How Heathrow’s new runway would be funded, (higher landing costs, more costs to taxpayer) – all unclear
Heathrow’s plans for a 3rd runway, and associated building, are due to cost the airport at least £18 billion (not including unexpected over-runs and engineering problems etc). Heathrow now wants the right to make airlines and passengers contribute to any unexpected higher costs. The CAA controls the amount Heathrow can charge airlines. Heathrow has asked the CAA to factor in a huge array of risks from building the 3,500 metre runway across the M25 into the charges it is allowed to claw back from carriers. Heathrow keeps insisting its landing charges would remain close to current levels, aviation experts said there are few credible alternatives to charging users more. IAG believes the huge construction costs will lead to charges doubling to landing charges per passenger, from about £40 now to £80 for a return ticket. Heathrow is mainly owned by overseas investors. As well as higher than expected costs of construction, there are risks such as lack of interest from airlines in taking up the new landing slots; financial markets turning against the airport, leading to a downgrade of its credit rating; higher debt costs; and politics. There is real fear that if the Heathrow expansion project was allowed, the costs – many £ billion – might fall on the taxpayer – if the enterprise becomes a bit of a white elephant. The Airports Commission and DfT have said little about this massive risk to the public finances.
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Passengers face risk for Heathrow’s new runway
Airport demands right to raise landing fees if £18bn expansion goes awry
By John Collingridge (Sunday Times)
August 13 2017
Europe’s busiest airport wants higher charges to help cover risks
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Heathrow’s demand was contained in a document submitted earlier this year. The CAA is attempting to tackle one of the big questions ignored by the Airports Commission, which examined how to raise aviation capacity: who should bear the risks of the hugely complex project?
The airport said in the submission that its investors were not “seeking special treatment or risk-free rewards. However, unlike a private enterprise in an unfettered market . . . these risks do need to be addressed or compensated for in the regulatory return.”
Heathrow was told to keep charges “close to current levels” when the government gave permission for the runway in October. While the airport insists it is cutting costs to adhere to this demand, experts said that shifting risks onto travellers would inevitably force up charges.
Martin Blaiklock, an independent infrastructure expert, said the only way Heathrow could keep charges flat would be to significantly increase the number of people going through its terminals. “Anyone using Heathrow today will view such a boast with some scepticism,” he said.
“The responsibility for delivering the expansion to time, cost and specification should be left to Heathrow alone, with no payment from passengers for the expansion until the project is available for use.”
Full Times article at:
https://www.thetimes.co.uk/article/passengers-face-risk-for-heathrows-new-runway-npg2xnqmn
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See also:
Heathrow plans to cut building costs of its runway plan, to keep fares low, by not adding new terminal
Heathrow has said it will – allegedly – guarantee to effectively freeze passenger landing fees when [if] a 3rd runway is built, by scrapping plans for a new terminal. The cost for the whole planned expansion is about £17.6 billion, and Heathrow knows it will have trouble raising all this and paying for changes to surface access transport. The government does not want air fares to get any more expensive. So Heathrow now says it will knock “several billion” pounds off the cost of its plan by abandoning facilities such as an additional terminal. The terminal would require a huge subsurface baggage handling system and an underground passenger metro system, which was estimated to cost £1 billion alone. They instead suggest extending Terminals 5 and 2 and phasing the expansion work over as long as 20 years, to control costs. The main airline at Heathrow, IAG, is not prepared to pay higher charges to fund inefficient expansion, that is unnecessarily expensive. The amended expansion plans by Heathrow will be put out for a public consultation later in 2017. The publication of the final Airports National Policy Statement [the consultation on it ended in May 2017] setting out the Government’s position, and a subsequent House of Commons vote, are expected in the first half of 2018 with the vote not before June. Heathrow hopes to cut costs in every way it can, and get in the necessary funds by attracting many more passengers, even if paying hardly more than they do now – about £22 landing fee – each.
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Arora’s plan for a cheaper 3rd Heathrow runway means putting it further east. ie. more noise for London
Surinder Arora, a hotel magnate, wants to get the 3rd Heathrow runway built quickly, and has made some suggestions of how it could be done more easily – and at least £5-6 billion more cheaply. But his scheme, for a shorter northern runway, means there would be even more noise pollution over London than from Heathrow’s own £17.6bn proposal. Heathrow airport did not, apparently, know of his plans till he went public with them. If the new runway was shorter (3.2km not 3.5km) and moved a bit east, to Sipson, there would be cost savings. But this could mean noisier flights over London as aircraft may have to fly slightly lower over London by something like 300 feet or so (at a guess). One of Heathrow’s reasons for its own location for the runway was to get this 300 ft or so height gain, claiming it would make all the difference to noise levels. The 2009 scheme, by Heathrow, for a much shorter 2.2km runway failed in part because of noise concerns, as did a plan for a 2.8km runway rejected by the Airports Commission. Willie Walsh of IAG, and Craig Keeper of Virgin Atlantic, want the cheapest scheme possible, to keep their costs down, and avoid having to increase the cost of their air fares. Amusingly, the Heathrow airport runway plan involves demolishing one of Mr Arora’s 5 hotels at the airport, two of which are under construction. Mr Arora says he was not informed by Heathrow (Willie Walsh claimed the same, for his head office building).
