a particular contract, by the board of

directors of Heathrow Airport Limited and/or Heathrow Express Operating Company Limited, as the case

may be. The Security Parent Group does not currently anticipate changing its approach to leasing as a result

of the introduction of IFRS 16, as described in paragraph 2 below. The terms of leases are commercially

driven and not influenced by the desire to achieve a particular accounting outcome.

1.9 Operating lease counterparties are not secured creditors under the Common Documents relating to the

Programme. These lessors only have recourse to the relevant leased assets and have no claim or recourse to

the Group and its subsidiaries beyond repossession of the relevant leased assets and / or termination of the

relevant contract. Certain contracts also include termination and / or indemnity payments which would be

triggered in the event of a termination for cause (as would often be in the case in ordinary course of business

commercial contracts). As with other unsecured creditors of the Security Parent Group, such claims would

rank ahead of creditors of the Issuer but this position remains unchanged from the position prior to the

implementation of IFRS 16.

2. Introduction of IFRS 16

2.1 The Security Parent and the Issuer have each historically prepared their respective financial statements in

accordance with IFRS. In particular, International Accounting Standard 17 (Leases) (IAS 17) is the

accounting standard which applied to leases prior to 1 January 2019. On 13 January 2016, a new accounting

standard, IFRS 16, was issued by the International Accounting Standards Board and it applies to annual

reporting periods beginning on or after 1 January 2019. IFRS 16 relates to the recognition, measurement,

presentation and disclosure of leases in financial statements.

2.2 Under IAS 17 principles, leases are classified as either finance leases or operating leases. Operating leases

are not recorded in the balance sheet but the future commitments under the operating leases are disclosed in

the relevant company’s annual financial statements. On the income statement, the annual rent payment

under an operating lease appears as an expense and so forms part of the operating costs of the business.

2.3 IFRS 16 eliminates the accounting classification of leases as either operating or finance leases and adopts

one accounting model for all leases reported by lessees. The payment obligation (rent payable) under all the

lease contracts (subject to certain exceptions) will be recorded in the balance sheet as a liability (lease

liability) with a corresponding asset (the lessee’s right to use the asset over the life of a lease: a “right-of-use

asset”). The lease liability will be measured based on the net present value of the rent payable over the term

of the lease.

2.4 The Group estimates that the introduction of IFRS 16 will have the following impact on the consolidated

balance sheet and income statement of the Issuer’s financial statements:

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As noted above in the table above headed “Balance Sheet Impact on 1 January 2019”, a £105 million

adjustment will be made in the opening retained earnings for the difference between right-of-use asset and

lease liabilities in order to reflect the accumulated depreciation of the right-of-use asset as at 1 January

2019. There will be no impact on the distributable reserves of any Group companies (including the Issuer)

or on the Group’s or the Issuer’s cash flows as a result of the adoption of IFRS 16.

2.5 For capitalisation purposes, lease liabilities will be calculated on (i) the rate implicit in the lease, or (ii) the

relevant company’s incremental borrowing rate. Both of these options are permitted under IFRS 16. The

discount rate applicable to each lease has been determined as at 1 January 2019 (for existing leases) or at the

effective date of the lease agreement (for new leases). The discount rate will not change during the life of

the lease unless the lease is modified in such a way as to require re-assessment in accordance with IFRS 16.

As such, it is unlikely that discount rates will be susceptible to market rates or other factors (internal or

external).

3. Impact of IFRS 16 on the balance sheet and covenants

3.1 The Conditions and the Programme each contain certain financial covenants. The Programme Covenants (as

defined below) are calculated by reference to the consolidated financial statements of the Security Parent.

The HFP Group Covenants (also as defined below) are calculated by reference to the consolidated financial

statements of the Issuer. The Issuer is the sole shareholder of the Security Parent so the Issuer’s

consolidated accounts consolidate the position of the Security Parent Group and the Issuer (together the

HFP Group). The Issuer’s financial statements must be prepared in accordance with Accounting Principles

(as defined in the Conditions of the Notes) and the Security Parent’s financial statements must be prepared

in accordance with Applicable Accounting Principles (as defined in the Master Definitions Agreement). In

each case, with effect from 1 January 2019, the relevant accounting principles will include IFRS 16.

