appendix 1 detailed response to question 2 of the draft … · 2017-05-25 · detailed response to...

APPENDIX 1

Detailed Response to Question 2 of the Draft Airports National Policy Statement

1.1 Introduction

This document sets out Gatwick Airport Limited (“GAL”)’s detailed evidence and analysis in response to Question 2 of the Department for Transport (“DfT”)’s consultation on the Draft Airports National Policy Statement (“draft NPS”) which seeks views on how best to address the issue of airport capacity in the South East of England by 2030.

The draft NPS Consultation Document (para 4.12) makes it clear that Government will maintain an “open mind” and wants to hear views on “whether the draft NPS has provided the evidence and rationale for the need for a Northwest Runway at Heathrow Airport” (para 1.5). GAL’s view is that the evidence and rationale presented in the draft NPS very plainly does not support the Government’s current preference for LHR-NWR over LGW-2R and is an insufficient basis to justify policy support for LHR-NWR. This document explains why.

When comparing the implications of LGW-2R with LHR-NWR it is clear that, even on DfT’s own figures and analytical approach, LGW-2R better meets the urgent need for new airport capacity in the South East. In addition, the DfT’s analysis contains a significant number of deficiencies and errors. The Final NPS must be revised to correct these. Once corrected, it is clear that the evidence points even more strongly in favour of LGW-2R.

We have expressed concern about whether the information provided allows a fair and comprehensive comparison of the short-listed options to be made given that it is effectively a consultation on the Government’s preferred option. We have yet to see the updated traffic forecasts. The Government’s revised Air Quality Plan has only just been published on 5 May 2017. It is the DfT’s responsibility to ensure that it has maintained an open mind on the choice of options, that enough information has been provided in a timely manner and that it has responded properly to evidence and information that has been drawn to its attention. It is only once the NPS process has been completed and the Government has made a decision that consultees will be in a position to judge the fairness of the overall process.

Gaps in the NPS Evidence Base

Before responding to Question 2 it is important to note that there are many important gaps in the Government’s evidence with regard to the LHR-NWR, and we question whether the Government’s choice of the LHR-NWR can be justified in the absence of a full understanding of these issues. Most notably:

Uncertainties as to the scheme scope needs to be significantly modified;

The absence of a finalised and legally compliant UK Air Quality Plan;

The absence of indicative airspace designs and supporting concept of operations;

Detailed Response to Question 2

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Serious doubts over the deliverability and financeability of the scheme;

Uncertainty over the level of airport charges and the affordability of these charges should they rise above the present level;

An absence of clarity as to the surface access schemes and costs, a lack of understanding over who will pay and, if these schemes cannot be justified, what levels of congestion will be experienced.


GAL’s detailed response to question 2, as set out below, assesses the relative benefits and impacts of LGW-2R and LHR-NWR. This is undertaken on a topic by topic basis addressing the particular factors identified by the Government at paragraph 3.15 of the draft NPS and seeking to draw together the best evidence and information currently available. This assessment demonstrates that, when the evidence is looked at in a balanced and comprehensive way, LGW-2R is the best option for meeting the need identified in question 1 because it:

is the only option which can be delivered by 2026;

will deliver connectivity and economic benefits on a par with or greater than those projected for LHR-NWR;

will have environmental impacts an order of magnitude lower than those projected for LHR-NWR; and,

is the only option Government can be confident will be delivered, without Government subsidy or other state aid.

This clear conclusion from the available evidence has been obscured by the unbalanced and partial analysis which the draft NPS relies upon.

The following sections set out GAL’s views on the wide range of factors which have been considered by the Government in reaching its preference for LHR-NWR. The sections are broken down into the following topics

Traffic and Connectivity

Economic Appraisal and Competition

Air Quality

Noise

Habitats Regulation Assessment

Carbon

Deliverability

Financeability

Surface Access

Each section starts with a summary of the key issues under each topic.


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Question 2: Please give us your views on how best to address the issue of airport capacity in the South East of England by 2030. This could be through the Heathrow Northwest Runway scheme (the Government’s preferred scheme), the Gatwick Second Runway scheme, the Heathrow Extended Northern Runway scheme, or any other scheme.

2 Gatwick response to draft airports NPS: Traffic and Connectivity Government’s current position

Government’s current position

The draft NPS concludes that LHR-NWR is the superior option for UK traffic connectivity. This conclusion appears to be primarily founded on the AC’s projections of the overall number of flights, the value and growth of transfer passenger numbers, and the number of long haul flights (particularly to emerging markets). The draft NPS also concludes that LHR-NWR brings greater freight benefits.

The key passages are:

“…….expansion of Heathrow will mean it will continue to attract a growing number of transfer passengers, providing the added demand to make more routes viable. In

Summary

(i) The traffic forecasts produced by the Airports Commission, and subsequently by the DfT, show that Gatwick expansion creates as much, if not greater, UK connectivity than Heathrow expansion in terms of the number and type of destinations served, and the number of UK Origin and Destination passengers (O/D), and UK freight volumes.

(ii) The forecasts do not justify the draft NPS conclusion that expansion at Heathrow results in more long haul flights to fast growing economies. Neither do they support the proposition that more transfer passengers make more routes viable.

(iii) The evidence shows that LGW-2R will also deliver superior connectivity for the UK regions direct to short and long haul destinations.

(iv) The only metric in which Heathrow is “superior” is the number of International to International transfer passengers, but this should not be included in the draft NPS connectivity or economic analyses because they bring no direct economic benefit to the UK.

(v) DfT and AC forecasts show very similar numbers of O/D passengers, and overall ATMs. When updated forecasts are factored in, together with the likelihood that LHR-NWR will not deliver the capacity assumed by the draft NPS, LGW-2R is highly likely to be the stronger scheme in traffic terms.

(vi) The draft NPS, therefore, places undue weight on Heathrow’s hub status and incorrectly concludes that LGW would threaten the UK 's global aviation position


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particular this is expected to lead to more long haul flights and connections to fast growing economies…”1

“By contrast, the expansion of Gatwick Airport would not enhance, and would consequently threaten, the UK’s global aviation hub status.” 2

“Expansion at Heathrow is the better option to ensure the number of services on existing routes increases and allows airlines to offer more frequent new routes to vital emerging markets”3

and:

“As set out above, expansion at Heathrow Airport delivers the biggest boost in long haul flights, and the greatest benefit therefore to air freight”

GAL’s Response

2.2 Sources of Traffic and Connectivity Forecasts

In this submission we refer to three sources of traffic forecasts;

(i) The Airports Commission Strategic Fit Forecasts July 2016, supplemented by FOI0013124 (the AC traffic forecasts).

(ii) The DfT “Further Review and Sensitivities Report” updated model October 2016 supplemented by FOI14500 (the DfT October 2016 updated forecasts).

(iii) Unpublished DfT traffic forecasts 2017 (DfT 2017 unpublished forecasts).

2.3 The draft NPS incorrectly concludes that LHR-NWR delivers greater connectivity for the UK

The AC traffic forecasts and DfT October 2016 updated forecasts both show that LGW-2R delivers as much, and in some cases greater connectivity in terms of the number and type of destinations and the number O/D passengers and freight volumes for the UK.

The AC’s Assessment of Need (AoN) forecasts also contain sufficient detail in terms of the number and type of international destinations served under each expansion option to demonstrate that the draft NPS’s conclusion is wrong. The draft NPS contains no destination analysis at all. A destination analysis using the AC traffic forecasts show that LGW-2R produces virtually identical results in terms of the number and type of destinations served at the UK level that is 405 for both schemes by 2050. Indeed, LGW-2R delivers one more destination in 2030 (see figure below). This holds true for long haul and emerging market routes upon which the draft NPS places particularly weight. At a UK level, by 2030, LGW-2R delivers 61 routes to Newly Industrialised Countries (NICs) compared to 62 under LHR-NWR, as shown in the table below.

1 Draft NPS paragraph 3.17 2 Draft NPS paragraph 3.18 3 Draft NPS paragraph 3.18


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Destinations served at total UK level by economic region (2030)

Source: AC traffic forecasts and DfT response to FOI F0013124

The DfT October 2016 updated forecasts confirms this parity, with LGW-2R actually delivering two more long haul destinations in 20304. This is completely at odds with the draft NPS statement that Heathrow expansion “will mean it will continue to attract a growing number of transfer passengers, providing the added demand to make more routes viable. In particular this is expected to lead to more long haul routes and connections to fast growing economies“ (draft NPS para 3.17). Neither do the DfT October 2016 updated forecasts support the draft NPS statement that “Expansion at Heathrow ….allows airlines to offer more frequent new routes to vital emerging markets” (draft NPS paragraph 3.18).

Neither the traffic data produced by AC, nor that produced DfT October 2016 updated forecasts, justify either of these assertions, as clear from the table that follows;

4 DfT October 2016 updated forecasts

29

29

236

238

39

39

62

61

23

23

0 50 100 150 200 250 300 350 400 450 500

Heathrow NWR

Gatwick 2R

20

30

DOMESTICSHORT HAULOECDNEWLY INDUSTRIALISED COUNTRYLEAST DEVELOPED COUNTRY

390

389


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Overall Destination Analysis for LHR-NWR and LGW-2R

Source DfT October 2016 Updated forecasts and response to FOI10014500

The view that LGW-2R will produce similar or greater connectivity is also supported by examination of the wider range of AC traffic scenarios5. Consideration of the range of traffic scenarios is especially important in view of the uncertainty which is unavoidable in traffic forecasting.

In the Appraisal of Sustainability (AoS) paragraph 5.6.1, it is explained that “one (traffic) scenario is chosen in order to simplify the presentation of the assessment. “ It goes onto say that “the sensitivity analysis discussed below however provides further assurance that the highest magnitude of impacts are considered for all topics“ This rationale does not appear to have been applied to traffic outcomes, as the NPS uses only the AoN scenario in its connectivity assessment. This is a serious omission, as the full range of 10 AC traffic scenarios produces very different traffic outcomes. Indeed 7 out of 10 of the AC scenarios show LGW-2R as the superior option, as does an average of all 10. The table following demonstrates this.

5 Airport Commission, Strategic Fit: Updated Forecasts July 2015

271

270

125

127

0 50 100 150 200 250 300 350 400 450 500

Heathrow NWR

Gatwick 2R

20

30

SHORT HAUL inc. DOMESTICS

LONG HAUL

397

396


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UK ATM’s: Difference between Baseline and Expansion Options under the AC traffic

scenarios (000’s)

Carbon Capped

AC Scenario

AON G.G R.D OF E LCK GF

LHR-NWR

-100,000 -151,000 -19,000 -121,000 +40,000

LGW-2R

+14,000 -21,000 +-21,000 +87,000 +162,000

Best Option

LGW-2R

LGW-2R

LGW-2R

LGW-2R

LGW-2R

Carbon Traded

AC Scenario

AON G.G R.D OF E LCK GF

LHR-NWR

+125,000 +93,000 +105,000 +93,000 -244,000

LGW-2R

+54,000 +100,000 +72,000 +260,000 -320,000

Best Option

LHR-NWR

LGW-2R

LHR-NWR

LGW-2R

LHR-NWR

Source: Strategic Fit updated forecasts, tables 5.13, 5.14, 6.37 to 6.40

Balanced consideration of these outcomes across this range of traffic scenarios casts

serious doubt on the conclusions in the draft NPS.

2.4 LGR-2R results in near identical levels of O/D passengers at UK level.

The analysis in the draft NPS includes International to International (“I-I”) transfer traffic in the comparisons of expansion options. GAL considers this to be incorrect, as a matter of approach, and that the relevant comparison between the expansion options is for Origin / Destination (“O/D”) passengers at the UK level (i.e. passengers who start or finish their journey in the UK). This is the appropriate measure of the value of traffic connectivity to the UK economy as I-I transfer passengers bring no direct economic benefit to the UK. The additional 71,000 ATMs generated in 2040 under Heathrow expansion produce only 700,000 (0.2%) extra O/D passengers at the UK level, a negligible increase at the UK level. By 2050, the AC forecasts for LHR-NWR actually show 200,000 fewer passengers than LGW-2R UK O/D.

Further, the AC traffic forecasts show that the majority of Heathrow’s traffic uplift in the years immediately post expansion consists of international transfer passengers or UK O/D passengers attracted from other UK airports. The extra international O/D passenger numbers delivered to the UK by Heathrow expansion are very small.


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Difference vs ‘do minimum’: ATMs, Pax (incl I-I), International O&D Pax

2030 2040 2050

LHR-NWR

ATM’s 79k 125k 105k

Passenger (incl I-I) 17.4m 27.2m 24.9m

Int’l O&D Pax 1.0m 3.0m 6.3m

LGW-2R

ATM’s 22k 54k 60k

Passenger (incl I-I) 2.7m 8.5m 15.7m

International O&D Pax 0.4m 2.3m 6.5m

Source: AC assessment Strategic Fit: Forecasts and response to FOI F0013124

It is important also to note that the draft NPS also fails to correct a significant error in the AC’s forecasts caused by the triple counting of transfer passengers travelling through London from a domestic route onto an international route, an error revealed by the response to Gatwick FOI request F000131246. This error has the effect of inflating Heathrow’s International passenger numbers by 4 mppa in 2030.

As the table below shows, after correcting the analysis to exclude l-l transfer traffic and eliminate triple counting, it is clear that, at UK O/D level, LGW-2R delivers virtually identical results not only in terms in terms of overall passengers, but also in terms the mix of Long Haul / Short Haul.

UK O&D Passengers

2030 2040 2050

LGW-2R LHR-NWR

LGW-2R LHR-NWR

LGW-2R LHR-NWR

LH 61.1 61.2 76.1 76.2 96.3 96.2

SH 189.5 190.0 225.0 225.6 258.7 258.6

Dom 39.4 39.4 46.0 46.1 55.0 54.8

Total Trips 290.0 290.6 347.2 347.9 409.9 409.5

Source: AC traffic forecasts and DfT response to FOI F0013124

2.5 LGW-2R delivers similar ATM and passenger numbers.

Paragraphs 3.19 and 3.20 of the draft NPS attach significant importance to the differences between scheme options in terms of annual ATMs, particularly long haul, and passenger numbers. They conclude that on that basis that LHR-NWR delivers better outcomes at UK level. Whilst this may be true in the AoN in absolute terms, the relative differences are negligible. In 2040 LHR-NWR delivers only 2.4% more total ATM’s at UK level than LGW-2R. By 2050 the gap closes to less than 1.5%. Likewise the difference in the number of passenger numbers is 5% in 2040, and only 2% in 2050.

6 Response to FOI F00013124


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These differences are well within an expected range of forecasting error and, once corrected for the triple count error and the exclusion of I-I transfers, are eliminated entirely.

2.6 The draft NPS places undue weight on the role and value of ‘hubs’ and wrongly suggests that LGW-2R would threaten the UK’s global position. In fact, AC and DfT forecasts show that LGW-2R will deliver as much, if not greater, connectivity.

The draft NPS suggests that LGW-2R will threaten the UK’s hub status and harm connectivity. However, the draft NPS provides no evidence to support this claim which is in direct contradiction to the AC’s conclusion that LGW-2R is a “credible option for expansion capable of delivering valuable enhancements to the UK’s capacity and connectivity “7.

In fact, the evidence shows that LGW-2R would better support short and long haul connectivity. This is because there has been a structural decline in transfer traffic at all of the major European hubs, including Heathrow, due to the growth of Middle and Far Eastern hubs8. This decline has been reinforced by the emergence of more direct point to point services made possible by new generation aircraft which are more fuel efficient, and generally smaller than traditional long haul aircraft and less reliant on transfer passengers to fill seats. Consequently, the growth of the low cost long haul, point to point airline model in Europe and elsewhere, is eroding the significance of the traditional hub model.

This decline is demonstrated by the Government’s own work. Both the AC’s and DfT’s models for the AoN scenario suggest that the difference in transfer passenger numbers is relatively small. The AC’s forecasts for the AoN scenario9 show a declining number of transfer passengers by 2050 under Heathrow expansion. Further, the DfT October 2016 update shows Gatwick handing 8.8 million transfer passengers by 205010, compared to only 3.5 million in the AC’s forecasts11.

2.7 LGW-2R delivers better connectivity for UK domestic services.

For the UK as a whole, AC forecasts show close to identical levels of domestic activity at UK level, whether by number of routes or passengers.

7 Airport Commission Final report page 9 8 GAL paper, “Connectivity and the role of Hubs” March 2016 9- Airport Commission, Strategic Fit: Updated Forecasts July 2015,Tables 6.13,6.15 10 DfT response to FOI F0013124 11 Airport Commission Strategic Fit: Updated Forecasts” July 2015


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AC Assessment of London Connectivity to the UK regions

Source: Airports Commission: Strategic Fit Forecasts

Moreover, the DfT October 2016 traffic update shows that by 2030, Gatwick will serve 10 domestic destinations compared to only 5 at Heathrow.

Further, although the DfT numbers show more domestic passengers transferring at Heathrow than Gatwick in 2030 (3.9mppa v 2.9mppa) this difference is eliminated by 205012.

The draft NPS fails to mention that under Heathrow expansion, the AC’s forecasts show significantly fewer passengers flying direct from their local airport to international destinations, instead having to travel by air or surface access to Heathrow to catch their flight. By 2030, non-London airports will handle 2 million fewer direct international passengers under Heathrow expansion (95.1mppa) compared to Gatwick expansion (97mppa).

The draft NPS instead chooses as evidence figures submitted by both HAL and GAL on their aspirations for the increase in the number of domestic routes served13. The draft NPS chooses not to use the AC’s traffic forecasts in this instance, an approach which is inconsistent with that adopted elsewhere in its analysis.