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The worries set out above are just for the cost to Heathrow of building its runway, terminal etc. Not for all the associated work that would be needed to improve surface access infrastructure, that would be needed by an airport 50% more busy than now.
Shock £17bn taxpayer’s bill for Heathrow expansion revealed through Freedom of Information request by Greenpeace
Environmental and transport groups have used FoI to obtain details from Transport for London (TfL), of their estimates of the amount of money the UK taxpayer would be expected to pay, for Heathrow’s 3rd runway. This comes to a staggering £17 billion, to cover the costs of transport links needed to deal with a massive traffic surge from a 3rd Heathrow runway. TfL say the actual cost would be around £18.4 billion – which is 4 times as high as estimated by the Airports Commission. Heathrow’s John Holland-Kaye reiterated, to the Environmental Audit Committee (4.11.2015) that the airport would pay only about £1 billion. The government made it clear (Oct 2015) that it expects aviation expansion promoters to cover any surface access costs.The vast amount of money required throws into question both the financing and feasibility of a crucial part of the project. The documents, released to Greenpeace through FoI, contain the first detailed comparison of the contrasting estimates by the Airport Commission and TfL. They show the figures published in the Commission’s report failed to take into account the costs of key rail schemes, extra buses, additional operational spending and road traffic management. The Treasury needs to properly assess the real costs of expanding Heathrow and guarantee taxpayers won’t be left to pick up the bill.
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No confirmation by government that taxpayer won’t have to fund surface access transport for Heathrow 3rd runway
Transport for London calculated the costs of upgrading and improving surface access, to deal with the extra passengers using a 3 runway Heathrow could be up to about £18 billion, over several years. Heathrow has only offered to pay a total of £1.1 billion. Stephen Hammond, a former transport minister, (2012 – 14) asked Chris Grayling about the costs, as did other MPs. The responses were evasive. Stephen Hammond believes the transport work is likely to cost the taxpayer (= us) at least £5-10 billion, and the government is misinforming the public by announcing that: “Expansion costs will be paid for by the private sector, not by the taxpayer.” Asked about the costs, Grayling replied that Heathrow …”will be held to a plan that: first, does not increase the current level of road transport to the airport; and, secondly, increases public transport access to the airport to 55% of those using it. Those will be obligations that it will have to fund. The Government’s financial advisers have said that that is viable and investible. There are question marks about what schemes are actually part of the surface access. Some of them we have to do anyway. For example, we are about to start improvements to the M4, which will benefit Heathrow and improve access, but they are not solely about Heathrow.” ie. no clarity at all, and sounds as if government realise Heathrow cannot even build the runway etc without raising landing charges, let alone all this work. So is not insisting on it …?
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Times reports that Heathrow plans to offer to cut costs and build runway scheme faster
The Times reports that it has learned how Heathrow is planning to cut up to £3 billion (out of about £17.6 billion) from its plans for a 3rd runway, in order to persuade Theresa May and the Cabinet that the runway could be delivered – and delivered a year earlier. Revised plans include potentially scrapping plans to tunnel the M25 under the 3rd runway, not building a transit system to carry passengers around the airport (using buses instead) and smaller terminal buildings. The aim is not only to get the runway working by 2024 but also -with reduced costs – keeping charges for passengers a bit lower. The Airports Commission estimated the cost per passenger would need to rise from £20 now to £29. Airlines like British Airways are not prepared to pay such high costs, and especially not before the runway opens. BA’s Willie Walsh has described Heathrow’s runway plans as “gold-plated”. The Times expects that Heathrow will announce its new “cheaper, faster” plans by the end of September. There is no mention of the “Heathrow Hub” option of extending the northern runway – a slightly cheaper scheme than the airport’s preferred new north west runway. There is no clarity on quite what Heathrow plans for the M25, if they cannot afford to tunnel all 14 lanes (at least £ 5 billion). Lord Deighton said it might be “diverted” or have “some form of bridge.”
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