3.2 The effect of the introduction of IFRS 16 is to remove the distinction between finance leases and operating

leases which means that going forwards the Group will be required to capitalise its operating leases,

grossing up its balance sheet for both lease assets and liabilities. Nothing in respect of the Group’s business,

operations or cash flows will change or be affected by the application of IFRS 16. The new standard is

expected to have a negligible effect on the Security Parent’s income statement over the lease term and the

Issuer’s income statement, however, it will distort the calculation of both the HFP Group Covenants and the

Programme Covenants where only one side of the calculation is impacted by the change because whilst the

change will be reflected in the Issuer’s and the Security Parent’s consolidated accounts, it will not be

reflected in the Regulated Asset Base (RAB) as discussed below in paragraph 3.5.

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3.3 Condition 4 (Covenants) of the Notes contains, among other things, the financial covenants which are

directly applicable to the Notes: (i) “Group RAR” (HFP Group RAR) and (ii) “Group ICR” (HFP Group

ICR, and together with HFP Group RAR, the HFP Group Covenants). The HFP Group Covenants are

calculated using the same method as the Programme’s financial covenants: Junior RAR, Senior RAR, Junior

ICR and Senior ICR (each as defined in the Master Definitions Agreement, and together, the Programme

Covenants). The Programme Covenants are tested every six months on the Reporting Dates, 30 June and 31

December. The HFP Group Covenants are tested annually as at 31 December. The HFP Group Covenant

and Programme Covenant thresholds are set out in paragraphs 3.5 and 3.6 below.

3.4 The chart below shows the historical figures of the Security Parent Group’s compliance with the

Programme Covenants and the HFP Group’s compliance with the HFP Group Covenants for 2014 to 2017.

To illustrate the position of the Security Parent Group and the HFP Group respectively for 2018 and 2019,

without taking into account IFRS 16, forecast figures for 2018 and 2019 have also been included. These

figures show that both the Security Parent Group and the HFP Group respectively have maintained and

would, but for the introduction of IFRS 16, expect to maintain, stable financial ratio levels, demonstrating a

disciplined approach to capital and cash flow management.

In respect of all RAR ratios, the Security Parent Group and the HFP Group have maintained substantial

gearing headroom over the last four years. In respect of all ICR ratios, operating cash flow levels have been

maintained significantly in excess of interest payments and cover ratios have improved over the last couple

of years.

Impact on RAR ratios

3.5 The Security Parent Group is required to calculate 12 month-forward looking calculations in accordance

with the terms of the Common Documents. To illustrate the impact of the introduction of IFRS 16 on the

HFP Group Covenants and Programme Covenants as against the thresholds, the following 12 month

forward-looking calculations as at 31 December 2018 (the Reporting Date for the purposes of the

Programme Covenants and the Relevant Testing Date for the purposes of the HFP Group Covenants) have

been completed on the basis that IFRS 16 applies:

Pre-IFRS 16 Post-IFRS 16 Covenant/Trigger thresholds

Senior RAR* 67.7% 70.7% 72.5%

Junior RAR* 75.9% 78.9% 82.0%

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The increase in the RAR ratios arises because the Regulatory Asset Base (RAB) is a regulatory measure and

will not be affected by the introduction of IFRS 16 with the result that, for the RAR ratio calculations,

indebtedness in the numerator of the ratio will increase without any corresponding increase in the asset base.

Impact on ICR ratios

3.6 As above, if the Security Parent Group and the HFP Group were to calculate 12 month forward-looking

calculations as at 31 December 2018 (the Reporting Date for the purposes of the Programme Covenants and

the Relevant Testing Date for the purposes of the HFP Group Covenants) on the basis that IFRS 16 did

apply, the consequences of the introduction of IFRS 16 on the ICR ratio calculations as against the

thresholds would be as follows:

The introduction of IFRS 16 will have a limited impact on the Group’s ICR ratio compliance compared to

the RAR ratios.

3.7 As indicated in the above post-IFRS 16 ratios, the implementation of IFRS 16 does not result in a breach of

any of the thresholds that apply to the Security Parent Group or the HFP Group. With regard to the HFP

Group, if the HFP Proposed Amendments (as defined in the Consent Solicitation Memorandum) are not

passed, the HFP Group can continue to operate as normal but IFRS 16 could reduce operational and

financial flexibility going forward. Similarly, with regard to the Security Parent Group, if the amendments

contained in the STID Proposal and related consent solicitation memorandum issued by Heathrow Funding

Limited on or around the date hereof (see paragraph 4.1 below) are not passed, the Security Parent Group

can continue to operate as normal but IFRS 16 could reduce operational and financial flexibility going

forward.