The draft NPS concludes that by 2030 Heathrow will have 14 domestic routes whilst Gatwick will have 12. On that basis, the NPS concludes that LHR-NWR is better for UK connectivity – ignoring substantial evidence to the contrary from the AC forecasts.

This conclusion is unjustified because:

The AC’s forecasts show a declining number of domestic routes at Heathrow under LHR-NWR (from 7 today to 4 in 2030) and a greater number of domestic routes at Gatwick under LGW-2R (8 routes by 2030); and

The draft NPS acknowledges that air routes are “not in the gift of an airport operator”14. There must be substantial doubt as to Heathrow’s ability to deliver these routes while avoiding conflict with competition and regulatory considerations. Yet the NPS goes onto say that “the Government is determined that these new routes will be secured and hold Heathrow Airport to account on this “. At the very least the draft NPS should be precise and explicit as to how

12 DfT October 2016 updated forecasts 13 Draft NPS, para 3.32 14 Draft NPS, para 3.33


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Heathrow will deliver these new routes, consistent with legal and regulatory constraints, and what this “holding to account” entails.

2.8 Gatwick expansion would result in near identical freight volumes at the UK level

The draft NPS places heavy emphasis on the value of airfreight to the UK economy and asserts that since Heathrow expansion delivers the biggest boost in long haul flights (which, as explained above, GAL does not accept) it also delivers the greatest benefit in airfreight. The draft NPS offers no basis for this conclusion but it can only rest on extrapolating Heathrow’s current higher freight throughput. Neither the AC nor the draft NPS have produced any long term freight forecasts to enable freight projections for LHR-NWR to be compared with those for LGW-2R.

CAA 2015 data shows that airfreight volumes are closely correlated with the availability of belly hold capacity on passenger aircraft, particularly on long haul (i.e. freight capacity follows long haul ATM volumes)15. Analysis of freight uplift carried on long haul routes currently served from both Heathrow and Gatwick (e.g. Dubai, Las Vegas) show comparable tonnages per flight, suggesting that there is no inherent difference in freight outcomes caused by airport location.

Given that the AC’s forecasts show only a small difference in the additional UK-level long haul ATMs delivered under either scheme, it is logical to conclude (absent any compelling evidence to the contrary) that LGW-2R would deliver comparable freight volumes to those under LHR-NWR.

To illustrate, using today’s average tonnage per ATM (from 2015 CAA data) and the AC’s AoN ATM forecasts (already discussed above) it is possible to estimate future freight tonnage at the UK level. The table below shows that Heathrow expansion delivers only a marginally higher freight volume of between 3% and 7%.

15 CAA UK Airport data 2015


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Projection of UK Annual Cargo Tonnes

LGW-2R LHR-NWR LGW-2R vs LHR-NWR

Assumed

Tonnes

/ATM 2030 2040 2050 2030 2040 2050 2030 2040 2050

Tonnes (m) Tonnes (m) Tonnes (m)

Scheduled

LH 6.47 1.7 1.9 2.3 1.9 2.1 2.4 -0.1 -0.2 -0.1

Other Pax

ATMs 0.13 0.3 0.3 0.3 0.3 0.3 0.3 -0.0 -0.0 0.0

Freighter 12.00 0.5 0.6 0.6 0.5 0.6 0.6 0.0 -0.0 0.0

Total

2.5 2.8 3.2 2.7 3.0 3.3 -0.1 -0.2 -0.1

% Var

-6% -7% -3%

Source: Gatwick analysis based on AC AoN, Carbon-Traded ATM forecasts and 2015 CAA

data

This clearly indicates that the draft NPS has placed undue emphasis on Heathrow’s leading position in freight today. In order to support the conclusions in the NPS a detailed assessment of the UK freight market requirements is required and how these requirements would be met under each expansion option.

2.9 It needs to be recognised that the forecasts upon which the draft NPS relies are very seriously out of date.

Gatwick is currently handling around 44 million passengers per annum, a level not forecast for Gatwick by the AC for over a decade, and a level of ATMs not forecast by the AC until 205016. Furthermore, the entire London airports system is currently handing 163mppa, a level not forecast by the AC until 2022.

These severe underestimates result partly from traffic allocation assumptions included in the DfT Traffic Allocation model which are based on historic passenger choices on which airport to use (using a 2011 baseline) and do not reflect the most recent trends in passenger choices between each airport. Moreover, it is widely recognised that the Traffic Allocation model is entirely unsuited to predicting future traffic distributions in the unprecedented situation of a major step change in runway capacity in the London system.

The combined effect of these issues is that the forecasts that underpin the draft NPS significantly underestimate’s the likely future traffic levels at Gatwick, and it is almost certain that the London system requires additional runway capacity much sooner than the 2030 date which the AC and draft NPS suggest.

The DfT has not yet released its updated 2017 traffic forecasts. However, the DfT 2016 updated forecasts confirm that additional runway capacity is required prior to 2030.

16 Airport Commission, Strategic Fit : Updated Forecasts : July 2015


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2.10 The runway capacity to be delivered by LHR-NWR has been overestimated in the draft NPS.

An even more fundamental problem with the Government’s approach to traffic analysis is that both the AC17 and the draft NPS state that a third runway at Heathrow would “enable at least 260,000 additional air transport movements per annum.”18. This would bring total capacity at Heathrow to 740,000 ATM’s per annum. All of the AC’s traffic forecasts are based on this predicted capacity.

The draft NPS contains no definitive, or even outline, airspace plan, concept of operation, or safety case to support its capacity assessment of the LHR-NWR scheme. It simply accepts the 260,000 ATM increment with no technical confirmation that this can be achieved.

Furthermore the draft NPS ignores evidence which GAL19 and others including Heathrow Hub20, have submitted which demonstrates a strong likelihood that the 740,000 pa figure is significantly too high. GAL’s evidence is based on modelling carried out by DFS of HAL’s proposed operating modes for a three runway Heathrow as set out by HAL.

DFS estimated that 118 movements per hour for a three runway airport at Heathrow was a more likely capacity maximum than the 128 projected by HAL (arrivals and departures combined). This is because DFS concluded that HAL’s rate could be achieved only if the noise and respite mitigations proposed by HAL were severely constrained or dropped altogether. However, this would be contrary to the AC’s recommendations and DfT policy. It would quite clearly not be appropriate and would be highly risky, to proceed on the basis that those mitigation measures will not be implemented in full.

If the total capacity delivered by LHR-NWR is 118 movements/hr, then total ATM’s could be as low as 670,000 and passenger forecasts would have been overstated by up to 12 million pax/yr. This would not only make LHR-NWR worse than LGW-2R from a connectivity perspective but would make the LHR-NWR economic case significantly worse than that for LGW-2R.

This is a crucial issue which must be addressed in the final NPS. The LHR-NWR capacity assessment should be based on an airspace plan and concept of operation which is supported by a safety case, similar to that provided by Heathrow Hub in its LHR-ER scheme.

There can be high level of confidence that Gatwick’s two runway capacity would be achieved as 2 runway independent parallel operations are with tried and tested and do not require major alterations to airspace configuration or procedures.

2.11 Conclusion

Neither the Traffic and Connectivity analysis in the draft NPS, nor the evidence that formed the basis of the Airports Commission’s analysis, justify the DfT’s conclusion that the LHR-NWR is the most appropriate way of meeting the needs case. The analysis on which the DfT has relied is selective and unbalanced. The conclusions

17 Airport Commission, Final report Pages 29 & 99 18 Draft NPS para 1.13 19 Gatwick Airport response to Commission consultation, Appendix 26 “DFS Fast Time Simulation Report” 20 Heathrow Hub: Evidence to Transport Select Committee 2017


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in the draft NPS are also inconsistent with the traffic forecasts of the AC and with those of DfT’s own traffic update of October 2016. In particular, there is no evidence to support the draft NPS conclusion that, as a result of fewer transfer passengers, an expanded Gatwick would not enhance and would consequently threaten the UK’s global connectivity. On the contrary, as we have explained above, the DfT’s own evidence, even if uncorrected, does not support the proposition that the LHR-NWR best meets the need for more runway capacity in the South East of England.

Furthermore, the draft NPS analysis and conclusions contain significant deficiencies are that;

conclusions reached on connectivity in general, and long haul in particular, which again are not supported by AC or DfT forecasts;

much of the traffic data is out of date;

a triple count error has not been corrected which results in a significant overstatement of Heathrow International passengers;

conclusions reached on domestic connectivity which are not supported by the AC’s forecasts or those of the DfT;

excessive weight on I-I transfer passengers in the connectivity analysis;

conclusions reached on connectivity in general, and long haul in particular, are not supported by AC or DfT forecasts;

freight conclusions are entirely unsupported by any freight forecasts;

assumptions regarding 3 runway ATM capacity which are likely to be a significant over-estimate.

Once these deficiencies are corrected, it is clear that LGW-2R delivers traffic and connectivity benefits to the UK which are at least as good as, and probably, better than, those offered by LHR-NWR.


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3 Gatwick response to draft airports NPS: Economic appraisal and Competition

Summary (i) LGW-2R has a higher net economic value to the UK when benefits and costs are

both taken into account, and has a substantially better cost/benefit ratio. In other

words, LGW-2R is much the more cost effective option. These are the appropriate

metrics with which to analyse the DfT’s own evidence base in accordance with

DfT and wider Government guidance on conducting economic appraisals.

(ii) Costs are a very material consideration. The draft NPS however falls into serious

error by leaving these out of account (and by focusing on metrics such as Net

Social Benefit and Net Public Value). This approach is contrary to Government

guidance.

(iii) The draft NPS appraisal includes benefits to International to International transfer

passengers despite these not directly contributing any direct value to the UK

Economy.

(iv) The draft NPS appraisal ignores significant new information, notably the DfT

October 2016 updated traffic forecasts which reflect the stronger relative growth

at Gatwick since 2008 (the base year of current forecasts) and which, when

incorporated, reinforce the superiority of LGW-2R over LHR-NWR. Absent this,

and in the light of other key omissions such as failure to address delivery and

construction risk, the assessment of economic outputs is in the draft NPS is

neither balanced nor comprehensive.

(v) LGW-2R would bring additional economic benefits through substantial increases in both airport and airline competition. No analysis at all of these aspects has been undertaken by the DfT and, in the case of airline competition, the stated conclusion is superficial. This approach is extraordinary given the weight assigned to airport competition as part of the BAA airports market investigation.

DfT must rerun its economic appraisal using the more balanced and comprehensive approach suggested in the analysis below, and take a wider range of economic metrics into account when evaluating the shortlisted schemes. When it does so, it must conclude decisively that LGW-2R presents a stronger and more reliable economic case than LHR-NWR, particularly in the light of the fact that LHR-NWR is not realistically deliverable by 2026.


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Government’s current position:

The draft NPS states that21:

LHR-NWR would lead to significant benefits to business and leisure passengers and the wider economy (not including wider trade benefits) of up to £61 billion over 60 years;

These benefits will be experienced more rapidly once the new capacity is operational, with both Heathrow schemes providing more passenger benefits by 2050 than LGW-2R;

LHR-NWR is expected to result in larger benefits to the wider economy than LGW-2R, via clustering around the airport and productivity gains from lower air travel costs;

LHR-NWR will generate more local jobs than LGW-2R, and the jobs would also be created more quickly22;

Expansion would also bring a wider set of non-monetised benefits such as local job creation, trade, and freight benefits, which indicate a stronger case for LHR-NWR.

GAL’s response

DfT is wrong to conclude that greater economic benefits will be delivered by LHR-NWR. A balanced and comprehensive comparison of the economic effects would put LGW-2R ahead of, or at least on a par with, LHR-NWR even using the DfT’s own evidence base. The appraisal set out in the draft NPS draws conclusions that are wrong and which are not supported by the DfT’s analysis, as they:

ignore costs in ranking LHR-NWR ahead of LGW-2R;

include benefits to non-UK interlining passengers i.e. benefits which are not benefits to the UK;

ignore the DfT’s preferred Benefit Cost Ratio (BCR) metric;

do not present a balanced assessment of trade impacts; and

overstate the potential impact of LHR-NWR in relation to local employment and job creation.

In addition, the draft NPS analysis must be corrected in order to take account of a number of other key errors and omissions. This is principally because the draft NPS fails to take account of:

new information which must be used in order to ensure that the traffic forecasts included in the appraisal are up to date;

the potential costs of restrictions/mitigation associated with LHR-NWR;

21 Draft NPS, paragraphs 3.15, 3.24-3.28, and 3.70-3.71 22 DfT, Further Review and Sensitivities Report, Table 6.1


17

evidence of risk in its own numerical results, notably the differential adverse impact on LHR-NWR of environmental cost risk and delivery risk; which must be assessed in line with Government guidance on evaluation of risk.

A properly balanced and comprehensive economic appraisal would therefore put LGW-2R ahead of LHR-NWR.

Balanced and comprehensive evaluation of DfT’s own evidence base shows that LGW-2R will deliver benefits ahead of, or on a par, with those projected for LHR-NWR.

3.2 On DfT’s own evidence base, LGW-2R is on a par with LHR-NWR once costs are taken into account, in line with WebTAG.

The draft NPS places heavy emphasis on a headline economic benefit figure for LHR-NWR of £61bn over 60 years.23 However, this figure excludes costs, which is inappropriate, misleading and fundamentally inconsistent24 with WebTAG25, the Government’s own comprehensive source of information and guidance on transport modelling and appraisal.

Costs form a key part of any attempt to assess benefit to an economy; even where a project is privately financed and costs are not directly borne by the public sector, increased capital requirements will reduce availability of finance for other projects, and project costs will in the end be recouped from customers (ie. Airlines and/or passengers in this case). For these reasons WebTAG, which has formed a key tool for both DfT26 and AC27 analysis, emphasises that costs are a central component of any decision-making process, albeit with some flexibility on how they are treated28.

On DfT’s figures, LHR-NWR has higher benefits and costs. When costs are included in the economic appraisal29, as occurs when using the key metric of Net Present Value (NPV), LGW-2R and LHR-NWR overlap (£bn 2014 prices) but with a much greater range of uncertainty LHR-NWR. On its own, this shows that there is no clear economic rationale for selecting LHR-NWR over LGW-2R.

23 Draft NPS, paragraph 3.25, page 22 24 It is also inconsistent with the more balanced and thorough analysis in chapter 7 of the DfT’s Further Review and Sensitivities Report, October 2016. 25 DfT, WebTAG, Unit A1.1, section 2 Principles of Cost Benefit Analysis 26 DfT, Further Review and Sensitivities Report, Section 1 27 Airport Commission, Economy: Wider Economics Impacts Assessment, page 2, para 1.2 28 DfT, WebTAG, Unit A1.2 Scheme Costs 29 DfT, Further Review and Sensitivities Report, Table 7.1


18

Source: DfT, Further Review and Sensitivities Report, Table 7.1

3.3 LGW-2R delivers demonstrably greater benefits when benefits to non-UK interlining passengers are excluded, again in line with WebTAG.

The Government’s analysis should focus on economic benefits to the UK. This is why WebTAG states clearly that, in relation to international-to-international interlining passengers (ie “non UK I-I passengers”), who simply change planes at a UK airport, the “cost and time savings to these passengers are not counted as benefits to the UK”30. Contrary to this guidance and to its own updated analysis published in October 201631, DfT has included benefits to non-UK I-I passengers in its assessment of the overall economic benefits32. This is inappropriate and skews its assessment of benefit to the UK unfairly and misleadingly in favour of LHR-NWR. This is particularly the case given that the DfT has excluded consideration of private costs from the equation, which also creates an unjustifiable asymmetry.

As shown in the chart below, when private costs are included, and benefits that accrue to non-UK I-I passengers are removed, LGW-2R has a higher NPV than LHR-NWR in all circumstances: the LGW-2R lower NPV estimate is above the LHR-NWR upper estimate. The results of this adjustment, to focus benefits correctly in the appraisal on the UK, lead to LGW-2R having a positive NPV, in the range £1.5bn to £2.8bn, while LHR-NWR NPV declines to a negative range of -£6.3bn to -£0.5bn.This chart demonstrates that the clear preference of the DfT in economic terms should be for LGW-2R.

Even at a total benefits level, the difference between the two schemes is significantly narrowed:

LHR-NWR - £52.7 billion to £54.5 billon

And

LGW-2R - £50.8 billon to £52.0 billon

30 DfT (2015), WebTAG Unit A5-2 aviation appraisal, page 5: 31 For example, DfT, Further Review and Sensitivities Report, pp. 70–71. 32 DfT, Further Review and Sensitivities Report, Table 7.1

3.1

0.2

4.5

6.1

0

1

2

3

4

5

6

7

LGW-2R LHR-NWR

NP

V £

bill

ion

Net Present Value, low and high values


19

Source: GAL calculations based on data in DfT, Further Review and Sensitivities Report

DfT’s primary justification for including I-I benefits appears to be difficulty in robustly apportioning costs to international passengers. This is irrelevant. The DfT guidance is very clear, and the challenge or otherwise in the attribution of costs have no bearing at all on the assessment of benefits earned by Non-UK I-I passengers. Such benefits are readily and indeed already identified in the DfT’s own data. The benefit/cost to the UK that flow from the presence of Non UK I-I passengers in the system are, however, already (properly) embedded in the airline profitability and UK passenger frequency benefits.

This analysis shows that that it is possible to remove the estimated benefits to I-I passengers in a way that enables a quantification of the order of magnitude of these effects. Doing so ranks LGW-2R clearly ahead of LHR-NWR in terms of NPV, and provides a much more reliable assessment of relative economic impacts.

