HEATHROW

[Shed-on-a-Pole]

Reply to Frank

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.

[Bagso]

Interesting post from Shed.

Out of curiosity.... and if poss a black and white answer. At what point do the supporters of Heathrow actually admit the costs are too expensive?

30bn
50bn
100bn
200bn

Or is it so sacred there is infact no cut off ?

At the moment I see some sensible debate based around a ludicrous proposition!

It's a line seemingly followed by some MPs who have not but a clue about the cost of all this.

[Prophead]

Wow, this subject is still going round in circles.

I think there are some common misconceptions about the funding of these large projects. Let me give you an example.

Heathrow built a tunnel fairly recently to transfer baggage from T5 to the new T2 and T3. As is the way with tunnels this was not cheap but being inside the airport perimeter was funded by BAA.

One of the large costs in any tunnelling project is the cost of the tunnel boring machine (TBM). This was manufactured by a company in Doncaster and would have provided an income for many workers who then took it back home with them where it was probably spent in local shops, pubs restaurants etc. This project also provided a profit for a northern based business.

The tunnellers came from all over the country as well as some from abroad. I cannot remember a single one that actually lived within the M25. They all earn't very good money and took it back home with them where it was probably spent in local shops, pubs restaurants etc.

Another large cost is the tunnelling segmental lining. This was manufactured by a company in Derbyshire and delivered by road using a haulage company from the north also. This would have provided an income to the northern based workers who then took the money home to spend on .........

The project also consisted of plant hire, concrete finishing, excavations, employment agencies plus many other trades and services, to much to mention here but I cannot think of many that came from within the M25.

I then worked on Crossrail. Pretty much the same happened there with the exception of the TBM's being from Germany. They were still driven by people from all over the UK and Ireland though and the project being a lot bigger employed many more workers from the regions and put a lot of money out into the local economies.

It is easy when looking at these huge figures to think it is just disappearing from the government coffers to benefit the capital but it is truly filtering back into the economy throughout the whole country. One of the main costs is wages. Straight away part of that comes back in taxes. Companies around the whole of the UK benefit as suppliers and we end up with a new piece of infrastructure and most of the money back into our economy. This is why countries like to build during a recession.

If we get finance from a foreign nation then we get the infrastructure built, the money into the economy and can then pay it back out of the income generated from the new asset. It is a win win situation. The only caveat is that the proposed project has to be a solid investment opportunity that has the ability to generate the cash to pay back the loan and any interest.

[eggc]

The only caveat is that the proposed project has to be a solid investment opportunity that has the ability to generate the cash to pay back the loan and any interest.

Which nobody wants to pay for ! Read Willy Walsh's comments on paying for it (LHR's biggest customer) and find me a passenger that wants increases in fares to cover said loans and interest. Do'able if the investment is modest, but this is a huge cost needing significant repayments that somebody is going to have to foot.

[Prophead]

Oh so now it's the business case that doesn't work?

BAA have the investment, WW is just doing his job and making sure they don't pass the cost onto BA. The portion financed by the tax payer will work as the above.

Clutching at straws springs to mind now, especially bring the VW case into the equation.

I would say the UK population is mostly split between those who want expansion at LHR and those who really don't care. There is a minority who do not want it made up of a mixture of people either worried about their house price, spotters concerned about losing new types from the regionals and those in the north with a huge chip on their shoulder about investment in the nations capital.

[Bagso]

Prophead

..on that basis maybe we should have some direct investment in The North ?

I for one would be happy to trade a reverse that sees direct investment up here with a "trickledown" effect of peripheral activity to the SE. ..just for a change!

[Prophead]

On that basis there is absolutely no reason not to build as much as we possibly can. I am all for that being both a northerner and in the construction industry.

Osbourne's visit to China was all about this. The only thing that would stop it is a lack of will to invest. If the project is viable then it should go ahead.

Maybe the numbers are not attractive enough to potential investors.