4. Explanation of HFP Proposed Amendments

4.1 The HFP Proposed Amendments are intended to ensure that calculation of the HFP Group Covenants is not

excessively distorted by the introduction of IFRS 16. As illustrated above, the Programme Covenants are

also impacted by the introduction of IFRS 16 and Heathrow Funding Limited, as issuer of bonds under the

Programme, is seeking similar amendments to be made to the Common Documents (the Programme

Amendments) through a consent solicitation process launched on or around the date hereof. Other

Programme creditors have also been approached by the Security Group Agent to consent to the Programme

Amendments in accordance with the procedures set out in the Security Trust and Intercreditor Deed relating

to the Programme. There is no conditionality between implementation of the Programme Amendments and

the HFP Proposed Amendments. All creditors who are permitted to vote in respect of the Programme

Amendments are being offered the same consent fee as the Consent Fee detailed herein available to

Noteholders who vote in respect of the HFP Proposed Amendments.

HFP Group RAR 85.4% 88.5% 92.5%

* Programme Covenants not included in the Conditions

Pre-IFRS 16 Post-IFRS 16 Covenant/Trigger thresholds

Senior ICR* 3.78x 3.75x 1.40x

Junior ICR* 2.97x 2.97x 1.20x

HFP Group ICR 2.65x 2.66x 1.00x

* Programme Covenants not included in the Conditions

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4.2 Broadly, the key impact of IFRS 16 on the interpretation of the Conditions is that references to finance and

capital leases will, going forwards, be interpreted as references to all leases. The HFP Proposed

Amendments primarily seek to exclude the existing operating leases from the HFP Group RAR calculations,

essentially maintaining the approach that has applied to such leases since the Notes were issued. The HFP

Proposed Amendments also amend the cross-references to the Programme Common Terms Agreement and

Master Definitions Agreement to reference the versions amended by the Programme Amendments. The

HFP Proposed Amendments are focused solely on addressing the introduction of IFRS 16. No other

amendments have been included in the HFP Proposed Amendments. Although the HFP Proposed

Amendments are premised on the basis that the Programme Amendments are also approved at this time,

each Noteholder who votes in favour of the relevant Extraordinary Resolution will also authorise the

Trustee to, in the event the Programme Amendments are not implemented, approve any consequential

revisions required to be made to the HFP Proposed Amendments to achieve the intended effect of the HFP

Proposed Amendments notwithstanding that the Programme Amendments have not been implemented (see

paragraph 2(a) of the relevant Extraordinary Resolution).

4.3 The HFP Group will prepare its financial statements applying IFRS 16 from 1 January 2019 and, other than

carving out existing operating leases from the HFP Group RAR ratio calculations as set out in the HFP

Proposed Amendments, IFRS 16 will otherwise apply to the interpretation of the Conditions. Assuming that

the HFP Proposed Amendments are implemented, the aggregate lease liability on a discounted and an

undiscounted basis of all leases classified as existing operating leases will be included in the Investor Report

going forwards to allow investors to see the value of any leases that have been excluded from the definition

of Financial Indebtedness for the purposes of calculating HFP Group RAR Each Investor Report is

delivered with a compliance certificate signed by a director of the Issuer.

4.4 To help investors understand the impact of IFRS 16, the notes to the HFP Group financial statements in

respect of the financial year ending on 31 December 2019 will include a reconciliation between the

accounting of leases under IAS 17 and IFRS 16.

4.5 As evidenced by the annual reviews performed by the each of the relevant Rating Agencies, the Rating

Agencies already factor off-balance sheet transactions such as operating leases into their rating analysis. The

implementation of the HFP Proposed Amendments should therefore not negatively impact the current

ratings of the Notes or the HFP Group (or the ratings of the debt issued under the Programme).

Notwithstanding the foregoing, the Rating Agencies have been engaged by the Group and, having

considered the HFP Proposed Amendments, have not indicated to the Group that the implementation of the

HFP Proposed Amendments and/or the Programme Amendments would have a negative impact on current

ratings. It is a pre-condition to the implementation of the HFP Proposed Amendments that the Rating

Agencies provide confirmation that the HFP Proposed Amendments will not negatively affect the current

ratings of the Notes. An equivalent pre-condition is included in the Heathrow Funding Limited deed of

amendment. Where a Rating Agency will not provide such written confirmation, the Issuer will provide the

Trustee, or, in respect of Heathrow Funding Limited, Heathrow Funding Limited will provide the borrower

security trustee in respect of the Programme with confirmation that, following its discussions with such

Rating Agency, the Rating Agency has not indicated that the implementation of the HFP Proposed

Amendments or the Programme Amendments respectively would negatively affect the then current ratings.