3.4 Use of the Benefit Cost Ratio metric shows that LGW-2R is much better value for money

The draft NPS and AoS cite DfT’s Further Review and Sensitivities Report, using some standard metrics, such as the Net Present Value (NPV) and total benefits of a scheme; and some non-standard metrics, such as the Net Social Benefit and Net Public Value33. However, the results of that analysis have not been summarised in the form of a BCR. A BCR is the metric recommended in the DfT’s transport appraisal guidance (WebTAG) for assessing the value for money of a scheme34.

The Net Public Value metric considers those impacts that fall on the public (i.e. excluding private costs that fall on the airport or airlines) and the Net Social Benefit metric adds the costs of expansion to airlines (the loss of scarcity rent) to the Net Public Value. Therefore neither of these metrics includes the capital costs of the expansion. This is illogical and wrong in principle, capital for funding projects is scarce (as shown by the fact that shareholders demand a return on equity and interest must be paid on loans) and the increased costs must be paid for by either passengers or airlines. The exclusion of capital costs from these metrics means they

33 DfT, Further Review and Sensitivities Report, Table ES.2 34 DfT (2014), WebTAG UNIT A1.1: Cost-Benefit Analysis, page 2

1.5

-6.3

2.8

-0.5

-8

-6

-4

-2

0

2

4

LGW-2R LHR-NWR

NP

V £

bill

ion

Net Present Value


20

do not provide the full picture of the relative costs of the two schemes, and the NPV and BCR should be the preferred metrics for assessing the schemes.

The DfT has not adequately explained why it has deviated from its own appraisal guidance35. Although WebTAG is primarily designed for publicly funded projects, it serves as a valuable reference on best practice in the appraisal of transport schemes regardless of the source of funding. In any developed economy, the availability of resources (labour, land, capital.) is scarce and so making the most productive use of those resources is of great importance. This approach is also essential to ensure best value for the costs of any runway capacity investment which the travelling public will ultimately pay for. Therefore, the UK will be best served by pursuing policies/schemes that have the highest BCRs regardless of the source of finance. BCR is therefore a highly valuable and relevant metric.

This is important in terms of the overall balance struck because, when using the BCR metric, LGW-2R performs unequivocally better than LHR-NWR across the range of quantified uncertainties, as shown below.

Source: GAL calculations based on data in DfT, Further Review and Sensitivities Report, Table

ES.2

DfT’s assessment of trade impacts is self-contradicting

The DfT estimates the trade impacts from expansion of Heathrow versus Gatwick via two different metrics, one based on the number of passengers served across the UK, the other based on seat numbers (as a proxy for belly-hold freight capacity). On the passenger-based trade measure, LGW-2R is estimated to produce higher benefits than LHR-NWR. On the seat-based metric, though, this ranking is reversed:

35 Indeed, elsewhere the DfT notes that it has adjusted aspects of the Airport Commission’s analysis in order to bring it closer into line with its WebTAG guidance: “After reviewing the AC’s analysis, a number of changes were made by the department to make the AC’s assessment of costs more consistent with the government’s appraisal guidance for transport projects, WebTAG”: DfT, Further Review and Sensitivities Report, paragraph 17

1.4

1

1.7

1.4

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

LGW-2R LHR-NWR

BC

R v

alu

es

Benefit Cost Ratio, low and high values


21

Trade impacts (present value, £bn, 2014 prices)

Passenger-based Seat-based

Business passengers All passengers

LGW-2R 6.9 13.1 43.0

LHR-NWR 6.6 11.9 108.3

Source: Further Review and Sensitivities Report, Table 5.1

These contradictory findings call for some explanation of the difference and/or a qualification and a lower weighting attached to the result. GAL believes that the seat proxy incorrectly inflates the LHR-NWR trade impacts and in the economic analysis undertaken by the AC, seat-based assessment of trade between the UK and other countries was rejected in favour of passenger-based assessments. DfT’s view that: “Expansion also brings a wider set of non-monetised benefits such as local job creation, trade, and freight benefits” 36 cannot be justified.

DfT’s reliance on local employment impacts is contrary to guidance and available evidence.

First, Government guidance for economic appraisal is clear that local employment impacts should be considered only where a project has as one of its objectives, for example, local economic regeneration.37 Reduction in local unemployment is not the objective of a new runway at Heathrow. Further, the area surrounding Heathrow has high rates of employment and is not particularly deprived38 - the estimated extra jobs would to a significant extent be taken from productive employment elsewhere39.

Second, the following table illustrates the extent to which the LHR-NWR scheme would require more local jobs than LGW-2R for a given increment in additional traffic growth at the respective airport: This shows that, on the basis of the DfT’s updated base year traffic forecast, LGW-2R is more than twice as productive, in terms of additional passengers per additional local job created at the expanded airport. Even on the out-of-date 2008 base year traffic forecast, LGW-2R is 16% more productive than LHR-NWR. This evidence points firmly in favour of expansion at LGW-2R.

36 DfT, Draft NPS, paragraph 3.28 37 “If there is no improvement in national economic efficiency, local employment and output effects, net of any local displacement effects, may be considered in parts of the appraisal where the project has a strong distributional rationale. For example, a policy may aim to reduce the rate of unemployment in a particular deprived area, as opposed to reducing the rate of unemployment overall”: HM Treasury (2011), The Green Book: appraisal and evaluation in Central Government, Annex 1, paragraph 20 38 Unemployment in the Borough of Hillingdon was 4.7% in the year to Sept 2016, lower than the London average of 6.0% and the UK average of 4.9% (source: ONS Labour Market data) 39 DfT acknowledges as much when it notes that: “This local impact [number of local jobs] is not necessarily additional at the national level, as the local jobs may be displaced from elsewhere in the country due to passengers switching from other airports, or displaced from other employment sectors altogether”: Further Review and Sensitivities Report, paragraph 6.2


22

Additional local jobs 000s (DfT alternative

approach)

Extra pax at expanded airport (m)

Incremental pax/incremental job

(000s)

Base case

DfT updated base year

traffic

Base case

DfT updated base year

traffic

LGW-2R

2030 5.3

2040 12.0 16 32 1.3 2.7

2050 18.7

LHR-NWR

2030 37.7

2040 38.4 44 46 1.1 1.2

2050 39.1

Source: Jobs: Further Review and Sensitivities Report, Table 6.1 (2040 figures interpolated); Passengers: ibid, Table A 15

Additionally, at paragraph 3.27 of the draft NPS, the DfT summarises some of the available evidence on local job creation. It then goes on to state in 3.28 that: “Expansion also brings a wider set of non-monetised benefits such as local job creation, trade, and freight benefits, which indicate a stronger case for a Heathrow scheme than for the Gatwick Second Runway scheme71” [emphasis added]. This implies that “local job creation” is an additional factor over and above the “additional jobs at the airport, through its supply chain and in the local community” that are described in 3.27, which is not the case. The footnote reference in 3.28 refers only to analysis in the Further Review and Sensitivities Report on trade and freight, not to additional analysis on local employment.

The draft NPS appraisal ignores available information which if incorporated would reinforce the superiority of LGW-2R over LHR-NWR

3.5 When traffic forecasts are updated from the current 2008 base year, LGW-2R has a BCR of nearly twice that of LHR-NWR

The base year used for traffic in the DfT’s base case is 200840.The DfT, in its October 2016 report provides a sensitivity test of the AC’s economic appraisal using a partially-updated Aviation Model41. While this not a full update, the results in the table below show an improvement of £4.8bn in the present value of benefits from LGW-2R compared with LHR-NWR.

40 DfT, Further Review and Sensitivities Report, paragraph A.75 41 DfT, Further Review and Sensitivities Report, paragraphs A.72-A.84: this reflects recent developments at UK airports and the overseas hubs, as well as the latest published forecasts for the global economy.


23

LGW-2R LHR-NWR

AoN CT NPS partial

update AoN CT

NPS partial update

PV of factors* 7.8 15.2 18.3 20.9

difference - update vs AoN CT

7.4 2.6

LHR-NWR vs LGW-2R

AoN CT difference 10.5

partial update difference 5.7

Change 4.8

NPV Low high low high low high low high

3.1 4.5 10.5 11.9 0.2 6.1 2.8 8.7

*Factors: Pax frequency, pax fare benefits, airline profits, Government revenue Source: DfT, Further Review and Sensitivities Report, Table A 16 and Table ES.2

Simply applying this base year update, which is uncontroversial analytically, would reverse the rankings and materially improve the NPV advantage of LGW-2R (£10.5 to 11.9bn, versus LHR-NWR £2.8 to 8.7bn).

Given the magnitude of this effect, and the opportunity to update fully the benefit and cost calculations within a reasonable time period for this factor, the draft NPS should be revised. Without this adjustment, the DfT’s projections are clearly unreliable.

3.6 The draft NPS appraisal ignores the costs of the conditions attached to LHR-NWR

The draft NPS economic appraisal takes no account of the additional costs which will arise for either Government and/or HAL as a result of the range of restrictions and mitigation requirements proposed42 which include:

Surface access43;

Air quality44;

Community compensation45;

Nor does the appraisal reflect the Government requirement, or Heathrow’s commitment, that airport charges will be held to current levels.

These requirements will generate significant additional costs and thus significantly reduce the NPV and BCR for LHR-NWR.

42 Draft NPS, paragraphs 5.16 (surface access), 5.31, 5.36, 5.38 (air quality), 5.236 (community compensation) 43 Gatwick Airport Response to NPS, Appendix 1,page 78-88 44 Gatwick Airport Response to NPS, Appendix 1,page 33-44 45 Draft NPS, Para 5.236 (This has been given a preliminary estimate of £750 million but may well be significantly larger)


24

3.7 The draft NPS ignores the fact that LHR-NWR is much riskier than LGW-2R, a key factor which must be taken into account in assessing economic benefit

The draft NPS and its supporting DfT and AC reports fail to follow Government guidance or the standard risk evaluation adopted by previous large transport infrastructure projects in a number of ways. For example:

There is a lack of narrative and log of the key uncertainties46;

The AC and DfT’s appraisals contain minimal analysis of cost risk and no Quantified Risk Assessment (QRA), which has to be conducted in order for the appraisal to be consistent with WebTAG47. Such analysis was conducted for both HS248 and Crossrail49;

DfT’s Further Sensitivity Analysis treats uncertainty asymmetrically, with almost a sole focus on benefits (omitting costs)50 and does not include any underlying discussion of demand risk or the likelihood of the different economic world scenarios. While the AC’s scenarios considered a range of economic scenarios, there was a lack of consideration of technical or other uncertainties, such as planning delays, or cost and delivery risks51.

This means that there is no recognition of the fact that for LHR-NWR, relatively small changes in cost or benefit estimates could render the NPV negative52, whereas much larger changes would be necessary to do so for the LGW-2R. In particular:

a 1% rise in LHR-NWR costs or a 1% fall in benefits could make its NPV negative, whereas

costs of the LGW-2R would need to rise by at least 44% or benefits fall by at least 30% to make its NPV negative.

Ignoring the impacts of risk and uncertainty is contrary to the requirements of the Treasury Green Book, which are that calculation of ‘switching values’—i.e. the assumptions that need to be made for a preferred option to no longer be preferred—should be a ‘prominent part of an appraisal’.53

These methodological failings have also given rise to crucial weaknesses, as set out below, which must be remedied before any balanced comparative assessment of LGW-2R and LHR-NWR can be carried out.

3.8 Risk to the LHR-NWR delivery date must be quantified and factored into assessment

46 HM Treasury (2011), The Green Book, paragraphs 5.68-5.73 47 A “guiding principle (of reporting is) that…any sources of uncertainty are tested, ameliorated or explained’: DfT, WebTAG Transport Analysis Guidance: Guidance for the Technical Project Manager, paragraph C.1.1 48 DfT (2013), The Economic Case for HS2: Risk analysis for the HS2 economic case, page 16 49 Crossrail Ltd. (2015), Quantitative Risk Assessment Procedure 50 DfT, Further Review and Sensitivities Report, Figure 9.1 51 HM Treasury (2011), The Green Book, paragraphs 5.72: scenarios should “be chosen to draw attention to the major technical, economic and political uncertainties upon which the success of a proposal depends.” 52 DfT, Further Review and Sensitivities Report, Table 7.3 53 HM Treasury (2011), The Green Book, paragraph 5.70


25

The draft NPS acknowledges54 that LHR-NWR would involve more risk than LGW-2Rto delivery, and hence a greater chance of delay beyond the 202655 delivery date.

However, there is a failure (contrary to guidance) to follow this through by quantifying potential impact on costs and benefits. The benefits and costs of delay of LHR-NWR have been quantified by GAL, by shifting back in time the profile of costs and benefits56 while maintaining the appraisal period, and scaling to equal the values in the DfT October 2016 analysis57. This shows that a five-year delay to opening of LHR-NWR would result in a £2.3 billion reduction in net present value.

The consequences of this for the relative NPVs (on DfT’s current figures) are that LHR-NWR would score at best £3.8bn NPV, less than LGW-2R’s £4.5bn, and at worst would be £2.1bn negative. Even taking a more optimistic assessment, with varying probabilities attached to delivery in the years 2026 to 203158, as above, the overall weighted average of delayed LHR-NWR NPV falls to £4.7bn, very close to LGW-2R’s result. This is before making any of the other necessary adjustments and corrections discussed elsewhere. The draft NPS should take account of this differential risk.

3.9 The draft NPS has not reflected the wide range of possible environmental costs

The economic appraisal presented by the DfT in October 201659, to which the draft NPS refers at 3.48, includes an estimate of the monetised environmental costs of each of the runway schemes. The component elements of the environmental costs60 are:

54 Draft NPS, paragraph 3.45 55 Bechtel, review and Commentary on Airports Commission Consultation Document and Module 16: Delivery, 16th January 2015 56 Set out in Airports Commission, Economy: Transport Economic Efficiency Impacts, July 2015 [REF] 57 DfT, Further Review and Sensitivities Report, October 2016 58 Assuming 30% probability of delivery by 2027, 60% by 2028 and 100% by 2031 59 DfT, Further Review and Sensitivities Report, October 2016, Figure 7.1 60 DfT, Further Review and Sensitivities Report, October 2016, chapter 4


26

£bn 2014 prices

LGW-2R LHR-NWR

Low Mid High Low Mid High

Air quality 0.2 0.2 0.2 0.8 0.8 0.8

Biodiversity 0.006 0.008 0.009 0.006 0.011 0.016

Carbon 0.87 0.87 0.87 0.88 0.88 0.88

Noise* 0.2 0.4 1.6 0.6 1 7.9

Total 1.3 1.5 2.7 2.3 2.7 9.6

Source: DfT, Further Review and Sensitivities Report, October 2016, chapter 4

*In section 5 in this document, we discuss further uncertainties and ranges around Noise costs.

From this, it is readily apparent that there is a very wide range of estimates of the costs of aircraft noise affecting the populations around each airport.

The monetised noise impact is comprised of three elements: annoyance, sleep disturbance and direct health impacts (hypertension and AMI). Of these, annoyance accounts for the largest element61. It is also the noise element with the widest range of estimates, as illustrated in the table below62:

61 Jacobs, 5. Noise: Local Assessment, for Airports Commission, November 2014, paragraph 4.18.7 62 Jacobs, 5. Noise: Local Assessment, for Airports Commission, November 2014, section 4.18

LHR-NWR, £m per year 2030 2040 2050

Annoyance

Low 25.2 35.8 40.9

Mid 50.5 71.7 81.9

High 303.8 430.2 491.1

Sleep disturbance Low 23.3 26.5 10

LHR +£1.2bn

LHR +£6.9bn

LHR +£1.0bn


27

Source: Jacobs, 5. Noise: Local Assessment, for Airports Commission, November 2014,

section 4.18

The wide range in the estimate of the monetised cost of noise annoyance is a result of the very wide range in estimates of the so-called disability weighting (DW) which is applied to the numbers affected by noise increments and to the value of disability-adjusted life year (DALY). The DW estimates used are as recommended by the Government in its appraisal guidance63: a sensitivity range of 0.01 to 0.12 with a ‘central’ measure of 0.02. These figures in turn are derived from World Health Organisation guidance, itself based on international, non-UK studies.

Recognising the wide range in estimates of noise impacts, Government guidance64 is explicit about the need to reflect these sensitivities when these factors are used in appraisals:

“In applying these tools it is crucial that the relevant sensitivities and uncertainties are reflected. The limitations of the approach are discussed above. The three quantifiable sensitivities include:

Value of a QALY … of between £30,000 and £80,000.

Quantifying the effects of annoyance using the high and low DW DALYs (0.01 and 0.12 respectively). …” [emphasis added]

Government guidance further notes65 that: “Whilst the low and high DW ranges (0.01 and 0.12) are taken from the results of two studies, the central estimate (0.02) is an expert judgement reflecting a conservative estimate, which doesn’t allow the central estimate to be linked to a specific study.”

In its analysis underpinning the draft NPS, the DfT does not follow the Government’s own guidance in this regard. The summary of the economic appraisal66, focuses only on the central estimate of environmental costs (including noise impacts). Although it sets out the wide range of cost estimates in the supporting analyses67, it does not incorporate these ranges into on the overall summary appraisal metrics which then determine the relative ranking of LHR-NWR and LGW-2R. In other words, the underlying evidence on the range of costs is ignored in reaching an appraisal summary. If, instead, these data were incorporated, then using the high end estimate of noise annoyance costs would reduce LHR-NWR net present value (high estimate) from £6.1bn to -£0.8bn, while LGW-2R would reduce from £4.5bn to £3.3bn. This sensitivity is thus highly material to the ranking of the two schemes, and failure to consider this impact in the draft NPS summary of the economic costs and benefits represents a major omission.