[Shed-on-a-Pole]

Companies around the whole of the UK benefit as suppliers and we end up with a new piece of infrastructure and most of the money back into our economy. This is why countries like to build during a recession.

This principle would also work for construction of a new transpennine motorway running westwards from Sheffield, a new-build railway terminus to replace the horribly-constrained Liverpool Lime Street, and of course the "indefinitely paused" Transpennine rail upgrades. But there is no sign of these getting funded.

Clutching at straws springs to mind now

In the case of the LHR R3 financing proposals we're clutching at mature oak trees.

spotters concerned about losing new types from the regionals

Aha ... so you actually believe that an extended LHR will suck business away from regional airports (although you phrase it in disparaging terms). Well that would be great for regional economies, wouldn't it? Is that an example of 'trickleup'?

those in the north with a huge chip on their shoulder about investment in the nations capital.

A chip on the shoulder ... yes, we can dismiss all pesky objections from the regions with that put-down. Except that those provincial folks pay taxes at exactly the same rates as Londoners. And they're 70%+ of the UK population. And whilst very few resent recent national investment on Crossrail, HS1, Channel Tunnel, M25, assorted LTU extensions / upgrades, Docklands Transformation, DLR, Olympic Villages, Thameslink Renaissance, London Terminal Stations Rebuilds and so much more, they do now feel that the time has come for a little public investment to come their way. Is that a really a 'chip on the shoulder' or is it a valid aspiration by any reasonable measure?

Remember that all your arguments about major infrastructure projects creating employment opportunities and wealth across a wider spectrum apply equally to initiatives located in the regions. The difference is that they've been waiting 30 years (and counting) for their turn.

[Prophead]

Shed,

You seem to have missed my point.

This principle would also work for construction of a new transpennine motorway running westwards from Sheffield, a new-build railway terminus to replace the horribly-constrained Liverpool Lime Street, and of course the "indefinitely paused" Transpennine rail upgrades. But there is no sign of these getting funded.

Yes it would, but for whatever reason the money is not forthcoming from investors. Maybe it is just not as good an investment as others such as LHR.

Aha ... so you actually believe that an extended LHR will suck business away from regional airports (although you phrase it in disparaging terms). Well that would be great for regional economies, wouldn't it? Is that an example of 'trickleup'?

No, I do not, quite the opposite in fact. I do however believe it will create more short haul flights from the regions and we will not be seeing A380's at Humberside any time soon.

Remember that all your arguments about major infrastructure projects creating employment opportunities and wealth across a wider spectrum apply equally to initiatives located in the regions. The difference is that they've been waiting 30 years (and counting) for their turn.

I will say it again, I am not opposed to any projects being built in the regions and would welcome all of them. If the money is coming in from abroad, improving our infrastructure and creating jobs then it's all good to me.

There is a huge amount of cash worldwide looking to be invested and I would say that the people hoping for these northern projects to come to fruition would do better promoting them to investors and making a viable business case rather than bleating about the unfairness of more money going into the capital.

[Shed-on-a-Pole]

Maybe it is just not as good an investment as others such as LHR.

Or maybe the numbers are skewed. Note post 3662, Paragraph 12 - the alternative numbers from the expert advisers to the Davies Commission and the estimates of Sir Peter Hendy.

we will not be seeing A380's at Humberside any time soon.

So when you posted that spotters would be worried about losing types from regional airports you were referring to services which have never existed? Where is the logic in that?

If the money is coming in from abroad,

But the issue is the money coming from the taxpayer. Which is overwhelmingly concentrated on infrastructure in London and the SE, and has been for the past 30 years. What about that money?

bleating about the unfairness of more money going into the capital.

Bleating? May I congratulate you on your fine vocabulary of disparaging words and phrases deployed against that 70%+ of the UK population seeking a fair return on their contribution to the success of the nation. The proportion of public funds which have been allocated to infrastructure projects in and around the SE over the last three decades is so obscenely unbalanced that it really is unfair. Dust off those old school maths books and revise the chapters on fractions, ratios and percentages.