4.6 Definition of Financial Indebtedness

(a) As noted at paragraph 2.3 above, one result of the application of IFRS 16 is that all leases,

including operating leases, will (absent the implementation of the HFP Proposed Amendments)

become Financial Indebtedness for the purposes of the Conditions.

(b) Heathrow is willing to allow any future operating leases entered into by a Subsidiary Group

Company to be captured by the definition of Financial Indebtedness in the Master Definitions

Agreement which puts Heathrow’s creditors and investors in a better position than amending the

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Conditions to maintain the status quo. The amendment set out in the Consent Solicitation

Memorandum seeks only to exclude existing operating leases from the definition of Financial

Indebtedness where used in the definitions of Senior Net Indebtedness and Junior Indebtedness

(which are in turn used to calculate compliance with HFP Group RAR). An equivalent amendment

is being proposed in relation to the definition of Financial Indebtedness in the Master Definition

Agreement, where Senior Net Indebtedness and Junior Indebtedness are used to calculate Senior

RAR and Junior RAR.

(c) To facilitate this amendment, the HFP Proposed Amendments also include the addition of a new

defined term of “Existing Operating Leases”. This new definition is set out in the Consent

Solicitation Memorandum. The new definition of Existing Operating Leases relies on the IAS 17

distinction between finance and operating leases, as in force on 31 December 2018, to carve out

existing operating leases entered into by the Issuer or any Subsidiary Group Company on or prior

to 31 December 2018. If, on or after 1 January 2019, any existing operating lease is renewed,

extended or modified such that there is a change in the scope of such lease, or the consideration for

such lease, that, in each case, was not part of the original terms and conditions of such lease, the

lease will no longer fall within the definition of Existing Operating Lease and will not be carved

out of HFP Group RAR going forward.

4.7 Definition of Master Definitions Agreement and Common Terms Agreement

(a) The HFP Proposed Amendments include the adoption of an amended version of the Common

Terms Agreement and Master Definitions Agreement, amended to reflect, in principle, exclusion of

existing operating leases to 31 December 2018. The Conditions of the Notes don’t restrict the

Issuer or Subsidiary Group Companies from entering into lease agreements. Noteholders protection

around Heathrow’s leasing is derived from the restrictions in the Common Terms Agreement (and

relevant definitions in the Master Definitions Agreement) which are being updated by the

Programme Amendments. In particular, the Programme Amendments will update the definition of

Investor Report relied on in the Conditions so that the requirement to disclose the aggregate lease

liability of Existing Operating Leases is included. The revised definition of Senior Net

Indebtedness will also be incorporated, reflecting amendments made to the definition of Permitted

Financial Indebtedness.

(b) Content of the Investor Report

To ensure the relevant Investor Report delivered in accordance with the Conditions continues to

provide creditors with relevant information in respect of the HFP Group Covenants (as well as the

Programme Covenants), the Programme Amendments include an obligation for the aggregate lease

liability on a discounted and an undiscounted basis of all leases which are classified as Existing

Operating Leases to be disclosed. The relevant Programme Amendment is set out in the Consent

Solicitation Memorandum.

(c) Definition of Senior Net Indebtedness

The definition of Senior Net Indebtedness in the Conditions refers to the defined term in the Master

Definitions Agreement. The Programme Amendments include limited amendments to the

definition of Senior Net Indebtedness to refer to the amended definition of Permitted Financial

Indebtedness (in the Master Definitions Agreement) and remove a reference to “finance lease” (as

a non-defined term) which is superfluous following the introduction of IFRS 16. The amended

definition of Permitted Financial Indebtedness adds a new category of permitted indebtedness,

being any Financial Indebtedness arising in respect of Finance Leases or a lease which is not

otherwise captured by limb (a)(vi) of the definition (which permits finance leases up to a maximum

aggregate capitalised amount of 0.5 per cent. of Total RAB). This amendment reflects that,

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historically, the documents used the IAS 17 distinction between finance and operating leases to

only capture finance leases. As a result of the introduction of IFRS 16, Financial Indebtedness now

captures all leases and so operating leases need to be permitted. The relevant Programme

Amendment showing the amendment to the definition of Senior Net Indebtedness and the

amendment to the definition of Permitted Financial Indebtedness is set out in the Consent

Solicitation Memorandum.