63 Defra, Environmental Noise: Valuing impacts on: sleep disturbance, annoyance, hypertension, productivity and quiet, November 2014, paragraph 51 64 Defra, Environmental Noise: Valuing impacts on: sleep disturbance, annoyance, hypertension, productivity and quiet, November 2014,paragraph 53 65 Defra, Environmental Noise: Valuing impacts on: sleep disturbance, annoyance, hypertension, productivity and quiet, November 2014,paragraph 54 66 DfT, Further Review and Sensitivities Report, Figure 7.1, October 2016 67 DfT, Further Review and Sensitivities Report, Table 4.1, October 2016

Mid 40.2 46.4 17.6

High 57.4 66.3 25.1

Health-AMI

9.8 18.2 18.5

Health-hypertension

1.8 3.2 3.3


28

The wider economic benefits are particularly uncertain and should be accorded lower weight

The draft NPS cites previous analysis by DfT showing the superior level of wider economic benefits which LHR-NWR was estimated to enable68. These data show relatively modest absolute benefits. They also show very small absolute differences between LHR-NWR and LGW-2R (around £1bn over 60 years) - differences which are minor when set in the context of the overall benefits: wider benefits are 4-6% of the total.

Wider economic impacts Mid WEI as %

of total benefits (excl I-I)

Low high mid

LGW-2R 1.4 2.7 2.1 4%

LHR-NWR 2.1 3.9 3.0 6%

Source: DfT, Further Review and Sensitivities Report, Figure 5.2

Given the narrow differences between the schemes, the relatively low magnitude of wider benefits compared with total benefits, and the analytical uncertainty attached to any measures69, the draft NPS errs in the prominence it gives to a single estimate of this factor as one of key considerations supporting its preference for LHR-NWR. Its unqualified statement (“Expansion at Heathrow Airport is expected to result in larger benefits to the wider economy than expansion at Gatwick Airport”70) is not a balanced or accurate reflection of the underlying evidence

Aside from the methodological and presentational issues, the draft NPS also fails to consider the underlying reality of the putative wider economic benefits in the context of the specific geography of Heathrow. The area around the airport and into the Thames Valley is already highly developed and congested both on road and rail, with the prospect of more pressure on land use arising from planned developments such as High Speed 2, and enhanced rail links west from Heathrow and to Oxford. There is therefore a material risk that adding additional demand into this congested space could inhibit the achievement of the projected agglomeration benefits: transport congestion costs and rising prices for land and labour could combine to offset the potential gains from more business activity clustering together.

By contrast, Gatwick sits in a less populated and less intensively developed part of the South East, with nevertheless good road and rail links to population centres in London, around the M25 and on the South Coast. The risk of ‘overheating’ would be much lower for runway development there, and hence there is less risk attached to the estimates of wider economic benefits from LGW-2R than there is to the LHR-NWR estimates.

3.10 The draft NPS does not provide any meaningful assessment of impacts on airport and airline competition, thus hiding a major benefit of LGW-2R in economic terms

68 Draft NPS, paragraph 3.26 and DfT, Further Review and Sensitivities Report, page 32 69 DfT, Further Review and Sensitivities Report, paragraph 5.6: “the exact magnitude of these benefits is inherently uncertain” 70 Draft NPS, paragraph 3.26


29

LHR-NWR would serve to increase Heathrow’s market power. In particular, it raises a risk of lower traffic at regional UK airports including Southend, Southampton, Bournemouth, Birmingham, East Midlands, Coventry and Bristol71. It is also possible that expansion of Heathrow could place constraints on the future capacity of Northolt, Luton, Stansted and London City (and possibly even Gatwick) as expansion at Heathrow will require complicated airspace re-design within the London TMA72.

In a context of limited capacity this means that the benefits identified by the CC/CMA as having been delivered by competition in the UK market over the last couple of decades, (i.e. improved service quality, modest price decreases in the short run, greater innovation and rivalry and incentives for capacity expansion73) would be lost if future. To date such benefits have been substantial for example, the CMA estimated that the benefits to passengers to date of competition at Gatwick and Stansted was £260m, rising to £750m by 202074.

By contrast, LGW-2R would have a positive impact on airport competition. LGW-2R is designed to encourage airline competition. The project is deliverable at an earlier date than LHR-NWR and at a cost which keeps airport charges comparable, to, or lower than, those of other European airports. A competitive price level is important to encourage airline competition. In particular it will help attract growth of the low cost long haul business model, delivering competitive benefits in long haul markets75. A competitive price level and designing the airfield for operational efficiency and fast turns will also support short haul and domestic connectivity.

These are significant benefits of LGW-2R over LHR-NWR which should be recognised.

The draft NPS superficially identifies a benefit to airline competition from the LHR-NWR expansion arising from adding capacity at Heathrow. This view does not however appear to have been substantiated by market analysis or assessed against the specific characteristics of the LHR-NWR scheme.

This lack of any meaningful assessment of airport competition by the DfT in its draft NPS and a highly superficial assessment of airline competition, means that there is no adequate evidence base to conclude that competition will lead to lower air fares if LHR-NWR is built. If such benefits are assessed in a balanced and comprehensive way, the DfT would conclude that LGW-2R was preferable to LHR-NWR in terms of both airport and airline competition, with competition delivering greater benefits in terms of lower airport charges, lower air fares, innovation and rivalry.

3.11 Conclusion

Scheme benefits and costs.

71 NATS 14. Operational Efficiency Fast Time Airspace Simulation (Issue 2), April 2015, paragraph 7.1.3 72 NATS 14. Operational Efficiency Fast Time Airspace Simulation (Issue 2), April 2015, paragraph 7.1 73 CMA BAA Airports: Evaluation of the Competition Commission’s 2009 market investigation remedies, 16 May 2016, paragraph 3.28 74 CMA BAA Airports: Evaluation of the Competition Commission’s 2009 market investigation remedies, 16 May 2016, paragraph 5.89-5.90 75 Intervistas Consulting Ltd, ”The Importance of Airport Competition on Air Fares Paid by Consumers”, March 2014, paragraph 5.2.2


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LGW-2R and LHR-NWR would each enable very similar additional levels of passenger air travel across the UK as a whole. It is unsurprising therefore that, once the benefits to Non UK I-I passengers are excluded from the appraisal, the benefits to the UK of the LGW-2R and LHR-NWR would be approximately equal (£52 billion versus £54.5 billion). This analysis, which is based on the DfT’s own evidence, means that the weight which the draft NPS gives to economic benefits in preferring LHR-NWR cannot be justified.

The balance moves in favour of LGW-2R when the traffic forecasts on which the whole appraisal are based are brought more up to date, from a 2008 to a 2014 base year. Reflecting Gatwick’s recent traffic growth, this update shows that LGW-2R would deliver more benefits than LHR-NWR.

The draft NPS preference for LHR-NWR in economic terms is further undermined by the omission of costs from the balance. When costs are weighed against benefits, which should be at the heart of any fair and realistic appraisal, LGW-2R scores more highly than LHR-NWR on the DfT’s own recommended BCR metric, even on DfT’s overstated benefits. When benefits and costs are adjusted to exclude the impact of international to international transfer passengers, the net present value measure for LGW-2R rises to be significantly above that of LHR-NWR.

The environmental costs, dominated by the monetised costs of noise disturbance, are inadequately weighed in the balance. The draft NPS ignores in its overall assessment the very high possible values of the costs of noise annoyance, which could eliminate all of LHR-NWR’s net present value, making it a value-destroying project.

The DfT mentions that LHR-NWR has higher delivery and cost risk than LGW-2R, in terms of both project and surface access costs. However, these risks and other uncertainties are not brought to bear in the draft NPS economic assessment of relative scheme merits. The merits of the lower cost, lower risk, earlier delivery of LGW-2R are thus improperly discounted in reaching policy conclusions. Accordingly, the draft NPS fails to address risks which would alter the conclusion of the economic appraisal in favour of LGW-2R.


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Wider economic benefits

The draft NPS over-emphasises the magnitude, relative difference and certainty of estimation of the wider economic benefits associated with LHR-NWR. It fails to assess the material risk that the relatively small £1bn advantage for LHR-NWR over 60 years may not in practice be realised if further development in West London creates ‘over-heating’, with resulting additional costs to business and employees in that area.

Local employment

Contrary to DfT’s own appraisal guidance, the draft NPS focuses overly on local employment impacts as a separate net benefit to LHR-NWR. This factor should be set aside in judging between schemes, which are aimed at improving UK aviation connectivity not at alleviating localised deprivation in what are both relatively affluent areas of the country.

Competition

The NPS has failed properly to assess the consequences for airport and airliner competition. There has been no meaningful market analysis nor has there been any recognition of increase in market power to Heathrow that the NPS would generate. By the same token, the NPS does not recognise the positive impact that LGW-2R would have on airport competition.

Re-estimating the economic appraisal

Using the DfT’s evidence base, including updated forecasts where available, and making adjustments in line with DfT’s own appraisal guidance it is clear that LGW-2R delivers better economic value than LHR-NWR. The following table below provides indicative estimates of the effects of these changes in terms of the DfT’s numbers;

Removing benefits which accrue to Non UK I-I transfer passengers;

Updating base year of traffic forecast to 2014, which increases both incremental benefits to passengers and incremental airline profit loss;

Including the full range of environmental costs.


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Line Metric LGW-2R LHR-NWR

Better

Scheme

A

Total benefits (DfT) 52.4 to 53.7 59.2 to 61.1

B

Benefits to I-I transfer pax 1.6 to 1.7 6.5 to 6.6

C

Amended baseline traffic: incremental benefits

34.7 24.0

D = A-B+C

Benefits adjusted for updated traffic and I-I transfers

85.5 to 86.7 76.7 to 78.5 LGW-2R

E

Environmental costs -2.7 to -1.3 -9.6 to -2.3

F

Airline profit loss (DfT) -40.8 -38.0

G

Amended baseline traffic: incremental airline profit loss

-27.3 -21.4

H = D+E+F+G

Net social benefits 14.7 to 17.3 7.7 to 16.8 LGW-2R

I Surface access costs

-0.6 -3.4 to -1.4

J Scheme cost

-6.4 to -6.3 -14.9 to -12.9

K = H+I+J

NPV 7.7 to 10.4 -10.6 to 2.5 LGW-2R

L = H/(-I-J)

BCR (wide) 2.1 to 2.5 0.4 to 1.2 LGW-2R

Source: DfT Economic impacts: Further review and sensitivities report, Table ES.2 (lines A, F, I, J), Table A 16 (lines C and F), chapter 4 (line E); Airports Commission: Economy: Transport Economic Efficiency Impacts, July 2015, Tables 4.1 and 4.5 (line B)

This demonstrates that when the economic appraisal is correctly adjusted, in line with the Government’s own appraisal guidance, LGW-2R is clearly superior to LHR-NWR on total benefits (the DfT’s own cited metric), as well as Net Present Value and Benefit Cost Ratio (the metrics recommended for assessing Government policies and projects). Gatwick’s second runway performs better than Heathrow’s third runway on all recommended measures of economic impact.


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4 Gatwick response to draft airports NPS: Air Quality

Summary

(i) The Draft UK Air Quality Plan – May 2017 serves only to reinforce the position that the assessment work underpinning the draft NPS cannot now be relied upon, and that LHR-NWR is not capable of coming forward by 2026 without air quality limits being breached.

(ii) The Government’s conclusion that the LHR-NWR scheme is capable of being delivered by 2026 without breaching the UK’s legal air quality obligations is based on an incorrect interpretation of legal requirements.

(iii) Based on the correct interpretation of the legal requirements, the Government’s latest studies show that the LHR-NWR scheme cannot lawfully come forward by its target date of 2026, and it is uncertain when it could be delivered.

(iv) Furthermore this latest assessment work is seriously deficient and cannot be relied upon to support the conclusion that, with mitigation, LHR-NWR scheme “would be capable of being delivered without impacting the UK’s compliance with air quality limit values”.

(v) The Government’s newly published Draft UK Air Quality Plan provides no new evidence to suggest that LHR NWR will be able to expand lawfully. The Draft Plan confirms exceedances of Air Quality Standards are expected post 2030 in the London area and highlights the huge uncertainties that exist in the modelling process. The Draft Air Quality Plan does not provide any reasonable basis for the Government to justify a preference for LHR- NWR; rather it serves to reinforce the risks associated with that single preference.

(vi) A decision to support LHR-NWR scheme therefore risks the Government repeating

mistakes of a previous Government by supporting a scheme for airport expansion that will subsequently be found cannot be taken forward.

(vii) If, following consultation, Government is still minded to support LHR-NWR scheme, it would be irresponsible for it not to undertake further detailed assessment work to rectify the deficiencies prior to designation of the NPS.

(viii) A policy that “permission would be refused if it cannot be shown that the development would comply with legal requirements” is no substitute to rectifying the serious deficiencies, in the current assessment.

(ix) By contrast LGW-2R scheme does not present any risk of exceeding legal limits and can be delivered by the mid-2020s.

If follows that the Government should select LGW-2R scheme as the only option capable of delivering additional capacity to meet the identified need.


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This section of our submission summarises the findings of our more detailed air quality

response to the draft NPS, which is provided as a separate document.


The draft NPS rightly accepts that a further runway scheme only can approved if it does not result in a breach of the UK’s legal duties in respect of air quality limits.

The draft NPS is underpinned by two updated air quality studies - the 2016 Re-Analysis Study (RAS 2016)76 and the 2017 Updated Re-Analysis Study (URAS 2017)77

RAS 2016 sought to update the AC’s assessment to take into account the revised baseline Pollution Climate Mapping (PCM) modelling predictions reported in the December 2015 Air Quality Plan for Greater London (AQPGL) which post-dated the AC’s work. RAS 2016 was part of the evidence base that informed the Cabinet decision of October 2016 to prefer LHR-NWR.

However, a week after the Cabinet decision the Government’s UK Air Quality Plan (UKAQP), including the AQPGL, was found to be unlawful by the High Court because (inter alia) “the Secretary of State fell into error by adopting too optimistic a model for future (vehicle) emissions.” The URAS 2017 study therefore seeks to quantify the implications of updated vehicle emission factors.

76 Air Quality Re-Analysis - Impact of New Pollution Climate Mapping Projections and National Air Quality Plan – WSP (October 2016) 77 Updated Air Quality Re-Analysis - Impact of New COPERT Emission Factors and Associated Pollution Climate Mapping Sensitivity Testing - WSP (February 2017)

Caveat

On 5th May 2017, the Government produced its draft UK Air Quality Plan. In the

short time available Gatwick has attempted to identify key points that are of

greatest significance to this NPS response. However, given the extent of

information released on the 5th May, and the time remaining for this submission, it

has not been possible to undertake a full review and analysis of all the latest Air

Quality information.

We reserve the right to comment further once we had sufficient time to review the

recent draft Air Quality Plan in full and to submit additional information on the

interplay between the draft Air Quality Plan and the NPS.

All sections relating to air quality should be read in connection with GAL’s

response to the draft Air Quality Plan and we specifically request that our

response to the draft Air Quality Plan, once submitted is taken into account.

Failure to do so will result in obvious unfairness. In the meantime, it is possible to

draw certain conclusions from the draft Air Quality Plan and we set these out

below in 4.2.1 and 4.2.5.


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The URAS 2017 concludes that the risk of LGW-2R impacting on compliance with legal limits is negligible78.

By contrast it reports that there is a “high risk” that the operation of LHR-NWR in 2025/26 would lead to a delay to the date that the Greater London Urban Area Air Quality Zone (GLAQZ) would become compliant with legal limits. Furthermore it reports that there continues to be a risk if its opening were to be delayed to 203079.

Despite the results of these studies, the Government contends that, with a suitable package of mitigation measures, the LHR-NWR is capable of being constructed and operated without impacting the UK’s compliance with legal limits.

GAL Response

4.2 The Draft UK Air Quality Plan – May 2017 serves only to reinforce the position that the assessment work underpinning the draft NPS cannot now be relied upon, and that LHR-NWR is not capable of coming forward by 2026 without air quality limits being breached.

The draft UK Air Quality Plan (May 2017) provides no new evidence to suggest that legal compliance in the Heathrow area can be achieved by 2025/6 or by 2030. On the contrary, it serves to reinforce the analysis undertaken by GAL and others that compliance cannot be achieved in these timeframes and that there is huge uncertainty as to when compliance may actually be achieved. The draft 2017 Plan supports the submissions made by GAL and others throughout the AC process that the vehicle emissions factors previously adopted in the 2015 Air Quality Plan were too optimistic. Predictions using the more realistic emissions factors now adopted show that exceedances of the limit values in London will continue beyond 2030 even without Heathrow expansion.

The 2017 draft Air Quality Plan does little, however, to address the other criticisms that we have made previously and which are summarised above suggesting that the present plan continues to incorporate a degree of optimism bias. Moreover, the draft Plan does not identify where the exceedances are expected to occur within the London zone. Thus, whilst it can be seen that generally background concentrations are higher than those predicted previously, no forecasts for the Heathrow area are produced. The draft Plan thus demonstrates that the background levels used in the draft NPS impact appraisal cannot be relied upon but produces no further data that enables assessment of impact on a comparable baseline to that adopted in the draft Plan.

Further, there is no assessment of the effectiveness of the measures in bringing forward compliance in any part of the London zone for example the Heathrow area. The absence of a year-by-year analysis is also a weakness of the draft Plan. In addition, unlike the 2015 Plan, there is no mention of the Government’s proposals for a third runway at Heathrow or indeed the implications of this for compliance with air quality limit values. Instead, the Plan passes accountability for compliance to local authorities and the London Mayor who are obliged to implement charging mechanisms only as a last resort suggesting that compliance may not be achieved in the shortest possible time. The draft Plan requires a decision maker to explore all non-charging options before proposing a charging options. Refusing LHR-NWR

78 Updated Air Quality Re-Analysis Study prepared – WSP, URSA, Para. 1.3.5, February 2017

79 Updated Air Quality Re-Analysis Study prepared – WSP, URAS 2017, Table 1-1, February 2017


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permission to proceed is a non-charging option which has to be considered. Thus, refusing permission for LHR-NWR to proceed has to be considered as a policy response ahead of the implementation of a CAZ. No appraisal of the impact of LHR-NWR has been conducted on such a basis. The draft Plan does not identify what policy measures are to be adopted in the Heathrow area, nor does it identify the likely background levels that those measures will produce. The draft Plan thus provides a wholly uncertain basis against which to assess the impact of the LHR-NWR option and means that it cannot be concluded that that option can be lawfully delivered by 2026.