"From each according to their means. To each according to their proximity to London." - Credit to 'Philip49' on another forum.

[Prophead]

Or maybe the numbers are skewed. Note post 3662, Paragraph 12 - the alternative numbers from the expert advisers to the Davies Commission and the estimates of Sir Peter Hendy.

Do you truly believe that potential investors do not have their own methods of working out the ROI?

But the issue is the money coming from the taxpayer. Which is overwhelmingly concentrated on infrastructure in London and the SE, and has been for the past 30 years. What about that money?

A large chunk of which will come straight back in taxes on the wages and VAT on the suppliers and materials. Also, it has been explained many times that the areas the taxpayer would be funding are in need of upgrading now and will need to be done at some point anyway. To do so at the same time as LHR expansion will provide a major saving to the taxpayer.

May I congratulate you on your fine vocabulary of disparaging words and phrases deployed against that 70%+ of the UK population seeking a fair return on their contribution to the success of the nation

Who is this 70% for which you speak? Pretty much everyone I know back home couldn't care less about LHR. Those that have an opinion are all for it due to the easier access to flights worldwide and also the potential for work on the project.

The bottom line is that the government cannot afford to fully finance any large scale construction projects these days. It has to have the outside investment as well in order to go ahead. The government have shown that they are interested in the northern powerhouse by trying to get the Chinese on board but without the will to invest their hands are tied.

LHR is nothing to do with the lack of construction up north and I really don't know why it has become part of this debate. The problems at LHR are political not financial.

[Shed-on-a-Pole]

Do you truly believe that potential investors do not have their own methods of working out the ROI?

I'm sure they can crunch the numbers if they're given correct data to put into their models.

A large chunk of which will come straight back in taxes on the wages and VAT on the suppliers and materials.

As is the case for regional projects of merit left unfunded for the past 30 years and counting.

Pretty much everyone I know back home couldn't care less about LHR.

Yes, because it is in London and has negligible effect on their daily lives. But do they care less about the public amenities in the area where they do live? I rather suspect they might ...

Those that have an opinion are all for it due to the easier access to flights worldwide and also the potential for work on the project.

And in reaching this opinion, have they given careful consideration to just how much £10Bn public funding actually is and how it could be much better used close to home? Creating jobs near them? Making their own area more attractive to investors? Meanwhile, on the subject of easy access to worldwide flights. How easy do they find the queues and double security search which comes with changing flights Domestic-International at LHR? Do they love the transfer from T5 to T2, T3, T4? Has their domestic Shuttle ever been cancelled? Or is it perhaps easier for them (if they're in the North, as you mentioned) to fly MAN-DXB-SYD or NCL-EWR-CVG for example?

LHR is nothing to do with the lack of construction up north and I really don't know why it has become part of this debate.

Then let me explain. If £10Bn of public money is allocated to LHR support works (and more for Crossrail 2?), that money cannot then be deployed elsewhere. The sum involved is so very large that it will cause a public-investment famine for other deserving projects for years to come. And many of those regional priorities have been stuck in the waiting room for 30 years already.

The problems at LHR are political not financial.

Oh WOW!!! Your best line yet. The CEO of British Airways / IAG - LHR's biggest customer by far - profoundly disagrees with you. As does John Holland-Kaye (CEO Heathrow). Their comments on matters financial are summarised in post No.3662. Not that I wish to downplay the political challenges, of course.

[anothertyke]

A couple of points Shed and Bagso.

1. I don't think it has been or should be an absolute principle that all surface access works should be funded by the airport (or more correctly the air travellers). Two reasons. First, projects may produce benefits for non-air travellers. Second, there may be benefits to the wider economy rather than to the air travel system. So I don't think it's the principle, it's the numbers in the business case and their credibility which are important.

2. I don't think Willie Walsh can be regarded as a wholly objective player. BA could lose and UKplc could win. Dominant incumbents rarely welcome threats to their market position. If every airline CEO says 'Not at that price' then that would be different.