4.8 If implemented, the HFP Proposed Amendments in respect of the relevant Conditions will be made through

a Supplemental Trust Deed to be entered into between the Issuer and the Trustee, and the Programme

Amendments will be made through a deed of amendment to be entered into by the relevant members of the

Security Group and the borrower security trustee for the Programme. The HFP Proposed Amendments will

form the operative clauses of the Supplemental Trust Deed to be entered into in respect of the relevant class

of Notes. Compliance with the HFP Group Covenants will be tested on each Compliance Reporting Date by

reference to the Relevant Testing Date and the Relevant Testing Period, in respect of which a Compliance

Certificate is produced, as it is currently, supported by the additional information to be included in the

Investor Report. The HFP Group is engaging with its Noteholders and other creditors and the Security

Parent Group is engaging with those creditors under the Programme who are entitled to vote in respect of

the Programme Amendments, including Class A bondholders, cross currency hedge counterparties, holders

of USPP Notes and lenders of certain other facilities.

5. Other mitigating actions

5.1 As mentioned above, if the HFP Proposed Amendments are not approved and implemented, the HFP Group

will not be in breach of either of the HFP Group Covenants. The HFP Group can continue to operate as

normal but the application of IFRS 16 may impact the Group’s operational and financial flexibility going

forwards. There is no corresponding benefit to the Group resulting from the introduction of IFRS 16.

5.2 There are a number of commercial and financial options which the Group could pursue to mitigate the

impact of the introduction of IFRS 16, and may pursue if the HFP Proposed Amendments or the Programme

Amendments are not approved and implemented. In particular, the Common Terms Agreement (and certain

facilities entered into by the Issuer) provides the relevant Group company with an ability to address the

impact on ratios arising from material accounting changes without creditor consent. However, Heathrow

Funding Limited has agreed that it will not (in this specific occasion only) utilise its rights pursuant to

paragraph 5(c), part 1, Schedule 2 of the Common Terms Agreement to amend ratio levels if the Programme

Amendments are implemented.

5.3 Notwithstanding these rights, the Group strongly believes that the HFP Proposed Amendments and the

Programme Amendments produce a more desirable and satisfactory outcome for both the Group and its

creditors. The HFP Proposed Amendments and the Programme Amendments seek to mitigate the impact of

the introduction of IFRS 16 in a transparent and optimal manner, excluding operating leases which have

historically not been included in the relevant provisions due to the IAS 17 distinction between operating

leases and finance leases, while allowing some of the improvements to creditors’ positions that result from

the introduction of IFRS 16 to remain. Whilst the Group could seek to use alternative measures and to

obviate the creditor consent process, the measures available do not deal with all of the consequences of

introduction of IFRS 16 and as such, the Group’s preference is to actively engage with its creditors to seek

consent to the HFP Proposed Amendments and Programme Amendments, as applicable.

6. Review of a Special Committee of the Investment Association

6.1 The Proposals described in this Consent Solicitation Memorandum have been considered by the Special

Committee of The Investment Association at the request of the Issuer. The members of the Special

Committee, who hold in aggregate approximately 19.25 per cent. of the outstanding principal amount of the

HFP 2025 Notes and approximately 15.00 per cent. of the outstanding principal amount of the HFP 2027

LON51718245/13 109516-0046

12

Notes have examined the Proposals. They have informed the Issuer that they find the Proposals acceptable

and that, subject to client and other approvals, they intend to vote in favour of the Proposals in respect of

their holdings of Notes.

6.2 The Special Committee has advised the Issuer that this recommendation relates only to the proposals set out

in this Consent Solicitation Memorandum and not to any future offers or proposals which the Issuer may

make.

6.3 Noteholders should, however, nonetheless undertake their own detailed assessment of the relevant

proposals.

See also “The Proposals and Terms and Conditions”.

For the purposes of this section, the following terms have the following meaning and defined terms otherwise used

and not defined have the meaning given to them in the Conditions of the Notes or the Master Definitions Agreement:

Group Net Indebtedness means, as at any date, the sum of Senior Net Indebtedness, Junior Indebtedness and Issuer

Net Indebtedness.

HFP Group ICR means for any Relevant Testing Period, the ratio (expressed as a ratio of 1) of:

(a) the sum of Cashflow from operations of the Subsidiary Group Companies (after adding back any cashflows

of a one-off, non-recurring, extraordinary or exceptional nature in respect of the Subsidiary Group

Companies), less corporation tax paid to HM Revenue and Customs, less two per cent. multiplied by the

Total RAB; to

(b) interest and equivalent recurring finance charges paid on:

i. Senior Debt and Junior Debt and any Permitted Financial Indebtedness (as defined in the Master

Definitions Agreement) that is not pursuant to the STID subordinated to such Senior Debt and

Junior Debt; and

ii. Borrowings (other than any Parent Liabilities)

less all interest received by any member of the Security Group, Heathrow Funding Limited and the Issuer

from any third party other than pursuant to a Permitted Inter-Company Loan.