The draft Plan goes further than previous studies by the AC and the DfT in acknowledging the very considerable degrees of modelling uncertainty inherent any air quality predictions. In doing so, however, the draft Plan wholly undermines the DfT’s conclusion in its review of the AC’s Final Report that: “The Department therefore considers that present uncertainties over how a Heathrow scheme would meet air quality requirements do not affect the validity of the Commission’s conclusions” (Para 82). In the light of the uncertainties that conclusion is not reasonable or credible.

The draft Air Quality Plan, also requires that local authorities have to consider how to meet air quality limit values within their administrative areas. This approach suggests that the Government now accepts that compliance needs to be achieved and thereafter maintained in all parts of a zone in the shortest time possible. This is contrary to the assessment approach adopted by the AC and the Government in selecting LHR as its preferred location for expansion.

4.3 The Government’s conclusion that the LHR-NWR scheme can be delivered by 2026 without breaching the UK’s air quality obligations is based on an incorrect interpretation of the legal requirements

In its final Report the AC adopted an approach to the interpretation of the UK’s legal air quality obligations to the effect that ground level concentrations of Nitrogen Dioxide (NO2) could lawfully increase to any level so long as they remain below the maximum ground level concentrations of NO2 forecast elsewhere in the GLAQZ and so long as they did not delay the date at which compliance with NO2 limit values would be achieved for the GLAQZ as a whole. In other words, as long as LHR-NWR would not make the air quality in any areas worse than the air quality in the worst part of the GLAQZ or delay the date at which the GLAQZ as a whole complies with the limit value, there would be no breach of relevant air quality legislation, regardless of the extent of the breach of limit values caused by the construction and operation of LHR-NWR and regardless of the harm to human health that may be caused in the interim.

This approach is also maintained in the RAS 2016 and URAS 2017 and by the Government in concluding that the LHR-NWR is capable of being constructed and operated within legal limits.

The Government’s interpretation is unlawful because:

The UK’s air quality obligations are founded in the 2008 ambient air quality Directive (2008/50/EC) which has been transposed into English law by the Air Quality Standards Regulations 2010 (“the 2010 Regulations”);


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EU Directives are to be interpreted to give effect to their objectives and a key objective of the 2008 Directive is to reduce pollution to levels which minimise harmful effects on human health;

The UK is divided into air quality “zones” and there is a legal obligation to attain the annual average limit value “throughout” each zone by 2010 and where this has not happened there is a duty to adopt measures to ensure that the limit value is achieved as soon as possible;

Once limit values are achieved there is a duty to ensure that they are not exceeded again;

In the Heathrow area and other parts of London this has not been achieved;

The Government’s approach would allow a Member State to let air quality deteriorate further at locations within a zone where the Limit Value is exceeded so long as there is a location elsewhere within that zone which has a greater degree of breach of the limit value and which would attain the limit value at a later point in time. In other words, it is an approach that if followed would allow air quality to worsen in locations within the Zone which are already experiencing air quality in breach of limit values rather than requiring improvement;

Such an approach is contrary to the objectives of the 2008 Directive since it would allow air quality to worsen in locations where there is currently a breach of limit values.

The correct approach is to consider whether:

Allowing the construction and operation of LHR-NWR would result in delay to the attainment of the NO2 limit value at any location within the GLAQZ compared to the position at that location if LHR-NWR did not proceed. If it would result in delay, then to allow LHR-NWR to proceed would be a breach of the UK’s air quality obligations and unlawful; and/or

Allowing the construction and operation of LHR-NWR would give rise to new breaches of the limit value at any location within the GLAQZ compared to the position at that location if LHR-NWR did not proceed. If it would, then to allow LHR-NWR to proceed would be a breach of the UK’s air quality obligations and unlawful.

4.4 Based on the correct interpretation of the legal requirements, the Government’s latest air quality studies show that LHR-NWR cannot lawfully come forward by its target date of 2026, and it is uncertain when it could be delivered by

The latest air quality studies undertaken by the Government, whilst for reasons summarised below are seriously inadequate, do not support the conclusion in the draft NPS that with mitigation the LHR-NWR “is capable of taking place within legal limits”80.

On the contrary, based on a correct interpretation of the legal requirements, the results for 2025 show that LHR-NWR is almost certain to cause breaches of legal limits. This is because in eight of the nine scenarios assessed LHR-NWR would

80 Draft NPS, Para 3.6


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either give rise to new breaches of the limit value or result in delay to the attainment of the NO2 limit value at a location with the GLAQZ.

The result for 2030 also show that in three of the nine scenarios LHR-NWR would either give rise to new breaches of the limit value or result in delay to the attainment of the NO2 limit value at a location with the GLAQZ.

In summary, the studies supporting the draft NPS show that LHR-NWR is almost certain to cause breaches of legal limits if it was to come forward in 2025/26, and would still risk causing breaches of legal limits if it was to come forward in 2030.

Furthermore, there is little or no margin for error even in those scenarios where LHR-NWR is predicted not to cause a breach of limit values. This is a further concern because it is well recognised that future predictions of air quality are highly uncertain. History over the last 25 years shows that despite best intentions, there has always proven in practice to be significant optimism bias in modelling projections, and air quality has failed to improve in practice in the way predicted.

4.5 The assessment work underpinning the draft NPS cannot be relied upon to support the conclusion that with mitigation LHR-NWR “would be capable of being delivered without impacting the UK’s compliance with air quality limit values”

The draft NPS and the supporting air quality reports which the Government is relying on to support its preference for the LHR-NWR option contain a wide range of serious deficiencies. They do not provide a sound basis for concluding that the LHR-NWR option can come forward without breach of the UK’s legal duties in respect of air quality.

The deficiencies can be divided into two parts:

1) Deficiencies in the underlying UKAQP and AQPGL; and

2) Deficiencies in the in the assessment of the effects of the LHR-NWR option in the draft NPS, which can in turn be divided into:

i) Deficiencies in modelling work carried out by the Airports Commission and now relied upon by the Government in the latest air quality studies; and

ii) Deficiencies in the Government’s RAS 2016 and URAS 2017 air quality studies themselves.

Deficiencies in the underlying UKAQP and AQPGL

There is no Lawful UKAQP. The RAS 2016 and URAS 2017 are based on the 2015 UKAQP - a plan which the Courts have determined is unlawful for a number of reasons including that it used overly optimistic air quality modelling. A new plan is therefore now being prepared by Government.

A robust assessment of whether it would be lawful for LHR-NWR to be constructed and operated cannot be made prior to the adoption of a new lawful UKAQP because until then the baseline air quality conditions in future years, against which the impact of LHR-NWR scheme must be assessed, are unknown.

The Government’s PCM Modelling is flawed. The new UKAQP needs to address deficiencies of the previous UKAQP and the PCM model that have been raised


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previously by GAL81 amongst others. The Client Earth (No. 2) judgment also requires the UKAQP to be based on realistic vehicle emission factors.

Deficiencies to be addressed in preparation of the new UKAQP include those summarised in Table 1 below.

Table 1: Deficiencies in the Government’s PCM Modelling

The requirement for and implications of annual future baseline projections

The Court has held that the new UKAQP must include annual projections. With annual projections the date for compliance at the previously predicted worst locations in the GLAQZ may be brought forward before the 2025 date predicted in the 2015 AQPGL, and mean that another location, where the AQPGL’s measures would be less effective, may now be the last to comply. It is entirely possible that improvements will be accelerated in central London to a greater extent than parts of outer London. If that were the case, then there is the potential for the LHR-NWR option to give rise to breaches of the UK’s legal obligations within the GLAQZ during construction or operation even on the Government’s own flawed legal interpretation.

The PCM model’s poor past performance and over optimism

A study commissioned by GAL in 201682, and submitted to Government as part of GAL’s review of the UKAQP, shows how poor the PCM model has been at accurately predicting future concentrations. Moreover it demonstrates the existence of a systematic bias in the PCM model for it to under-predict roadside NO2 concentrations in the most polluted locations, whilst over predicting concentrations in less polluted locations. This is a highly concerning feature of the model and means that it is least reliable for predicting when the most polluted areas, such as around Heathrow, will become compliant, and means that there is a very high risk that compliance will be delayed beyond the date predicted in the Heathrow area and other more polluted areas. The extent to which the model over/under predicts must be robustly established and then taken into account in determining the likelihood of breach of limit values. This has not been done.

Overly-optimistic forecasts of background air quality

The background air quality used by AC and AQPGL for the current baseline and future years is based on outdated, optimistic vehicle emission factors which have since be superseded by higher (more pessimistic) factors. The change in assumption is significant – the more recent emission factors assume for example that Euro 6 cars emit 6 times more than the standard, compared to 2.8 times in the earlier assumption and the five times assumption used by Defra in the 2015 AQP to test the effects of higher vehicle emission on legal compliance. Appropriate sensitivity tests have not been undertaken to understand the impacts of such improvements failing to materialise as the RAS 2016 and URAS 2017 do not address background air quality.

The failure to recognise uncertainties caused by a range

There are a range of other inherent uncertainties in the modelling studies upon which the Government relies. These include:

i) The fraction of NOx emitted as Primary NO2 - Analysis previously submitted by GAL suggests that past PCM

81 A Second Runway for Gatwick – Air Quality Projections in the London Air Quality Plan – GAL (April 2016) 82 Report prepared by ARUP - provided as Annex 1 of A Second Runway for Gatwick – Air Quality Projections in the London Air Quality Plan – GAL (April 2016)


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of factors which are not properly taken into account in the PCM model

modelling in the 2015 UKAQP understates the fraction of primary NO2 emissions in NOx emissions meaning the PCM model is too optimistic.

ii) The NOx to NO2 conversion in ambient air – Analysis previously submitted by GAL shows that the method used in the PCM model gives lower NO2 predictions than the method set out in Defra’s Technical Guidance for Local Air Quality Management, which is used by local authorities to discharge their air quality management duties.

iii) Driving behavior and traffic congestion - NOx emissions are influenced strongly by driving style and congestion levels which are very difficult to build into models accurately. The COPERT approach used in the PCM model uses average vehicle speed along sections of roads, which is not a good proxy for congested flow states. In areas of London, and particularly around Heathrow, traffic flows are often congested and this is therefore likely to be a source of significant underestimation of NOx emissions in Defra’s PCM modelling in such locations.

iv) Vehicle maintenance state and emission control system degradation - It would be premature at this stage to rely on the new RDE standard as a ‘silver bullet’ for vehicle emissions. This is because there are a number of uncertainties such as no current means of monitoring the performance of the emission control system on RDE compliant vehicles over their lifetime and the fact that little is known about the durability and long term performance of the emission control systems.

- Deficiencies in the modelling work carried out by the AC

The RAS 2016 and URAS 2017 do not rectify a number of significant deficiencies in the work of the AC that GAL has previously identified83. These deficiencies are summarised in Table 2 below.

Table 2; Deficiencies in the AC’s Assessment now relied on by Government in the

RAS 2016 and URAS 2017

Deficient Baseline Model Verification Process

The baseline model verification process used by the AC has been shown to result in the impacts predicted by the AC being understated by up to 15% at Heathrow, and overstated by up to 18% at Gatwick. The Appraisal of Sustainability recognises that, had the AC applied scheme-specific verification factors in its modelling, the impacts of the LHR-NWR option could be worse.

Failure to assess the plausible worst case traffic scenario of the LHR-NWR scheme

URAS 2017 states that the AC’s air quality assessments “used a ‘worst case’ scenario”84. This is not correct. The AC assessed the impact of LHR-NWR based on the ‘Global Growth’ air traffic forecast scenario whereas the ‘Low Cost is King’ forecast scenario has materially higher air traffic movements and non-transfer passengers. These would be likely to result in higher aircraft and surface access

83 A Second Runway for Gatwick GAL - Response to the Airports Commission Air Quality Consultation – GAL (May 2015) 84 Updated Air Quality Re-Analysis Study prepared – WSP, URSA , Para 2.1.3, February 2017


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emissions than those assessed by the AC and relied upon in the URAS 2017.

Failures to properly assess, or assess at all, key aspects of the LHR-NWR scheme

There has been no assessment by AC or subsequently for the NPS of the impact of construction activities on air quality, despite the draft NPS properly making clear that the Secretary of State can only grant consent for the LHR-NWR scheme if he is satisfied that both its operation and construction would not affect the UK’s ability to comply with legal air quality requirements. GAL has undertaken such a study and submitted to the AC as part of its response to the national air quality consultation85. The study found that construction activities in connection with the LHR-NWR would cause significant increases in NO2 in a number of the selected study areas, with concentrations predicted to remain above the Limit Values even using Defra’s optimistic approach for future emissions. Nor has there been any assessment of the impacts of operation (and construction if a new facility is built) of the replacement Lakeside Energy from Waste facility which will need to be de-commissioned in the LHR-NWR scheme.

Deficiencies in the Government’s air quality studies themselves

The RAS 2016 and URAS 2017 also contain a number of further deficiencies which further compound the above failings. These are summarised in Table 3 below:

Table 3: Further Deficiencies in the RAS 2016 and URAS 2017

Government has adopted a less strict assessment of Traffic Impacts for the Airports NPS than it would apply to the assessment of Highways Schemes

If the construction and operational traffic impacts from the changes to the major roads assumed in the LHR-NWR option were assessed as part of a highways scheme, following the Highways England air quality assessment methodology - an approach which adopts a more cautious approach to improvements in vehicle emissions - the EU limit values would be predicted to be exceeded at more receptors and for longer. At the very least, the Highways England methodology should be used to provide a sensitivity test so that proper regard may be had to the potential outcomes at LHR-NWR if emission reductions are not delivered over the relevant timescale. Such an appraisal would be a step towards a proper understanding of the delivery risk associated with LHR-NWR.

Use of a Streamlined Model that is not suitable for Detailed Assessment

URAS 2017 uses the Streamlined version of the PCM model which is:

(a) not designed to enable assessment against limit values and (b) recognised to be even less accurate and more optimistic than

the PCM model used to make the future baseline predictions for 2025 and 2030.

Impacts of congestion on emissions not properly estimated

It has been noted above that emissions from congested traffic have been under-estimated in the baseline PCM modelling. In relation to the incremental impacts of LHR-NWR this has been ignored completely. This is because the AC used average speed emission factors, which even at low average speeds, would not properly

85 A Second Runway for Gatwick – Response to the Airports Commission Air Quality Consultation – Gatwick Airport Ltd. (29th May 2015)


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reflect real-world emissions from congested urban driving around Heathrow Airport.

Inaccuracies from summing the Outputs of two different models

The RAS 2016 and URAS 2017 studies have summed the outputs of two separate models. This is acknowledged in the studies to be a ‘main constraint’ and a ‘source of uncertainty’ and recognised in the studies to be likely to have led to an underestimate in the predicted NO2 concentrations.

Aircraft Emissions in 2025 modelled on the basis of the (cleaner) 2030 fleet

The RAS 2016 and URAS 2017 have modelled 2025 using the assumed more advanced (cleaner) 2030 aircraft fleet. This means the 2025 predicted concentrations are optimistic

The evidence indicates that LHR-NWR is not deliverable consistent with legal air quality obligations by 2025/6 and there remains significant uncertainty as to when it could be delivered

Many of the individual deficiencies summarised above represent serious failings in their own right. When taken together they reveal the presence of a very high level of uncertainty in the predictions and, moreover, demonstrate that the air quality impacts of LHR-NWR are likely to have been significantly understated.

Once these uncertainties are taken into account, on the basis of the correct legal approach, the evidence establishes that the LHR-NWR scheme is not deliverable consistent with legal air quality obligations either in terms of its construction or operation by 2025/26 and there remains significant uncertainty as to when it could be delivered, consistent with those obligations.

4.6 The Government is in serious danger of repeating mistakes of the past.

If the Government is minded to continue to support LHR-NWR, the deficiencies set out above should be rectified. If not, Government will be in serious danger of repeating mistakes of the previous Administration of 2005 – 2010.

Government support for the then proposed 3rd Runway at Heathrow was based on air quality forecasts that predicted the area around Heathrow would be compliant with limits by 201586. Those predictions, which were based on what was considered at the time to be the best available evidence, can now be seen to have been grossly

optimistic – with monitored levels in 2015 continuing to far exceed the 40g/m3 limit value87.

Had the subsequent Coalition Government proceeded with those third runway plans, these would either have been found to be unlawful, or the additional capacity would still be idle, because air quality in practice has failed to improve as modelled.

86 Reference PSDH 87 The Government asserted in 2007 that NO2 concentrations would fall rapidly and compliance would be achieved, prior to opening the runway in 2015. The prediction made for the Hillingdon monitoring site, a short distance to the north of Heathrow was that the NO2 concentration would be 36 μg/m3 in 2015. It was in fact 52μg/m3, a difference of 16 μg/m3, significantly in breach of the limit value (without expansion of Heathrow), rather than comfortably below the limit value. The data for 2016 suggest concentrations are still at 52ug (still 29% above the limit)


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4.7 If, following consultation, the Government is still minded to support LHR-NWR it would be irresponsible for it not to undertake further detailed assessment work prior to designation of the NPS

If, as the evidence indicates, LHR-NWR is not deliverable by 2026 and there remains significant uncertainty as to when it may be delivered thereafter, to adopt an NPS which selects LHR-NWR as the only airport expansion option creates very significant risk that needs will not be met, with hugely damaging consequences for the UK economy.