3. Nevertheless it is stonkingly expensive and maybe the 1800 metre R3 with no M25 tunnelling works which was being thought about in 2003 needs to be revisited at least as a Phase one. Such a long construction period with no payback is part of the problem.

I hope the Another Runway at Heathrow thread can be revived because there is a lot of mileage in this yet and this stuff would be better there.

[Bagso]

..I'm still in shock that somebody on here putting fwd supposedly reasoned arguments suggests involvement by the BAA. ... !

[True Blue]

Sure throw lots of tax payers money at a virtual monopoly, especially on long haul, to make it an even more effective monopoly. Then we, the travelling public, can sit back and enjoy higher air fares due lack of competition from other airlines from other airports. Seems like a great policy to me.

And to add, I don't believe one word of the forecast financial benefits, seen it all too often before for it all to turn out to be rubbish. Who can say what the economy, either within the UK or worldwide, will be doing in 10, 20 or 30 years. Just figures pulled from the sky. But will be used to justify when it suits.

TB

[Mr Optimistic]

Could someone explain to me the argument supporting LHR being a 'hub' and therefore more deserving of investment. I assumed that hub meant passengers transferring so they come in and then leave again. In so doing, they can hardly benefit the economy. Am I missing something?

[PAXboy]

Mr Optimistic You are! The answers are in the many threads about LHR R3, some of which have not been posted to in a while and have slipped down the pecking order. You might want to search for them. But, actually, someone will be along shortly to reprint them.

[Mr Optimistic]

If the answer is simple, in terms of the source of added value, can't a simple answer be provided? Anything subtle or complicated will either go over my head of be met with scepticism. From a simple pax perspective, and tax payer, a load sharing idea of shunting additional traffic elsewhere, eg STN, seems reasonable, however clearly LHR has advocates but why?

Edit. Let me expand on this...I live in Thurleigh which was a contender, before my time, for the third London airport as they called it. Foulness and Thurleigh missed out in favour of STN. What was the logic then for not expanding LHR but rather to start afresh somewhere else? Surely it was a capacity and infrastructure arguement and why doesn't the same logic hold now? But the 'hub' word seems to be a factor. So sitting here, with a memory capable of spanning 30 years, what is the argument now for expanding LHR when a different decision was taken in the 70's?

[pabely]

The missed opportunity was Cublington, UK PLC would not be in such need now of more capacity where it is needed!

[PAXboy]

briefly:
In the late 1960s, the problem of LHR being built around and limiting expansion was recognised and later ...

In 1971, the Report of the Roskill Commission on the London Airport expansion selected Cublington as the location of a proposed third airport for London on the basis of Cost Benefit Analysis. One Commission member, planner Colin Buchanan, produced a dissenting report rejecting the proposal to build on Cublington as "an environmental disaster." The government later rejected the Roskill recommendation on environmental grounds, in favour of a site at Maplin Sands, Foulness. Entry on Cublington in Wikipedia

Cublington, Maplin Sands (and sundry other locations) were all defeated by:

• NIMBY
• Environment
• The 1970s Oil Crisis

When the West had recovered from the hike in oil prices Stansted, which was already operational, was picked for expansion. LGW continued to serve it's corner of England and the leisure market. This changed later as LHR filled up and LGW became known as the 'Waiting Room'. LTN and LCY also picked up the expansion as LHR could not give space to all the short and medium haul demand. This pertains today.

The main advantage of a Hub airport is that the connection pax make certain routes viable. It might be that LHR to 'Go Jump In The Lake' would not be a viable route but, with connecting pax from various places, the route becomes viable. So the airport gains a service it would not otherwise have had. Further, a route that might have supported x3 rotations a week might now support x7 and so on.

Others will point you at the other posts, here is one thread that was active in the debate: http://www.pprune.org/airlines-airpo...-heathrow.html

I sit to be corrected on all of the above.