IAG, the FTSE 100 owner of BA and Heathrow’s biggest customer, has previously criticised the current mechanism that allows the airport to bill carriers for costs it incurs.
A spokesman for IAG said: “We welcome the CAA’s decision not to allow Heathrow to recharge its losses for this year and next onto airlines and their customers. We’re staggered that Heathrow thought it appropriate to pass its Covid losses onto us.
“Heathrow is a wealthy, privately owned company which should seek funds from its shareholders as many other businesses in our industry have done to weather this pandemic. We look forward to participating in the CAA’s consultation process.”
The Supreme Court this week considered an appeal by Heathrow after the Court of Appeal blocked the building of a third runway on environmental grounds earlier this year.
A ruling is expected in the coming weeks. [Probably January 2021].
UK Civil Aviation Authority launches consultation on Heathrow Airport Limited’s request for RAB readjustment
Initial assessment and consultation published today
9 October, 2020
The UK Civil Aviation Authority (CAA) has today published its initial assessment and consultation following a request by Heathrow Airport Limited (HAL) in July to change its approach to the calculation of HAL’s regulatory asset base (“RAB”). HAL’s request is for the RAB to take account of the impact of the Covid-19 pandemic on its revenues in 2020 and 2021.
The Civil Aviation Authority recognises that Covid-19 has had a severe and unprecedented effect on air traffic levels. This has resulted in revenue reductions for many organisations in the aviation industry.
In addition to the steps HAL has taken to improve its financial position in response to Covid-19, it has also made a request to the Civil Aviation Authority to adjust its RAB and future regulated aeronautical changes to help protect it from such revenue losses.
In this report, we have set out our initial assessment of HAL’s request considering our duties to current and future consumers. While HAL has raised important issues that result from the Covid-19 pandemic, we do not currently consider that HAL has demonstrated that its request is a proportionate response. More broadly, we recognise that there are significant issues that we will need to consider and take account of as part of the next price control review during 2021.
We are inviting stakeholders to share their views with us as we consider our final decision on these matters and the appropriate next steps. The consultation will close on 05 November.
Consultation Link www.caa.co.uk/CAP1966
CAP1966: Economic regulation of Heathrow Airport Limited: response to its request for a covid-19 related RAB adjustment
“HAL has estimated this lost revenue would be about £2.2 billion3 and its proposal would lead to an upward adjustment to the RAB to apply from 2022 of around £1.7 billion. HAL has said it would bear around £0.5 billion of the estimated revenue loss of £2.2 billion. This would increase airport charges by around £1.20 per passenger, or about 5% on the expected level of charges from 2022, and more in the longer term.”
CAA review finds Heathrow ‘wasted’ money and was “inefficient” as costs of 2 tunnel refurb projects costs spiral
The CAA’s economic performance review concludes that Heathrow has “wasted” money on two ongoing tunnel refurbishment schemes and acted inefficiently. The cost overrun of both schemes combined is estimated at £212.4M, although the CAA suggests that those costs could be inflated further by the time work is completed. Costs on the cargo tunnel job between Terminal 4 and the Central Terminal Area have soared by £152M, from its approved £44.9M budget to the current final cost of £197M, the report reveals. The cost of upgrading the main vehicular tunnel to Terminals 1, 2 & 3 has risen by £60.3M from an approved budget of £86M to £146.3M. On the cargo tunnel, the CAA states that “there is clear evidence that the actions of HAL may have directly contributed to wasted spending or lost benefits”. The delays have lead to a loss of benefits to consumers. Heathrow could have been more efficient in managing its work contractors. The CAA will now assess whether to remove costs associated with the tunnel refurbishments from HAL’s Regulated Asset Base (RAB) – which effectively means HAL would have to pay for cost overruns, rather than charging airlines.
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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.
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Heathrow has lost £1 billion since start of March, is cutting staff pay, and could cut 1,200 jobs
Heathrow says that it has lost £1 billion since the start of March, due to the Covid pandemic. There could be 1,200 Heathrow jobs lost. The airport served a formal notice to staff yesterday, triggering a 45-day consultation period over compulsory job losses. The airport and unions have failed to agree to a deal over the future of its frontline workforce after months of talks. Heathrow is proposing salary cuts of between 15-20% for some affected staff, with a phased reduction in salaries over 2 years. A voluntary redundancy scheme has been offered. The airport claims there might be few compulsorily redundancies, but only if the unions agree a deal. About 4,700 frontline staff are affected, including engineers, security and airside operations. Heathrow has already lost 450 out of 1,000 head-office managerial staff. The airport had indicated previously that as many as a quarter of staff could be made redundant, so up to 1,200 jobs may go. Heathrow said its proposals “guarantee a job” for anyone who wants to remain with the business. The Unite union is not happy with the airport’s offers. Gatwick is losing about 600 jobs, a quarter of its workforce.
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