In these circumstances, it would be irresponsible for the Government to select a single airport expansion option on the basis of the deficient assessments relied upon.

Given the serious harm that would arise to the UK economy from backing an option that is subsequently found cannot be delivered in the timeframe needed, it would be irresponsible for Government to defer detailed and well-founded assessment of the LHR-NWR air quality issues until the later DCO stage of the process.

4.8 A policy stating that ‘permission would be refused if it cannot be shown that the development would comply with legal requirements’ is no substitute to rectifying the serious deficiencies in the current assessment.

It would further be wrong to regard the imposition of a policy requiring refusal of permission if it cannot be shown that the development would comply with legal requirements’ as an alternative to rectifying the serious deficiencies in the current assessment. Rather it is incumbent on the Government to ensure that its single preferred airport expansion option will not be prevented by air quality issues from being delivered by 2026.

4.9 LGW-2R does not present any risk of exceeding legal limits and can be delivered by the mid-2020s

The AC concluded that LGW-2R would not present any risk of exceedances of Air Quality Limit Values88 and the URAS 2017 concludes89 that LGW-2R is:

“unlikely to impact on compliance with limit values…”

“(This) conclusion has ‘low vulnerabilities’ to uncertainties, since only in the most pessimistic emissions scenario does the option risk triggering non-compliance…”

“the estimated airport impact is likely to be conservative”

“the risks can be mitigated by the implementation of an air quality management strategy for the airport…”

These conclusions were reached on the basis of modelling that substantially over-estimates the impact of LGW-2R and without regard to potential mitigation measures.

Even on that basis, the Government’s latest assessments of LGW-2R therefore conclude that any risk of the scheme causing a breach or delay to compliance with the legal limits is low and can be mitigated. This is the case whether the

88 Airports Commission Final Report, Para 9.92 (July 2015) 89 Updated Air Quality Re-Analysis Study prepared – WSP, URSA Table 1.1, February 2017


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Government’s flawed legal approach, or the correct legal approach, is adopted, and allowing for reasonable uncertainties arising from the deficiencies in the latest air quality studies.

The simple reality is that it is proven that LGW-2R is deliverable without breaching the UK’s air quality obligations.

4.10 Air Quality triple lock

If, despite all of the evidence on air quality alone against the LHR-NWR scheme, the Government decide to confirm its support for that proposal it is essential that meaningful obligations are imposed to ensure compliance with air quality standards.

The NPS must set out the minimum obligations that the Government expects to see incorporated into the Requirements of a DCO consent at a later stage to ensure that legally binding air quality limit values are complied with both during construction and the later operation of an expanded airport. These requirements should be incorporated into a ‘triple lock’ consisting of the following:

- No construction to begin until air quality around Heathrow has met legal limits for three consecutive years;

- No construction to begin, and no new capacity to be released at the expanded airport, until an independent statutory body has verified that this will not breach air quality limits in the area;

- A contingency plan, backed by the necessary legal powers, to require the airport to bring air quality back into compliance should the legal limits be breached due to unforeseen circumstances.

4.11 Conclusions

A scheme for airport expansion can only be approved if it does not result in a breach of the UK’s legal duties in respect of air quality limits.

The area around Heathrow is one of the most polluted parts of the UK with concentrations of NO2 currently far exceeding safe legal limits and with no significant signs of improvements having been recorded over the past 10 to 15 years. This is despite previous Government predictions, made in 2009 in support of earlier proposals for a third runway at Heathrow, that the area would be compliant with these limits by 2015.

The Government’s conclusion that LHR-NWR scheme can be constructed and operated without giving rise to a breach of legal obligations is based upon a flawed legal approach, seriously deficient assessments, and a UK Air Quality Plan which has yet to be approved.

The evidence shows that LHR-NWR is not deliverable by 2026 and there remains considerable uncertainty as to when it might be deliverable by beyond that timeframe consistent with the UKs air quality obligations. The 2017 draft Air Quality Plan serves to reinforce the view that exceedances of air quality limit values will persist in London beyond 2030 and that there is significant modelling uncertainty.

Backing the LHR-NWR project now, only to find out later that it cannot be constructed and operated in time to meet the urgent national need for new runway capacity would be hugely damaging to the UK economy.


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If the Government wishes to continue exploring LHR-NWR, the only robust course of action for it to take at this stage, and before proceeding further with the NPS, is to carry out further thorough detailed assessments to rectify the many errors and deficiencies highlighted, and to reflect in these the measures contained in the new UKAQP to be approved later in 2017. Unless Government does this, it is in serious danger of promoting a runway option that will not be capable of being taken forward on a lawful basis in the timeframe required to meet national need, with subsequent highly damaging consequences the UK economy.

It would, further also be wrong for the Government to regard the imposition of a policy requiring ‘permission to be refused if it cannot be shown that the development would comply with legal requirements’ as an alternative to rectifying the serious deficiencies.

By contrast, neither the construction nor operation of a second runway at Gatwick risks any breach of the UK’s air quality obligations. Therefore, not only are the economic benefits assured but they can be secured earlier. This provides a compelling reason for selecting LGW-2R and must be considered when assessing the relative deliverability and merits of LGW-2R and LHR-NWR, including the date by which economic benefits from construction and operation can start to be secured90.

If follows that the Government should select LGW-2R as the only option capable of delivering additional capacity when required to meet the identified national need.

90 Gatwick Response to Draft NPS, Appendix 1, Page 15-30 , 25th May 2017


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5 Gatwick response to draft airports NPS: Noise


The draft NPS states that:

“The impact of noise from airport expansion is a key concern for local communities affected, and the Government takes this issue very seriously “(draft NPS paragraph 5.43).

Despite this recognition and assurance, the draft NPS does not present any balanced and comprehensive comparison of the noise impact of LHR-NWR with the noise impact of LGW-2R. Indeed, the only statement referring to noise in the draft NPS comparisons between the two schemes is:

“…while all schemes are expected to have a negative effects on impacts such as air quality, noise and biodiversity, the Gatwick Second Runway scheme has a less severe impact than either scheme at Heathrow.” (draft NPS paragraph 3.48)

The Government’s comparative analysis is contained in the AOS. The AOS concludes that:

Summary

(i) The draft NPS fails to apply the Government’s existing policy on noise – if it had applied Government policy is could only conclude that LGW-2R is to be preferred in relation to noise at both a local and a UK level;

(ii) The DfT is proposing to change longstanding policy on noise without proper consultation and in a manner that seeks to avoid noise being a material consideration with regard to the selection of LHR-NWR, despite recognising that noise is a key concern for local communities;

(iii) The draft NPS fails to recognise that LHR-NWR would have a vastly greater noise impact than LGW-2R;

(iv) The DfT should have provided a side-by-side comparison of the noise implications of each of the options using a range of noise indicators – this would show that the noise impact across all UK airports is less if LGW-2R is chosen;

(v) The draft NPS does not contain any airspace plan, safety case or concept of operation for a 3 runway Heathrow. This makes it extremely difficult for members of the public to assess the true noise of LHR-NWR. This should be addressed in the Final NPS;

(vi) If the DfT continues to prefer LHR-NWR, it needs to provide a reasoned justification for doing so in the light of noise impacts. But such justification has been provided so far

There are a number of other significant technical flaws in the AoS methodology which the DfT should correct.


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“ Due to much lower total population exposure, the overall impact of aviation noise on human health associated with Gatwick is expected to be lower that Heathrow (AoS Appendix 4 paragraph 4.12.14).

“Noise exposure around Gatwick with a second runway was predicted to be around 40 times smaller than either of the Heathrow schemes (AoS Appendix 4 paragraph 4.12.15)”

“the local population exposed to noise…. near to Gatwick Second Runway Scheme is expected to be a fraction of those exposed to LHR ENR or LHR NWR” (AoS Appendix 4 paragraph 4.12.5)

This analysis is not carried forward into the draft NPS and in any event does not capture the full extent of LGW-2R’s superiority over LHR-NWR in respect of noise impacts.

GAL’s response

5.2 Failure to apply the Governments Policy on Noise

The Government’s existing overall policy on aviation noise is:

“…to limit and, where possible, reduce the number of people in the UK

significantly affected by aircraft noise, as part of a policy of sharing the

benefits of noise reduction with industry.”91

This has been long standing policy of successive Governments (including

paragraph 3.11 of the Future of Air Transport White Paper of December

2003).

However, it appears that the DfT has decided not to apply the Government’s own policy on limiting and reducing noise when choosing between the shortlisted schemes. Instead, it applies the Government’s noise policy only within its single preferred scheme i.e. LHR-NWR. Plainly, on the basis of the DfT’s own analysis, LGW-2R meets this policy whereas the DfT has yet to explain and justify why it supports LHR-NWR despite that scheme being inconsistent with the Government’s policy.

5.3 The DfT is proposing to introduce a new noise policy specific to Heathrow which would override the existing national policy.

The AoS should objectively relate the relative performance of each expansion option to current Government noise policy which is “ to limit and ,where possible reduce, the number of people in the UK significantly affected by noise “ ( Aviation Policy Framework paragraph 3.12)

Further, the draft NPS implies that the Government is proposing a new policy for LHR-NWR which will take primacy over existing national policy. It says:

“The proposed development must be undertaken in accordance with statutory requirements for noise. Due regard must have been given to national policy on aviation noise and the relevant National Planning Policy Framework….. However the airports NPS must be used as the primary policy when

91 Aviation Policy Framework, Para 3.12, March 2013


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considering the Heathrow Northwest runway scheme and has primacy over wider noise policy sources” (draft NPS paragraph 5.66).

One can only conclude that Government sees the provision as necessary because selecting LHR-NWR is contrary to current national policy.

If the Government intends to change its noise policy in order for the schemes to be assessed against a new noise policy specific to Heathrow, the Government must explain, and consult on, why it is necessary and appropriate to change the policy on noise, what specific change is proposed, and why this is justified. In the absence of this, consultation with stakeholders cannot be considered to have been full and fair.

If a full side-by-side comparison had been made, the picture that emerges clearly and demonstrably favours Gatwick on the issue of noise. Using the Government’s own analysis, the national results show that LGW-2R would reduce the number of people significantly affected by aircraft noise (e.g. by 5,000 in 2040). In contrast the national assessment for LHR-NWR predicts increases in populations significantly affected by noise (approximately 4,000 in 2040).

In order to correct these failings, the DfT should set out clearly in the draft NPS, the relative scale of the noise impact as between LGW-2R and LHR-NWR along the lines indicated below, and it should do so in a manner that compares LHR-NWR with LGW-2R at an individual airport level but also at a UK level.

5.4 The draft NPS fails to use a range of noise indicators

The DfT is currently consulting on proposals to adopt a range of noise metrics. These proposals can be found at paragraph 5.47 – 5.53 of the DfT consultation documents entitled “UK Airspace Policy; A framework for balanced decisions on the design and use of airspace” February 2017. The draft NPS does not explain why the DfT when it was preparing the draft NPS, has not adopted its own proposals concerning how noise should be assessed.

The AoS relies only on the 57 dB (A) Leq metric. It should also have drawn on the full range of metrics used by the AC, namely:

the 54LAeq metric

the 55Lden (weighted day, evening and night) noise metric,

the N70 - “number of events above 70dB levels” - noise metric92

and

the Lnight metric (weighted night time noise between 2300 and 0600)

Recent Government sponsored research has indicated that the 54dB(A)Leq metric may have replaced 57dB(A)Leq as the level at which aviation noise gives rise to significant annoyance in population terms93. GAL shares the concern of the House

92 contours using this metric provide information on individual events rather than “average noise” and have been shown to correlate to where significant noise complaints are actually made at various trigger levels –e.g. an N25 contour shows where an individual may experience 25 events above noise level 70dB(A) each day.

93CAA report: Survey of noise attitudes 2014: Aircraft (CAA CAP 1506); para 8.17


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of Commons Environmental Audit Committee that “The Government must ensure that the NPS process is informed by the most up-to-date noise metrics, in light of the Attitudes to Noise Survey we expect the Government to consider 54 dB LAeq 16hr as the onset of significant annoyance.94

Use of the 54dB LAeq metric shows that more than twice the number of people would be affected than was identified by the Appraisal of Sustainability (AoS). By 2050 nearly 600,000 people could like within the 54dB LAeq contour at an expanded Heathrow. The AoS’s failure to recognise this seriously undermines the Government’s decision to back LHR-NWR.

5.5 The draft NPS fails to recognise that LHR-NWR would have a vastly greater noise impact than LGW-2R in a side by side comparison.

The table following illustrates the relative scale of noise impacts as between LGW-2R and LHR-NWR:

94 House of Commons Environmental Audit Committee, Carbon Emissions, Air Quality and Noise,

Seventh Report of Session 2016–17, The Airports Commission Report Follow-up: Conclusion

Paragraph 106 (20 February 2017);


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Measure LGW-2R LHR-NWR Multiple LHR-NWR

over LGW-2R

Net additional number of people affected (“do something” less “do minimum”)

15,10095 143,10096. X 9.5

Additional number of people “newly affected” (“do something” less “do minimum”)

18,20097 157,90098. X 8.7

Total number of people affected

24,60099 726,600100 X 30

Calculated health costs from noise impacts

£0.25 Billon-£1.5 Billion101 £1 Billon to £25 Billion102 up to X 17

Source: See footnotes

It is clear that the operational impacts arising from LHR-NWR would be vastly greater than those arising from LGW-2R.

LHR-NWR would also result in a huge number of people being newly affected by noise, which is a highly controversial issue with local communities.

95 Noise: Local Assessment - Jacobs (November 2014); Tables 3.4 and 3.8 96 Noise: Local Assessment - Jacobs (November 2014); Tables 4.4 and 4.49 97 Noise: Local Assessment - Jacobs (November 2014); Page 42 98 Noise: Local Assessment - Jacobs (November 2014); Page 156 99 Noise: Local Assessment - Jacobs (November 2014); Table 3.8 100 Noise: Local Assessment - Jacobs (November 2014); Table 4.49 101 Noise: Local Assessment - Jacobs (November 2014); Para. 3.11.17 102 Noise: Local Assessment - Jacobs (November 2014); Para. 4.18.7


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A comparison table for the “N” airspace option103 using this range of metrics is shown below.

Pop Affected (2050)

Noise metric

57leq 54leq 55lden N70 >50 Lnight

LHR-2R “do minimum”104

219,600 435,800 583,500 189,500 373,100

LGW-2R“do minimum”105

2,800 7,600 9,500 1,900 11,200

LHR-NWR106 264,200 594,300 726,600 204,700 373,000

LGW-2R107 7,200 24,600 24,600 8,200 18,600

Difference – LHR-NWR higher

257,000

569,700

702,000

196,500

354,400

Source: see footnotes

As can be seen LHR-NWR would affect hundreds of thousands more people than LGW-2R on any of these measures.

Given that the noise impact of LGW-2R in terms of numbers of people affected would be a fraction of the noise impact of LHR-NWR it is not reasonable, or at least potentially misleading, for the AoS to rank both options the same, ie. “Significant Negative””108.

The purpose of Strategic Environmental Assessment is to understand the relative environmental performance of options so as to inform strategic planning decisions – the AoS fails to do this. The AoS fails to assess the comparative impacts against a suitable scale of significance which indicates the relative impact of each scheme (i.e. without the scheme compared to with the scheme) on a transparent basis. It is simply inadequate to categorise both schemes as “Significant Negative” when LHR-NWR would have a vastly greater impact than LGW-2R.

Noise Impact across the UK with LGW-2R would be less than with LHR-NWR

Further, LGW-2R would in fact reduce the total number of people in the UK affected by aircraft noise.

The AoS draws on the AC’s air and ground noise assessments, reporting both national and local impacts results. The national results show that LGW-2R would reduce the number of people significantly affected by aircraft noise (eg by 5,000 in 2040). This is because it would draw flights away from some airports situated in places with higher population density, such as Heathrow which the AoS records (para 4.12.14) as having a noise effect 40 times that of Gatwick.

103 Airports Commission, Assessment of Need Carbon Capped forecasts, “N” airspace option. 104 Noise: Local Assessment – Jacobs (November 2014); Table 4.4 105 Noise: Local Assessment - Jacobs (November 2014); Table 3.4 106 Noise: Local Assessment - Jacobs (November 2014); Table 4.49 107 Noise: Local Assessment - Jacobs (November 2014); Table 3.8 108 Appraisal of Sustainability : Appendix A-4 Noise; Question 11 comparative assessment table p52


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In contrast, the national assessment for LHR-NWR predicts increases in populations significantly affected by noise (approximately 4,000 in 2040).

This is plainly a matter of real significance which weighs heavily in favour of LGW-2R, and which the Government should take into account in deciding which scheme to back.

5.6 Other flaws in the AoS methodology

The draft NPS does not contain any airspace plan, safety case or concept of operation for a 3 runway Heathrow. This makes it extremely difficult for members of the public to assess the true noise of LHR-NWR. This should be addressed in the Final NPS

There is no clarity as to what airspace arrangements will be for LHR-NWR. The AC assessed the noise impacts of three alternative airspace solutions for the LHR-NWR scheme, namely “minimise new (N)”, “maximise respite (R)” and “minimise total (T)”. In contrast, the AoS has assessed only the ‘T’ option. Given that the AoS is intended to assist decision makers and the public with understanding the character, extent and significance of effects, this is a serious omission in its own right.