HFP Group RAR means Group Net Indebtedness expressed as a percentage of Total RAB.

Junior ICR means for any Relevant Period, the ratio of (a) Cashflow from Operations of the Obligors (after adding

back any cash outflows of a one-off, non-recurring, extraordinary or exceptional nature in respect of the Obligors),

less corporation tax paid to HM Revenue & Customs, less two per cent. multiplied by the Total RAB to (b) interest

and equivalent recurring finance charges paid or, in the case of forward looking ratios, forecasted to be paid on

Senior Debt and Junior Debt and any Permitted Financial Indebtedness that is not, pursuant to the STID,

subordinated to such Senior Debt and Junior Debt (less all interest received or, in the case of forward looking ratios,

interest forecasted to be received by any member of the Security Group from any third party other than pursuant to a

Permitted Inter-Company Loan or Permitted Non-Migrated Bond Distribution).

Junior RAR means the ratio of the sum of Senior Net Indebtedness and Junior Indebtedness to Total RAB.

RAB or Regulatory Asset Base means in respect of any Obligor as at any date the sum of (i) the Regulatory RAB of

such Obligor as at such date and (ii) the Transfer RAB of such Obligor as at such date.

Relevant Date Prior means, at any time, the date which is one day before the commencement of the next Regulatory

Period.

LON51718245/13 109516-0046

13

Senior ICR means for any Relevant Period, the ratio of (a) Cashflow from Operations of the Obligors (after adding

back any cash outflows of a one-off, non-recurring, extraordinary or exceptional nature in respect of the Obligors),

less corporation tax paid to HM Revenue & Customs, less two per cent. multiplied by the Total RAB to (b) interest

and equivalent recurring finance charges paid or, in the case of forward looking ratios, forecasted to be paid on

Senior Debt and any Permitted Financial Indebtedness that is not, pursuant to the STID, subordinated to such Senior

Debt (less all interest received or, in the case of forward looking ratios, interest forecasted to be received by any

member of the Security Group from any third party other than pursuant to a Permitted Inter-Company Loan or

Permitted Non-Migrated Bond Distribution).

Senior RAR means the ratio of Senior Net Indebtedness to Total RAB.

Total RAB means, at any date, the aggregate of the RAB of each Obligor less the aggregate of the RAB attributable

to any RAB Enhancing JV as at such date.

Terms of the Consent Solicitation

Noteholders should note that if an Extraordinary Resolution is passed and the Consent Conditions are satisfied, the

terms of the Extraordinary Resolution will be binding on all Noteholders of the relevant Class, whether or not they

choose to participate in the Consent Solicitation or otherwise vote at the Meeting.

If an Extraordinary Resolution is passed at the relevant Meeting in respect of any Class and the Consent Conditions

in respect of such Class are satisfied, the Issuer will announce the effective date for implementation of the Proposals

in respect of such Class as soon as reasonably practicable after the Meeting.

Noteholders are advised to review the relevant Supplemental Trust Deed relating to the relevant Class, which sets out

the proposed amendments to the Conditions and is available from the date of the relevant meeting Notice to the

conclusion of the Meetings (or any adjourned Meetings).

Meetings

At each Meeting, Noteholders will be invited to consider and, if thought fit, approve the Extraordinary Resolution

relating to the relevant Class, with any implementation of that Extraordinary Resolution being subject to the

satisfaction of the Consent Conditions (as described below) relating to that Extraordinary Resolution, all as more

fully described in the relevant Notice.

In accordance with the procedures for participating in the Consent Solicitation and at the Meetings each

Noteholder must make certain confirmations in order to participate in the Consent Solicitation or otherwise

participate at the relevant Meeting. A Consent Instruction which does not include such confirmations will be treated

as not having been validly submitted and will be rejected.

The Consent Conditions

The implementation of each of the Proposals in respect of a Class and the related Extraordinary Resolution will be

conditional on:

(a) the passing of the relevant Extraordinary Resolution in respect of that Class; and

(b) the execution of the relevant Supplemental Trust Deed by the relevant parties,

((a) and (b) together, the Consent Conditions).

