Shed, is your opposition to Heathrow expansion based on the amount of public expenditure to be spent on the associated surface road and rail infrastructure improvements?
Hello Frank. That is certainly a core consideration, but my objections go deeper than that. Bear in mind that I was an early supporter of expanding LHR - preferably to four parallel runways - based on purely operational considerations. My opposition was spawned when I first saw the shocking proposed costings for the various expansion proposals. I favour positive development of the UK's infrastructure assets generally, but only at a pricepoint which makes financial sense.
Prior to the first costings for LHR expansion proposals emerging, I figured that it was reasonable to expect numbers approximately ten times the inflation-adjusted sum required to deliver MAN's intercontinental-capable second runway. This would mean around £2.53Bn - a very large sum, remember - and 10x more than MAN prices seemed more than generous leeway.
When the actual proposed costings emerged the numbers involved were just staggering. Note that the proposal here is not a total new-build mega-airport such as 'New Istanbul' (£8Bn) or Hong Kong CLK delivered to date for an inflation-adjusted £19.5bn including the costs of land-reclamation from the sea. Even the Channel Tunnel - a challenging 31.4 mile tunnel under the sea came in at an inflation-adjusted £8.46Bn - and that represented a cost overrun of 80%. This LHR R3 proposal - even taking Davies' optimistic projections - comes in at a scarcely believable £18.6Bn plus £5Bn in supporting local infrastructure works. That £5Bn of support works alone (likely public-funded) is twice the projected cost of rebuilding New York La Guardia Airport from the ground up by 2021. Extraordinary numbers.
And yet, this stratospheric pricetag will deliver just one new runway and some supporting ground infrastructure at LHR. That money buys 260K additional runways slots per annum. The Davies Report projects that it will add 40 new destinations to LHR's network including 10-12 long-haul routes.
Afew months ago I had the opportunity to put a question to Sir Howard Davies directly. I pointed out that at LHR the latest aircraft types are subject to exactly the same draconian restrictions as their deafening 1960's and 1970's counterparts. But today's aircraft are quieter by orders of magnitude, and the impressive climb-rates of new types makes for very small noise footprints on departure. Why not reward airlines' investment in this expensive quiet technology by allowing them to fly at night? This measure alone would enable at least 10-12 new long-haul routes at LHR before the need to spend any money on additional construction. Sir Howard responded that this was a very interesting idea which he had not previously considered ... he would take it away to discuss with his team. Of course, when the final report came out, the proposal was for
reduced operating hours, no concessions for new types, and even a suggestion of a 50p per passenger noise-levy on all flights. Thanks for being environmentally-friendly, Mr Airline-Exec.
By the way, before I attract howls of criticism for the suggestion above, note that I myself live extremely adjacent to one of the busiest night-time commercial runways in Europe. Modern aircraft do not keep you awake. As one visitor said to me: "I'm relieved that there were no flights during the night. I didn't think I'd be able to sleep." My reply to that came as a huge surprise!
So, as you see, I am not opposed to expansion as such. But I am opposed to gross misallocation of capital. Especially that scarce variety from public funds ... even that £5Bn "rounding error" proposed represents more than 5x the highest sum ever allocated to a single infrastructure project in the regions. That is how big these numbers are. And whilst the £20Bn suggested by TfL for the same works may be on the high side, the £10Bn mentioned by Sir Peter Hendy seems entirely plausible. Now, ten thousand million pounds funded from the public purse really is an extraordinary sum.
£10Bn from public funds would inevitably mean famine conditions for public infrastructure projects elsewhere ... ie. in the regions. It would be nothing new there of course ... the regions have received a small fraction of the public investment funds lavished on London and the SE over the past three decades. This cannot be allowed to continue. There are many projects of merit lying unfunded in the regions ... projects which themselves would provide significant enhancements to the UK's GDP. When considering the payback of LHR R3, we must take into consideration the opportunity cost to our GDP of
not funding these merititious alternatives. As I have frequently pointed out in this debate, those living in the regions pay taxes to the exchequer at exactly the same rates as Londoners. And those outside the SE represent more than 70% of the population. They deserve their fair share of public infrastructure investment too. And as they are already 30 years behind London in this regard, that means
before funding LHR R3 support works and Crossrail 2. We in the regions do not begrudge Londoners the world-class transport infrastructure which they now enjoy. However, we do believe it is high time for the regions to play catch-up for a while before London gets yet another monster sequential turn at the trough.