The appraisal of only the “T” airspace solution in the AoS as the central scenario is not explained within the AoS, when other equally plausible scenarios were considered by the AC. The AoS does not, therefore, provide for a worst case assessment of population exposure to noise (as the AoS suggests), however, it does result in the highest number of people being “newly affected”.109

Also, importantly NATS were in fact unable to confirm that either the “T” or “R” airspace options were able to provide the capacity that Heathrow requires.110

In order to change the airspace arrangements at Heathrow a statutory process must be followed. This requires consultation with the public. There has been no appraisal of the likely outcome of that process

Monetisation of impacts. There is increasing evidence of the links between noise exposure and health costs, predominantly from annoyance. Paragraph 3.48 of the draft NPS states that the environmental costs of the airport schemes are small when compared to the size of benefits over a 60 year period. In paragraph 3.71, the NPS reaches the conclusion that Heathrow’s net benefits outweigh those of Gatwick.

The range of noise related costs is, however, not considered consistently or transparently in the same manner as other costs in reaching this conclusion. Whereas ranges of costs relative to other factors appear in the Government’s assessment table111, the same is not done for noise. Were the full range of potential noise related costs to be used, the analysis would show that Heathrow’s net present value (NPV) could be significantly negative under some circumstances. In contrast, Gatwick’s NPV would remain positive even if the high range of costs was used.

For the LHR-NWR “T” airspace option (described by the draft NPS as its worst case) the high range of cost extends to -£7.9bn. However for the “N” airspace scenario, it

109 The “N” airspace solution, for example, minimises newly affected, but exposes more people overall. 110 NATS, 14 Operational Efficiency - Fast Time Airspace Simulation Issue 2, April 2015, §3.1.1; note also that Heathrow’s ‘T’ airspace routing relies upon curved approaches. 111 Table 4.2; Further Review and Sensitivities Report


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could be as high as -£15.5bn112. This weighs heavily against LHR-NWR, and neither the AoS nor the draft NPS adequately take this into account.

Failure to apply mitigation measures in the ‘do minimum’ scenario. The AoS makes various operational assumptions, including displaced thresholds and airspace changes, to minimise the total number of people affected in the LHR-NWR ‘T’ airspace option (AoS §6.6.4). However, these assumptions are applied to the three runway case only and not to the situation where the airport remains with only two runways, masking the true impact of LHR-NWR.

Each operational improvement would be equally applicable to the 2 runway airport within the 30 year timescale of the draft NPS. Further, the AoS itself acknowledges that changes to airspace will be necessary irrespective of the development of a third runway (AoS §7.3.1 bullet 7).

The AoS therefore fails to present fairly the true impact of LHR-NWR compared to the baseline 2 runway position.

The same error does not arise for the LGW-2R because that assessment assumes a more conventional (and deliverable) airspace arrangement similar to today. Provision of some of the mitigations assumed for Heathrow including varying routes and steeper approaches is, however, also applicable to LGW-2R.

Inadequate consideration of the impact on “newly affected” people. The AoS reports that in 2030 around 257,800 people would be affected by noise from LHR-NWR and that this would be an increase of around 34,700 people113. However, this increase is a net change between total populations inside and outside of the contour under very different airspace arrangements.

The AC provided analyses to explain the numbers of “newly affected” people for the Carbon Capped “Assessment of Need” forecast. For the ‘T’ airspace option this calculated that the number of people to be “newly affected” would be 239,500 in the 55Lden contour in 2030 whereas the number of people “newly removed” would be 262,800114. To put this in context, the number of people who will be newly affected exceeds the total number of people affected at this level of noise by the four runways at Frankfurt Airport in 2012115. Whilst the overall number of people in the contour decreases – the number of people who will be newly affected is huge.

The draft NPS entirely fails to recognise the significance of a population of this size becoming newly affected. There is ample evidence in the UK and abroad of the severe negative public reaction from communities newly affected by changes in flight paths, but the increase in the number of people “newly affected” by LHR-NWR is very large by any measure.

The Government should recognise the risk that the required airspace changes, once they are fully understood by the people who will be affected, are likely to result in pressure which would restrict Heathrow’s future growth beyond opening, thereby compromising the business case for the airport.

112 ANCON Compendium of Noise Results Table D5 113 Draft NPS, Appraisal of Sustainability, §7.4.26 114 Noise: Local Assessment – Jacobs (November 2014); §4.7.3 page 104 115 Airports Commission Discussion Paper 05: Aviation Noise; Table 2.2 states 238,700 for Frankfurt


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5.7 Conclusions

The draft NPS fails to recognise and give weight to the Government’s long standing policy on noise when choosing between the shortlisted options. This represents a serious failure on the part of the DfT.

The DfT is proposing to override its longstanding policy on noise without proper consultation and in a manner that seeks to avoid noise being a material consideration with regard to the selection of LHR-NWR, despite recognising that noise is a key concern for local communities.

The draft NPS fails to present a full comparative analysis of noise impacts of each expansion option in a way which enables the public fully to understand differences between the noise impacts of each scheme at both a local airport and across all UK airports – not least because there is no safety case, and therefore no firm concept of operation or airspace arrangements, for LHR-NWR.

Neither does the AoS provide a side-by-side comparison of the Heathrow and Gatwick options with an assessment making transparent the relative noise performance of the options. Illogically/Irrationally, the AoS rates LGW-2R and LHR-NWR equal as “Significant Negative”.

If the DfT continues to prefer LHR-NWR then it should provide a reasoned justification for doing so. No such justification has been provided so far

Whereas the AoS does acknowledge that expansion at Heathrow will affect a vastly greater number of the people than Gatwick, it does not properly assess or give weight to the implications and costs of this difference.

The AoS does not properly recognise the “worst case” health costs of noise in relation to Heathrow’s economic impacts.

The draft NPS does not attempt to fully or fairly balance the environmental costs and the economic benefits of each scheme. The analysis shows that noise related health costs (up to £15bn for LHR-NWR under AC worst case analyses) could show the Heathrow project having a negative NPV, whereas this would not occur with the Gatwick scheme;

When these and a number of other technical flaws in the AoS methodology are corrected, Gatwick expansion’s very substantial superiority in terms of noise impact is clear.

In summary, the draft NPS:

indicates clearly that Government has given far too little weight to noise as a factor in reaching its preference for the LHR-NWR scheme and fails to apply its existing noise policy;

fails to make clear what the noise impacts of LHR-NWR are likely to be, or the extent to which these are worse than the impacts of the LGW-2R scheme;

fails to provide a full and fair comparative assessment between the noise impacts of the schemes; and

fails to give adequate weight to the health costs arising from noise, or to LHR-NWR’s contravention of existing national policy on noise.


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6 GAL response to draft airports NPS: Habitats Regulations Assessment


The HRA concludes that, in relation to LHR-NWR, adverse impacts on the integrity of eight European Sites cannot be ruled out.

The HRA then goes on – as it is legally required to do – to consider whether there are alternative solutions that better protect the integrity of the European Sites in question.

The HRA concludes that:

LGW-2R would result in fewer types of impacts at fewer European Sites, but that adverse air quality impacts on the Mole Gap to Reigate Escarpment SAC (“the MGRE SAC”) cannot be discounted116;

The MGRE SAC contains a priority habitat type117;

Because it could affect a priority habitat, LGW-2R cannot be justified by Imperative Reasons of Overriding Public Importance (IROPI) relating to human

116 Draft NPS, HRA paragraph 9.2.7 117 Draft NPS, HRA paragraph 9.2.7

Summary

(i) The Habitats Regulations Assessment (HRA) underpinning the draft NPS wrongly

concludes that adverse air quality impacts on the Mole Gap to Reigate Escarpment

SAC (“the MGRE SAC”) cannot be discounted, and it is therefore not possible to

conclude that LGW-2R is a reasonable alternative to LHR-NWR.

(ii) The HRA’s conclusion is directly contrary to that reached by the consultants

appointed by the Airports Commission, and has been arrived at without undertaking new analysis and or providing any adequate explanation.

(iii) The HRA’s conclusions in relation to LGW-2R are based on a flawed assessment

and a clear error of law.

(iv) LGW-2R is an acceptable alternative to LHR-NWR in terms of HRA considerations, whereas LHR-NWR may well not meet the requirements of Habitats Directive 92/43/EEC.

(v) The Government must correct its HRA and amend the final NPS to make clear that

LGW-2R is a reasonable alternative, and one which has lesser impacts on the integrity of European sites.


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health, public safety, and /or “beneficial consequences of primary importance to the environment”118;

LGW-2R could, however, be justified by reference to other IROPI considerations but only “further to an opinion from the Commission”119;

No such opinion has been obtained; and

It is therefore not possible to conclude that LGW-2R is not a reasonable alternative to LHR-NWR.120

GAL’s Response

6.2 Flawed assessment

The HRA concludes in relation to LGW-2R that adverse impacts on the MGRE SAC, the Ashdown Forest SAC and the Ashdown Forest SPA cannot be discounted. This conclusion is directly contrary to the conclusion reached by Jacobs, the consultants appointed by the AC, and the HRA provides no new evidence or justification in support of such a conclusion.

GAL has commissioned its own consultants, RPS, to review this issue. They have undertaken a robust Habitats Regulations Screening Assessment (HRSA). A copy of the HRSA is provided at Appendix 3. This concludes that adverse impacts on the MGRE SAC, the Ashdown Forest SAC and the Ashdown Forest SPA can be discounted. As explained in RPS’s report, there is no reasonable basis for concluding that there are likely to be significant adverse effects on any of these European Sites, either alone or in combination with other plans or projects. In particular, using the traffic modelling undertaken by Jacobs for the AC, it is clear that LGW-2R would not generate significant traffic increases in the vicinity of either the Ashdown Forest SAC or the Ashdown Forest SPA. Whilst LGW-2R would generate more than 1000 AADT movements along the M25in the vicinity of the MGRE SAC, the likely change in nitrogen deposition can be screened out as insignificant, both for LGW-2R in isolation and also for “in combination” effects.

GAL also commissioned RPS to examine the adequacy of the assessment underpinning the conclusions reached in the HRA. RPS has produced a report on this issue, a copy of which is provided at Appendix 4. The report identifies a number of fundamental errors in the assessment. These include (but are not limited to) the incorrect use of traffic data and (with regards to the MGRE SAC) the selection of a modelling location that is not only outside the SAC but also immediately adjacent to the M25 itself.

The RPS report concludes that the analysis underpinning the HRA is therefore not fit for purpose.

It follows that, contrary to assertions made in the HRA, LGW-2R could be consented without the need to rely on IROPI considerations.

However, even if (contrary to the evidence) the Government does not accept this, it would plainly be necessary for the Government also to assess whether road traffic

118 Draft NPS, HRA paragraph 9.2.8 and Article 6(4) of the Habitats Directive 119 Draft NPS, HRA paragraph 9.2.8 and Article 6(4) of the Habitats Directive 120 Draft NPS, HRA paragraph 9.2.8


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associated with LHR-NWR could adversely impact the MGRE SAC as it passes between J8 and J9 of the M25. Such an assessment has not been carried out.

6.3 Flawed legal approach

The HRA’s rejection of LGW-2R is based on a clear misapplication of the law.

As set out above, the HRA concludes that unless and until an opinion is sought from the European Commission it is not possible to conclude that LGW-2R is a reasonable alternative to LHR-NWR.

Article 6(4) of the Habitats Directive provides that:

“Where the site concerned hosts a priority natural habitat type and/or priority species, the only [IROPI] considerations which may be raised are those relating to human health or public safety, to beneficial consequences of primary importance for the environment or, further to an opinion from the Commission, to other imperative reasons of overriding public interest”

As can be seen, Article 6(4) allows “other” IROPI reasons to be taken into account “further to an opinion from the Commission”.

Plainly, therefore, even if (contrary to GAL’s case) LGW-2R would have an impact on the MGRE SAC, it could still be justified on IROPI grounds.

The HRA is wrong to discount LGW-2R as a suitable alternative simply because the Commission’s opinion has not been obtained (or even sought). Obtaining an opinion from the Commission is a procedural requirement, so the fact that an opinion has not been obtained does not mean that LGW-2R could not in due course be justified on IROPI grounds or that it must be ruled out now as an alternative to LHR-NWR. Most obviously, the opinion may conclude that (e.g.) socio-economic factors could be taken into account to justify consenting LGW-2R on IROPI grounds, especially given that LHR-NWR would have greater impacts on more European sites than LGW-2R.

Even if the Commission’s opinion was adverse, whilst it would have to be taken into account, it would not be legally binding on the Government.

The approach taken in the HRA would mean that a scheme that could have an impact on a priority site / species could never be considered a suitable alternative, regardless of the extent of the harm that the “main” scheme would cause to other European Sites, or to biodiversity in general. Such an approach would be contrary to the main objective of the Directive, which is to promote the maintenance of biodiversity whilst taking proper account of economic requirements.

6.4 Conclusions

The DfT’s current position, ruling out LGW-2R on biodiversity grounds, is based on a flawed assessment and an unlawful interpretation of the requirements of the Directive. The Final NPS must make clear that LGW-2R is a reasonable alternative solution and one which has lower impacts in on the integrity of European sites.


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Appendices;

Appendix 3 - RPS, Mole Gap to Reigate Escarpment SAC & Ashdown Forest SPA/SAC - Habitat Regulations Assessment Report: Stage 1 (Screening), May 2017

Appendix 4 - RPS, Response to the WSP/PB Habitats Regulations Assessment


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7 Gatwick response to draft airports NPS: Carbon


The draft NPS concludes that the carbon effects of the schemes are not a differentiating factor121. This appears to be founded on assertions that122:

the differences between the schemes are small and the fact that LHR-NWR is the highest in absolute terms can be explained by the greater additional UK connectivity;

all three shortlisted schemes could be delivered within the UK’s climate change obligations;

the carbon policy scenarios ensure that increased emissions are not additional at the global level (carbon traded case) or at the UK level (carbon capped case); LHR-NWR would deliver greater benefits to passengers and the wider economy (such as lower fares, improved frequency and higher productivity), and would do so more quickly than LGW-2R. This appears to lead to a conclusion that it is the right choice on economic and strategic grounds.

121 Draft NPS, Para 3.58 122 Draft NPS, Paras 3.64-6

Summary

(i) The AC concluded that LGW-2R performs best on carbon emissions. Despite this, and without any new countervailing evidence, the Government does not consider carbon emissions to be a differentiator between the options.

(ii) In reality, at the individual airport level, LGW-2R would be significantly more carbon efficient than LHR-NWR. As a consequence, LGW-2R would take up 21% of the Committee on Climate Change (CCC)’s 2050 UK aviation ‘planning assumption’ of 37.5 MTCO2, compared to 52% taken up by LHR-NWR.

(iii) Significantly, the larger number of international transfer passengers at Heathrow

means that a proportion of the UK carbon “ration“ is consumed, not by UK O/D passengers, but by international to international (I-I) transfer passengers who do not enter the country. This is a highly inefficient carbon solution for the UK.

(iv) The situation at airport level will be replicated at national level requiring additional

policy interventions to meet UK carbon targets under LHR-NWR compared to LGW -2R. This could be through measures to reduce the aviation sector’s emissions by capping other UK airports or impositions on other sectors of the economy to reduce their carbon emissions. Such restrictions would be both more likely and more onerous with LHR-NWR. These risks and costs must be understood and the consequences made clear in the Final NPS.

For these reasons the Government should recognise LGW-2R as the better option in terms of delivering the UK’s carbon targets. If LHR-NWR continues to be preferred, the final NPS and supporting documentation must make clear the full consequences of this for UK aviation and other industries.


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The AC’s Final Report concluded that the LGW-2R performed best on carbon emissions, with LHR-NWR the least favourable123.

By contrast the AoS rates both options as having a “significant negative effect” against the appraisal objective.

GAL’s Response

7.2 Even on AC’s evidence, LGW-2R would give rise to significantly lower carbon emissions than LHR-NWR

The draft NPS and supporting AoS recognises that the LHR-NWR would produce far higher carbon emissions than LGW-2R in both construction and operational phases124. This is shown clearly in Table 6-4 of the AoS: which shows cumulative emissions over the 60 year appraisal period.

Source: AoS Table 6-4

It can clearly be seen that the total additional emissions generated by LHR-NWR are respectively 2.7 and 3.4 times greater than those of LGW-2R under the ‘carbon traded’ and ‘carbon capped’ scenarios respectively.

The draft NPS contains no evidence to refute this or to establish its proposition that the differences between the schemes’ carbon impacts are small.

7.3 Operationally, LGW-2R is significantly more carbon efficient than LHR-NWR

LGW-2R is significantly more carbon efficient than LHR-NWR. This is due to the very different airline and airport business models assumed for each scheme, which have important implications for emissions impacts at the UK level.

123 Airport Commission, Final Report Para 9.120 124 Draft NPS, Para 3.64


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7.4 In 2016 GAL commissioned SH&E International to undertake an assessment comparing the carbon emissions from flights for LGW-2R and LHR-NWR at an individual airport level.

The 2016 SH&E analysis has been updated based on the DfT October 2016 latest traffic forecasts. This continues to show that LHR-NWR would still be significantly less carbon efficient than LGW-2R both at an individual airport level and at national level.

In particular:

LHR-NWR would take up 52% of the CCC’s 2050 UK aviation ‘planning assumption’ in 2050, while an expanded LGW-2R would represent 21%.

Over a 60 year appraisal period LHR-NWR would be much more costly in terms of emissions per UK O&D passenger, with CO2 per O&D passenger being over three times greater per passenger.

With LHR-NWR, almost a quarter of the 2050 UK aviation carbon limit would be attributable to, i.e. used by, international to international transfer passengers travelling via the UK but not entering the country (i.e. passing through the UK for convenience rather than as a contributor to the UK economy). In 2050 under LHR-NWR scheme there are 45,000 more ATM’s at the UK level but 200,000 less O/D passengers. Thus expansion at Heathrow requires more ATM’s to accommodate the same (or fewer) O/D passengers; a highly inefficient carbon solution for the UK.