Payment of Consent Fee

In accordance with the terms in the Consent Solicitation Memorandum, each Noteholder from whom a valid Consent

Instruction in respect of the relevant Extraordinary Resolution (irrespective of whether such Noteholder votes in

favour or against the Extraordinary Resolution) is received by the Tabulation Agent by 4.00 p.m. (London time) on

20 February 2019 (such time and date with respect to each relevant Class, as the same may be extended, the Consent

Fee Deadline) will be eligible to receive payment of an amount equal to 0.05 per cent. in respect of the Notes that

are the subject of such Consent Instruction (the Consent Fee).

LON51718245/13 109516-0046

14

Noteholders may continue to submit Consent Instructions after the Consent Fee Deadline and up to the Expiration

Deadline (in favour or against the Extraordinary Resolution), but any Noteholder from whom a valid Consent

Instruction is received after the Consent Fee Deadline will not be eligible to receive the Consent Fee.

Indicative Timetable for the Consent Solicitation

Set out below is an indicative timetable showing one possible outcome for the timing of the Consent Solicitation,

which will depend, among other things, on timely receipt (and non-revocation) of Consent Instructions, the rights of

the Issuer (where applicable) to extend, waive any condition of, amend and/or terminate the Consent Solicitation

(other than the terms of any Extraordinary Resolution) as described in the Consent Solicitation Memorandum and

the passing of each Extraordinary Resolution (and satisfaction of the Consent Conditions) at the initial Meeting for

the relevant Class. Accordingly, the actual timetable may differ significantly from the timetable below.

Announcement of Consent Solicitation

Announcement of Consent Solicitation. Notice of Meetings delivered to Clearing

Systems for communication to Direct Participants and published on the website of

London Stock Exchange.

28 January 2019

Copies of the Consent Solicitation Memorandum and documents referred to under

“General” in the Notice to be available from the Tabulation Agent.

Consent Fee Deadline

Deadline for receipt by the Tabulation Agent of valid Consent Instructions in

respect of the relevant Extraordinary Resolution from Noteholders for such

Noteholders to be eligible to receive the Consent Fee.

4.00 p.m. (London time) on 20

February 2019

Expiration Deadline

Final deadline for receipt by the Tabulation Agent of valid Consent Instructions in

respect of the relevant Extraordinary Resolution from Noteholders and to be

represented at the Meetings, to the extent such Noteholders have not submitted

valid Consent Instructions prior to the Consent Fee Deadline.

4.00 p.m. (London time) on 27

February 2019

This will also be the deadline for making any other arrangements to attend or be

represented or to vote at any Meeting. However Noteholders making such other

arrangements or submitting consent instructions after the Consent Fee Deadline

will not be eligible to receive the Consent Fee.

Meetings

Meetings to be held at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet

Street, London EC4Y 1HS. The initial Meeting (in respect of the HFP 2025 Notes)

will commence at 4.00 p.m. (London), with subsequent Meetings in respect of each

other Class (in the order each Class is listed in the table on page 4 of this Consent

Solicitation Memorandum) being held at 10 minute intervals thereafter or after the

completion of the preceding Meeting (whichever is later).

From 4.00 p.m. (London time)

on 28 February 2019

Announcement of results of Meetings and satisfaction of Consent Conditions

Announcement of the results of the Meetings and, if any Extraordinary Resolution

is passed, whether the Consent Conditions in respect of such Class have been

satisfied or not.

As soon as reasonably

practicable after the Meetings

LON51718245/13 109516-0046

15

Payment Date

Payment of the Consent Fee. Expected to be 8 March 2019

and in any event, no later than

5 Business Days following the

date of execution of the

relevant Supplemental Trust

Deed

If the necessary quorum for any Extraordinary Resolution is not obtained, the relevant Meeting will be adjourned

and the adjourned Meeting held at such time as will be notified to Noteholders of the relevant Class in accordance

with the relevant Conditions and the relevant Meeting Provisions. If the Extraordinary Resolution is passed at the

adjourned such Meeting, the relevant modifications to the Conditions and the Trust Deed in respect of such Class

described in the Consent Solicitation Memorandum will be implemented as soon as reasonably practicable after

such adjourned Meeting and insofar as the Consent Conditions in respect of such Class are satisfied.

Noteholders are advised to check with any bank, securities broker or other intermediary through which they hold

their Notes when such intermediary would need to receive instructions from a Noteholder in order for such

Noteholder to participate in, or (in the limited circumstances in which revocation is permitted) validly revoke their

instruction to participate in, the Consent Solicitation and/or the relevant Meeting(s) by the deadlines specified

above. The deadlines set by any such intermediary and any applicable Clearing System for the submission and (in

the limited circumstances in which revocation is permitted) revocation of Consent Instructions will be earlier than

the relevant deadlines above.

