Originally Posted by
Trinity 09L
The bosses of some of the world’s biggest airlines received a strange request last year from Heathrow airport — it wanted to spend £74,000 to chop down three trees. A little research suggested that the quoted price was up to 20 times what a tree surgeon would normally charge for the simple task, if the trees were located elsewhere.
A little snippet from Ruperts ring fence
This is standard stuff in regulated industries. You try and present your costs as HIGH as possible, as the regulator is looking to give you a fixed percentage return on your asset. Reduce the margin by excessive costs and they will let you get back up to the agreed amount by increasing regulated income like landing fees. The regulator should be alert and auditing for this.
The real classic is the cost of runway 3. A lot of this is land purchase, including "all of Harmondsworth". Now HAL/BAA etc have been buying up property in Harmondsworth etc for years as it comes onto the market. But they pass it on, at cost, to a separate organisation, which is owned through various overseas companies. Meanwhile they rent it out. They also regularly revalue all of the property there at current market value, as allowed by the regulations. This is part of the reason why the costs go ever upwards. Should the project start, they will buy it back from the separate company, but of course at then current market price, which, backed up by surveyors' valuations, they will present to the regulator as part of their return on investment calculation.