Of course, several here will remind me of the mantra that spending on LHR is for the benefit of the whole country. Right. Well let's just get real here for a moment. Firstly, trickledown is a total myth. I can assure you that LHR mega-investment does not transform life in Hexham, Halifax and Hull. Trickledown is conspicuously absent. What really would help communities such as these is direct public investment into the transport infrastructure priorities within their own regions. Something which just hasn't happened for more than a generation.
Now look at my posting above. We are told that LHR R3 will add £147Bn to UK GDP over 60 years. And that will trickledown to the whole country. Whoopeedoo. Just one problem. As we see, the commissions own experts reckon that the real number is £33.6 - £54.8Bn. Now that is quite a difference. And whilst the authors of that letter suggest that the £147Bn number "rely on economic growth and other assumptions which are at the extreme end of the range", let us consider also the numbers used on the cost side. We already know that the £5Bn Davies suggests as the figure required from public funds will more likely be £10Bn according to Sir Peter Hendy, a man very well qualified to judge such things. And I'm giving the benefit of the doubt that it won't be the £20Bn suggested by TfL. And the underlying construction cost: £18.6Bn. Is this an optimistic "Goldilocks" figure too if the others are? Could we be looking at an 80% overrun as the carefully-budgeted Channel Tunnel managed to produce?
I'm pleased to say that I smelt a rat regarding that £147Bn number early on. I questioned it in a PPRuNe posting dated 11 July, well before the reports above appeared. Looks like my instincts were correct.
In an earlier PPRuNe exchange on this topic, I was informed that major infrastructure projects are evaluated to determine a Benefit Cost Ratio (BCR). Apparently, the methodology used in this appraisal system is stacked against the regions. Regional projects apparently produce very poor numbers under this system with - I am told - 5 constituting a good result for a project in the North. Yet, we are told, LHR R3 has a stellar BCR rating of 14. All arguments dismissed! Build it at once! For the benefit of everybody! But ... just hold on a minute. That BCR is calculated according to a £147Bn boost to GDP over 60 years ... err, what if the actual number really is £33.6Bn or even the higher estimate of £54.8Bn? And what if the construction cost overruns by 40% - just half of the figure we saw with the Channel Tunnel? And what if Sir Peter Hendy is correct and the support works come in at £10Bn? Note I'm being conservative here and not inserting TfL's £20Bn number. What is the BCR rating now? Below 5 yet (or even zero)? 5 being in line with all those neglected regional alternative bidders for public funding? Interesting, isn't it?
Of course, as I have often been told, HAL will be forced to pay up for all those infrastructure support works around LHR. It won't fall to the taxpayer at all! Except that ... in a
Daily Telegraph report dated 24 July 2015, John Holland-Kaye (Chief Executive of Heathrow) has "ruled out" that idea. "Those are things that the Government should be paying anyway," he said. "That's the way these things work, that Government funds roads and rail ... so that's what we expect to happen here." Looks like the taxpayer is on the hook for that additional £5Bn-£20Bn after all then.
Another common argument put forward is that the sum representing the direct cost of LHR R3 will be privately funded by Ferrovial - foreign private money - so why not just let them do it? Well, a couple of points here. If you notice that your friend down the road is about to burn his house down, should you try to stop him? It is not your money, is it? And think of the boost to the local economy that the rebuild would bring! Seriously, there is an important point here. If these phenomenal costings make no sense, the project should not proceed anyway. Whoever is funding it. Because if all those corporate bonds go belly-up, you may find that it is your pension fund and your community that was invested in them. And even if it is someone else who ends up getting hurt - like the Greeks or the Cypriots did - do we really want to see that? Gross misallocation of capital will eventually bite someone. The corporate bond market is monstrously overheated, and it is going to maul alot of unsuspecting people over coming years.
Meanwhile, how does HAL plan to recoup its investment? From the airlines, of course, via higher charges / fares. Except that ... cue Willy Walsh: "We will challenge it by any and every avenue open to us. We are not prepared to pay for it. There's a belief that we will be willing to pay. That's nonsense." He added: "The infrastructure will be expensive, inefficient, not fit for purpose. We did not ask for it and we do not want it. I'd be surprised if other airlines were to stand idly by." No ambiguity there, then! He continues: "The funding issue has been glossed over. The question that needed to be asked - over how this is going to be funded - has not been asked. It is a huge question. The debate over affordability has not even begun."
So that is the brief version of why I am opposed to the LHR R3 project. Thanks for the question!
Quite simply, infrastructure projects of merit in the regions represent a far better proposition for UKplc and fully deserve their long-overdue turn at the public funding table.