Heathrow saddled with £504 million bill from thwarted expansion
Heathrow has been left with a £500M bill from its thwarted 3rd runway expansion. The airport chose to spend a lot up-front, in its plans to get a new runway, even before waiting for the legal challenges and approval of its DCO (Development Consent Order). Heathrow hoped it could charge airlines using the airport for these costs. It was always a risk that the runway would not happen, and the money spent in promoting it and planning for it would be sunk. The Court of Appeal ruled against the Airports NPS in February, on grounds of the carbon emissions the 3rd runway would generate. The appeal by Heathrow will be heard on 7th and 8th October. Meanwhile the CAA has restricted the amount Heathrow can charge airlines – and now there has been a massive reduction in Heathrow air traffic, and income, due to Covid. The New Civil Engineer gives a breakdown of what Heathrow (unwisely) spent, in the expectation the runway would definitely go ahead. According to the CAA’s Economic regulation of Heathrow: policy update and consultation, the costs are broken down into £394M of planning (category B) and £110M of early construction (category C) costs. These include ground investigations, all sorts of advisors, and designers.
Heathrow saddled with £500M bill from thwarted expansion
8 SEP, 2020 BY CATHERINE KENNEDY (New Civil Engineer)
Heathrow Airport Limited (HAL) has been left with a £500M bill from its thwarted third runway expansion.
The Court of Appeal blocked the £14bn expansion in February due to climate change concerns, while in May the Civil Aviation Authority (CAA) said the plans were “unlikely” to re-start in the “short term”.
However, it has now emerged that HAL had already spent £504M on planning and early construction works at the time the project was paused.
According to the CAA’s Economic regulation of Heathrow: policy update and consultation, the costs are broken down into £394M of planning (category B) and £110M of early construction (category C) costs.
While the costs cover the expansion programme up until February this year, the CAA’s latest report only provides a detailed cost breakdown for 2018.
The CAA document reveals that £52.6M was paid to the integrated design team – consisting of Amec Foster Wheeler, Arup, Atkins, Grimshaw, Mott MacDonald, Jacobs and Quod – in 2018 alone.
A further £10.7M was spent in 2018 on ground investigations, and £11.4M went towards securing planning consents.
Category B costs during 2018
Work and Cost £M
Total Category B costs 118.2
A CAA-commissioned assessment of HAL’s planning costs during 2018 (£118.2M) found that opportunities to manage the programme in a more efficient way – identified in the previous reviews of 2016 and 2017 – “had not been fully dealt with by HAL”.
Issues highlighted in the assessment – which was undertaken by PwC – include the lack of a “clear and single integrated baseline plan through to obtaining planning consent that aligned requirements and scope with the associated time, cost and risk”.
The CAA update explains: “HAL had provided evidence of some examples of integrating scope, schedule and/or cost, but nothing that provided a single baseline plan through to obtaining planning consent that aligned all components of the plan.
“While HAL did have multiple documents that relate to scope, time, cost and risk, the alignment between these documents remained unclear and discrepancies were identified. The documents did not establish a robust baseline position from which to measure and manage performance and control delivery.”
The PwC assessment also identified that several core control processes were not in place. These include the lack of change control – a change process to manage the baseline scope, cost, schedule and risk – and a similar lack of timesheet systems to indicate efficiency of activity delivery.
The CAA conceded that “it is challenging to assess the efficiency of costs associated with planning activity, which by their nature, are difficult to benchmark” and noted that despite the “remaining weaknesses”, HAL has “improved on the processes it has in place since the start of the capacity expansion programme in late 2016”. HAL advised that a timesheet system was being considered for expansion during 2019.
Work on assessing the efficiency of costs incurred during 2019 and up to the end of February 2020 is due to begin. To offset the £500M bill, HAL plans to charge airlines for the charges, in line with recommendations in a regulatory consultation.
Meanwhile, the CAA understands from HAL that ‘wind down’ costs – incurred after the Court of Appeal judgement – are likely to continue until Q3 2020 and are forecast to be in the region of £46M.
This spending includes residual staff costs, costs associated with fulfilling supplier contractual commitments, and HAL’s preexisting agreements relating to property acquisition.
The CAA says it will finalise the approach to the recovery of these costs “once the full nature and extent of spending has been confirmed by HAL”.
BA hits out over £500m bill for Heathrow failed 3rd runway plans that it wants to pass on to airlines
A row has erupted between Heathrow and British Airways, its largest airline, over the plans to get airlines to pay the £500m bill relating to the airport’s third runway expenses so far. A regulatory consultation by the CAA recommends allowing Heathrow to charge carriers for expansion costs incurred until February this year. These are called “Category B” (£500m) and early “Category C” costs, associated with getting planning consent. CAA regulations allow Heathrow to increase charges in line with costs incurred. Willie Walsh, the outgoing boss of IAG, that owns BA, has repeatedly clashed with Heathrow over the framework, which he has said encourages the airport to “spend recklessly.” IAG has never wanted to pay for Heathrow’s costs in developing the runway (partly as the extra capacity at Heathrow would increase competition with BA by other airlines). CAA director Richard Stephenson said it was reviewing responses to the consultation (held in summer 2019) and had yet to make a decision. Heathrow has pressed ahead, spending a great deal on its runway plans, even before legal obstacles had been cleared. The restriction of early spending by the CAA meant a delay in the runway timetable of 2-3 years.