Unless stated otherwise, all announcements in connection with the Consent Solicitation will be made by the Issuer by

delivery of a notice to the Clearing Systems for communication to Direct Participants and by publication on the

website of the London Stock Exchange. Such announcements may also be made on the relevant Reuters Insider

screen page and/or by the issue of a press release to a Notifying News Service. Copies of all announcements, notices

and press releases can also be obtained from the Tabulation Agent, the contact details for which appear on the last

page of the Consent Solicitation Memorandum. Significant delays may be experienced where notices are delivered to

the relevant Clearing Systems and Noteholders are urged to contact the Tabulation Agent for the relevant

announcements during the course of the Consent Solicitation. In addition, Noteholders may contact any of the

Solicitation Agents for information using the contact details on the last page of the Consent Solicitation

Memorandum.

Noteholders are advised to read the Consent Solicitation Memorandum carefully for full details of, and

information on the procedures for participating in, the Consent Solicitation.

Barclays Bank PLC, HSBC Bank plc and Lloyds Bank Corporate Markets plc are acting as Solicitation Agents,

Lucid Issuer Services Limited is acting as Tabulation Agent.

Questions and requests for assistance in connection with the Consent Solicitation may be directed to the Solicitation

Agents:

SOLICITATION AGENTS

Barclays Bank PLC

5 The North Colonnade

Canary Wharf

London E14 4BB

United Kingdom

Telephone: +44 (0) 20 3134 8515

Attention: Liability Management Group

Email: eu.lm@barclays.com

HSBC Bank plc

8 Canada Square

Canary Wharf

London E14 5HQ

United Kingdom

Telephone: +44 (0) 20 7992 6237

Attention: Liability Management Group

Email: LM_EMEA@hsbc.com

Lloyds Bank Corporate Markets plc

10 Gresham Street

London EC2V 7AE

United Kingdom

Telephone: +44 (0) 20 7158 1719/1726

Attention: Liability Management Team,

Commercial Banking

Email:

liability.management@lloydsbanking.com

LON51718245/13 109516-0046

16

Questions and requests for assistance in connection with the delivery of a Consent Instruction may be directed to the

Tabulation Agent:

TABULATION AGENT

Lucid Issuer Services Limited

Tankerton Works

12 Argyle Walk

London WC1H 8HA

United Kingdom

Telephone: +44 207 704 0880

Attention: David Shilson / Arlind Bytyqi

Email: heathrow@lucid-is.com

This announcement is released by Heathrow Finance plc and contains inside information for the purposes of

Article 7 of the Market Abuse Regulation (EU) 596/2014 (MAR), encompassing information relating to the

Consent Solicitation and the Proposals described above. For the purposes of MAR and Article 2 of

Commission Implementing Regulation (EU) 2016/155, this announcement is made by Sally Ding, Head of

Treasury and Corporate Finance.

DISCLAIMER This announcement must be read in conjunction with the Consent Solicitation Memorandum. The

Consent Solicitation Memorandum contains important information which should be read carefully before any

decision is made with respect to the Consent Solicitation. If any Noteholder is in any doubt as to the action it should

take or is unsure of the impact of the implementation of any Extraordinary Resolution, it is recommended to seek its

own financial and legal advice, including in respect of any tax consequences, immediately from its broker, bank

manager, solicitor, accountant or other independent financial, tax or legal adviser. Any individual or company whose

Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee or intermediary

must contact such entity if it wishes to participate in the Consent Solicitation or otherwise participate at any Meeting.

None of the Issuer, the Solicitation Agents, the Tabulation Agent or the Trustee expresses any opinion about the

terms of the Consent Solicitation or the Extraordinary Resolutions or makes any recommendation whether

Noteholders should participate in the Consent Solicitation or otherwise participate at the Meeting(s) applicable to

them.

SOLICITATION AND DISTRIBUTION RESTRICTIONS

General

The distribution of this announcement and/or the Consent Solicitation Memorandum in certain jurisdictions may be

restricted by law, and persons into whose possession this announcement and/or the Consent Solicitation

Memorandum comes are required to inform themselves about, and to observe, any such restrictions. Nothing in this

electronic transmission constitutes an offer to buy or the solicitation of an offer to sell securities in any jurisdiction in

which such offer or solicitation would be unlawful.

Nothing in this announcement or the Consent Solicitation Memorandum constitutes or contemplates an offer of, an

offer to purchase or the solicitation of an offer to sell any security in any jurisdiction and participation in the Consent

Solicitation by a Noteholder in any circumstances in which such participation is unlawful will not be accepted.