These results show how the differences in airport and airline business models result in significant differences in the carbon intensity of flight operations. Such differences stem primarily from varying proportions of transfer passengers, but reflect also differences in seating densities and load factors. All of these issues make LGW-2R a much better choice in carbon terms.

7.5 It is clear that choosing LHR-NWR will require additional policy restrictions to meet carbon targets compared to LGW-2R. These restrictions and their consequences should be clearly set out in the final NPS.

It follows that choosing LHR-NWR would make it much more difficult to deliver the Committee on Climate Change’s 2050 planning assumption of 37.5MtCO2 than LGW-2R, thus presenting far greater challenges for the UK aviation sector and the UK overall to meet its carbon commitments. This can only mean that policy restrictions required for the aviation sector and / or other industry sectors would be both more likely and more onerous with LHR-NWR.

For the aviation sector, such interventions might require the introduction of regulatory measures to cap growth at other UK airports, particularly regional airports, with serious consequences for regional connectivity, and competition.

Alternatively, if more onerous measures are imposed on other industry sectors, then these costs should be understood and taken into account.

7.6 Conclusions

The draft NPS conclusion that carbon is not a differentiating factor is not supported by the evidence.


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The AC’s own assessments show that LGW-2R performs best on carbon emissions. This differential is not reflected in the AoS, which rates both options as having a “significant negative effect” a conclusion which should be corrected.

LHR-NWR is an inefficient carbon solution for the UK since a significant proportion of the UK’s carbon “ration” is consumed by International to International transfer passengers who do not directly contribute to the UK economy.

Choosing LGW-2R would have much less impact on the UK’s climate change objectives and as a consequence would require much more limited additional policy interventions. These amount to very significant benefits for LGW-2R which must be taken into account.

The Government should therefore recognise LGW-2R as the option better placed in terms of delivering the UK’s carbon targets. If LHR-NWR continues to be preferred the final NPS and supporting documentation of that choice, in terms of carbon reductions to be achieved elsewhere, for UK aviation and other industries.

Further, GAL emphasises that, if the preference for LHR-NWR is confirmed, the final NPS should make clear that DfT is opting to “spend” a significant proportion of the UK’s aviation emissions on I-I transfer passengers, who deliver little or no benefit to the UK economy.


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8 Gatwick response to draft airports NPS: Deliverability


The draft NPS makes the following points:

Heathrow expansion is more complex than expansion of Gatwick (para 3.45).

The 2026 delivery date for LHR-NWR is therefore more risky than the 2025 delivery date for LGW-2R (para 3.45).

Summary

(i) A balanced and comprehensive analysis of the information relating to delivery

would show that LGW-2R can be operational much earlier than LHR-NWR. In

particular it would recognise that:

Air quality issues mean that LHR-NWR is not deliverable by its target date

of 2026 and it is uncertain when it could be delivered;

The cumulative impact of a number of other significant planning and

construction risks to delivery is also likely to lead to further substantial

delays;

The scale and speed of capital investment is unprecedented on a single

site project in the UK, which is likely to be compounded by a shortage of

suitable resources due to competition with other major infrastructure

projects.

Surface access plans associated with LHR-NWR remain un-scoped and

un-costed adding further delivery risks.

Airspace changes will be harder to implement at LHR-NWR due to the

complex operational configuration of the runways and the very large

number of people who will be newly affected by noise.

Even assuming that these risks to delivery can be overcome, LHR-NWR is

unlikely to open before 2030, meaning the delivery of economic benefits

will be much slower than stated in the draft NPS which assumed a 2026

opening.

(ii) The more thorough approach to delivery risk analysis used by Bechtel should be

adopted by DfT as the basis for further work thus allowing the Government to

recognise the nature and scale of the risks to LHR-NWR delivery. Further,

Government it must factor these risks into its wider assessment of the relative

benefits of the shortlisted schemes.

(iii) In the light of the above, it is wrong for the Government to afford “particular

weight” to the idea that LHR-NWR will deliver economic benefits sooner than

LGW-2R. In reality, LGW-2R is likely to deliver benefits to passengers and to the

wider economy much sooner than LHR-NWR. This would allow the UK respond

much more quickly to the UK’s developing needs particularly following Brexit.


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Nonetheless, for the purposes of the NPS analysis, the Government has assumed LGW-2R would open in 2025 and LHR-NWR would open in 2026 – based on the proposers’ submissions (para 3.45).

LHR-NWR would provide benefits to passengers and to the wider economy sooner than LGW-2R. This is regardless of the technical challenges to its delivery. (para 3.70)

The AoS also refers to the 2026 opening date for LHR-NWR but separately refers to the new runway becoming operational from 2030. This apparent inconsistency needs to be resolved in the Final Airports NPS.

GAL’s Response

There is a much higher level of delivery risk associated with LHR-NWR, compared with LGW-2R, a point accepted by the AC125.

As detailed below there are significant delivery risks which cumulatively demonstrate that LHR-NWR will take much longer to deliver than has been assumed in the NPS. Further there remains considerable uncertainty as to when it might be deliverable beyond that timeframe, in view of legal limits on air pollution126.

8.2 Air quality issues mean that LHR-NWR is not deliverable by its target date of 2026 and it is not known when it could be delivered

The LHR-NWR delivery programme assumed by the DfT takes no account of the risk of delay caused by non-compliance with air quality limits. We explain at paragraphs 4.2, 4.3 and 4.4 above why the legality of the proposed third runway is questionable in the timescales proposed. The DfT’s appraisal of the options should therefore reflect the likelihood that the opening of this runway will need to be delayed to ensure that air quality limits are not breached.

There is no evidence that LGW-2R will cause any breach of air quality limits and therefore there is much more certainty on its delivery programme.

8.3 Planning and construction risks are much higher at LHR-NWR

At both planning and construction stages, the much greater scale and complexity of LHR-NWR brings a significantly higher level of delivery risk than LGW-2R. These risks include in particular:

The challenge of getting planning consent for the removal, relocation or treatment of existing infrastructure and features within the development site.

The challenge of building the quantum of infrastructure needed before the runway can be opened, within a constrained site located in a very busy area, and with multiple interactions with a large operational airport.

The financial, operational and logistical challenges of providing the required surface access improvements for Heathrow expansion on some of the busiest and most overcrowded road and rail corridors in Europe.

125 Airport Commissions Final Report para 11.39 dated July 2015 126Air Quality section of this response para 4.2


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The following examples demonstrate the first point:

The Lakeside Energy from Waste (EfW) Plant is located on land needed for the construction of the proposed runway and therefore it would need to be relocated if LHR-NWR goes ahead. It is a strategically important facility, treating hospital clinical waste from central and west London and the Home Counties’ hospitals as well as local authorities and businesses, thereby reducing the level of waste going to landfill. The £160m facility can process 410,000 tonnes of residual waste per year, generating 37MW of electricity (enough to power around 50,000 homes). The draft NPS makes reference to this facility and makes clear that the consequences of its closure have not been fully assessed.

Its relocation was highlighted as a major issue by the AC Final Report127. It will be a complex, time consuming and expensive undertaking. To ensure continuity of service a new site will need to be found, development consent granted and a replacement facility built and commissioned before the existing plant can be demolished. This raises very significant risks to the LHR-NWR delivery programme.

The failure to obtain development consent to demolish and then construct a replacement facility, would prevent LHR-NWR from being built and operated. Any significant delay in securing the necessary consent would similarly cause significant delay to the LHR-NWR programme. However these risks do not appear to be reflected in the assessment process. This is a major omission. For LGW-2R there is no comparable facility requiring relocation.

River diversions

LHR-NWR will require several rivers to be re-routed into culverts under the runway. Securing the necessary environmental and planning consents is likely to lengthen the DCO process for LHR-NWR as culverting is in direct conflict with current Environment Agency policy.

At Gatwick, LGW-2R will remove two water courses from an existing culvert under the runway, producing a net improvement to water quality and flood risk. This means that river diversions do not impose any significant risks to the Gatwick delivery programme.

Contaminated land

GAL provided information to the AC and the DfT regarding the landfills and ground conditions within the footprint of the LHR-NWR site in a report from RSK dated January 2015. This report highlighted that these existing landfills contain an estimated 7.7 million m3 of waste of which 1.1 million m3 may be hazardous. The treatment and/or removal for disposal of this waste is a major risk to the deliverability of the scheme by 2026, as are obtaining the necessary approvals, environmental permits etc. including for any off-site disposal or on-site treatment. Yet the draft NPS and the AoS make no reference to these risks or to how they should be managed. This is a significant omission.

8.4 The required scale and speed of capital investment presents a major challenge which has not been mentioned or addressed in the draft NPS

127 Airports Commission Final Report para 11.35 Dated July 2015


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The programme spend profile for LHR-NWR128 indicates that during peak spend years, scheme costs will surpass £3.0Bn with the yearly peak spend in 2024. This equates to a monthly spend of approximately £250m. The spend profile for core capex, represents an average of £1.2Bn of additional expenditure. This would mean that the projected annual spend on construction activities during peak periods would be of the magnitude of £4.2Bn with a project monthly spend of £350m. When surfaces access and asset replacement costs are added, total expenditure peaks in excess of £6Bn per annum as shown on the graph below taken from the Airport Commission’s final report129. This unprecedented level of scheme capex expenditure, on a single congested site, alongside an international airport, poses significant additional risks to delivery.

Again, this is an area where the challenge associated with LGW-2R is clearly of a different order of magnitude (see table below).

128 PWC Cost & Commercial Viability: Financial Modelling Input Cost Update. 129 PWC Cost & Commercial Viability: Financial Modelling Input Cost Update. Figure 20.


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Comparison to similar programmes:

London Olympics 6 year delivery programme Total budget £ 9.3Bn Peak monthly spend £150M

Terminal 2 4 year build programme Total budget £3.5Bn Peak monthly spend £85M

Terminal 5 5 ½ year build programme Total budget £4.6Bn Peak monthly spend £90M

LHR-NWR130 7 year build programme Total budget £21.67Bn Peak month spend £421M

LGW-2R131 7 year build programme Total budget £7.79Bn Peak month spend £70M

Hinkley Point C 9 year build programme Total Budget £18Bn Peak month spend £86M

The peak expenditure required for LGW-2R, shown above, is considerably lower, in line with the phased delivery approach, which is designed to match more closely the progressive increase in passenger numbers. Phasing spreads the capital expenditure, evens out resource requirements, both material and personnel and reduces risks in obtaining the required levels of finance. The peak expenditure rate for LHR-NWR, as shown above, more than doubles that achieved at the Olympics, which was spread over multiple sites, and must cast further serious doubt on the realism of the LHR-NWR delivery date of 2026.

The NPS makes no effort to compare the rate of spend risks between the schemes in a balanced and comprehensive way. This is a very serious failing.

8.5 Surface access challenges at LHR-NWR may pose real risk to overall delivery and assessment should not be passed to promoter

The Highways England report to the AC132 emphasised that the planning and delivery risks for road schemes associated with airport expansion are much higher at Heathrow than at Gatwick:

130 - Jacobs / Leigh Fisher (30 June 2015): “Cost and Commercial Viability: Cost and Revenue Identification Update, Heathrow Airport North West Runway”, 2024 expenditure of £3,560m over 12 months, Table 4-2, p.13. - Jacobs / Leigh Fisher (30 June 2015): “Cost and Commercial Viability: Cost and Revenue Identification Update, Heathrow Airport North West Runway”, 2024 expenditure of £1,493m over 12 months, Table H-1, p.H-2. 131 - Jacobs / Leigh Fisher (29 June 2015): “Cost and Commercial Viability: Cost and Revenue Identification Update, Gatwick Airport Second Runway”, 2023 expenditure of £663m over 12 months, Table 4-2, p.14. - Jacobs / Leigh Fisher (29June 2015): “Cost and Commercial Viability: Cost and Revenue Identification Update, Gatwick Airport Second Runway”, 2023 expenditure of £182m over 12 months, Table H-1, p.H-2. 132 Highways England Report – Airports Commission, Surface Access Works, para 2.1 Delivery

Summary


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The Gatwick proposal is the lesser in terms of overall delivery risk, impact on existing network during construction and has no apparent direct impact on RIS commitments;

Gatwick information and presentation material indicated a good level of methodology and planning development that would support a high level of delivery confidence in line with proposals

Whilst unquantifiable within the constraints of this report, all schemes but particularly the Heathrow proposals will place significant pressure on Tier 1 contractors’ resources if timescales for infrastructure projects in the UK and particularly the South of England stay the same;

Both schemes start dates are critically linked to the DCO process and this represents a significant risk in both cases, though perhaps more so on the Heathrow proposal due to scale ;

The Heathrow proposals in particular have a series of complex interdependencies that each represents significant risk to the timeline (and as such cost).

This is reflected to some extent in the draft NPS’s133 expressed concerns over the impacts on the local and national transport networks of increased traffic during both the construction and operational phases, but the draft NPS plays down the risks to delivery deadlines by passing responsibility to the promoter134. The increased vehicular movement for construction may also impact the air quality concerns. It is likely that these movements may need to be closely monitored to minimise the environmental impact, which in turn may result in longer, less efficient more expensive construction delivery.

In comparison, while one major road (the A23) needs to be diverted for LGW-2R, the scale and complexity of the surface access work is much less than for LHR-NWR where the M25, A4, A3044 and a number of local roads are affected. There is therefore much less risk to the delivery programme for LGW-2R.

In failing to make a proper side-by-side comparisons of the surface access requirements of the two schemes and in failing to assess the extent of public funding required to deliver the necessary highway improvement the draft NPS has not properly assessed the relative risks posed by these considerations to the delivery of the two schemes.

8.6 Airspace changes will inevitably take longer than forecast and could face considerable community and political opposition

The delivery programme for LHR-NWR assumes that the airspace changes, which the scheme requires in order to make its impacts acceptable, can and will be permitted and implemented when required.

However, recent experience135 has shown how difficult it can be to deliver significant changes to the UK’s airspace. Even small changes136 have taken longer than expected. Given that the scale of change proposed for LHR-NWR is unprecedented this presents a significant risk of delay. This is even more pronounced when viewed in the context the new airspace change process (not yet finalised) and new Government airspace policy (currently out for consultation): there must be a very real risk that the airspace changes will slow down the delivery of the runway.

133 Draft NPS para 5.5 134 Draft NPS para 5.15 135 For example the Transition Altitude Programme and the failure to progress LAMP 136 Like those proposed for Farnborough and Biggin Hill airports


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There is also ample recent evidence of the public reaction to airspace change. The failed Ascot trials at Heathrow are a case in point, where relatively minor changes provoked a very significant public reaction from those newly affected by noise, including in areas some distance outside Heathrow’s 57dBA noise contour.

While a new runway in any location will require airspace change, the level of delivery risk faced will, to a large extent, be shaped by the number of people affected by the changes in flightpaths, particularly those people newly affected by significant levels of noise. In this respect the LHR-NWR airspace changes carry a much higher level of delivery risk as a result of the project’s much more extensive noise impacts.

The CAA has noted137 that the lack of detail available on airspace design made it difficult to assess the impact of the LHR-NWR proposal. However it did note that the proposed runway configuration, with the new runway being staggered relative to the existing runways, might create problems, especially with regard to the noise respite proposals. In para 2.18 the CAA notes: ’The operation associated with noise respite periods 2 & 3, where aircraft are departing from adjacent runways may be particularly difficult to achieve given the staggered position of the northern runway. Further work will be required to understand whether these modes are viable.’ This is indicative of the specific challenges associated with the complex airspace solutions proposed for LHR-NWR which are likely to impact on the airspace delivery programme.

8.7 Correcting the treatment of delivery risk in the NPS

The NPS needs to be supported by a much more thorough analysis of risks to delivery.

A Quantitative Risk Analysis of the LHR-NWR opening date

In earlier submissions GAL has provided expert evidence from Bechtel138 on the cumulative effects of the delivery risks for LHR-NWR. Such information has not been used to by DfT to verify the 2026 runway opening date for LHR-NWR, nor has the DfT carried out its own Quantitative Risk Analysis. There is no evidence in the draft NPS to refute the view of these leading industry experts that the estimated LHR-NWR 2026 delivery date is overly optimistic. At the time of the review in January 2015, the most likely opening date was 2nd Quarter 2029. Assuming designation of the NPS now unlikely until at least December 2017, and allowing for design work having been carried out by Heathrow to further develop the scheme, Bechtel have revisited their report and suggest that a P80 Assessment of completion would now be 3rd Quarter 2030.

LHR-NWR is planned to be delivered alongside Hinkley Point C, High Speed 2, Thames Tideway Tunnel and Manchester Airport Transformation Programme. These major schemes are likely to acquire their resources from the same construction industry supply chain and labour pool. Furthermore, uncertainty around future labour supply from Europe with the recent Brexit decision will put further pressure on Heathrow and other major infrastructure schemes to secure what is needed to deliver its schemes. This is compounded at Heathrow because of their extraordinarily ambitious expenditure profile which will need to draw further on these resources. LGW-2R would face some of the same challenges, however the

137 CAA report - ‘Airports Commission shortlisted options, Module 14: Operational Efficiency - preliminary safety review’ 138 Review and Commentary on Airports Commissions Consultation Document and Module 16: Delivery, dated January 2015


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programme and expenditure profile is not aggressive and the nature of the works being far less complex means these challenges would not have the same level of impact on planning, enabling works or construction delivery and can be addressed and mitigated more easily. This means that delivery of LGW-2R by 2026 is much more certain, this is confirmed by the Quantative Risk Analysis as carried out by Bechtel.

Within the GAL response to the AC’s Final report, Bechtel139 reviewed the approach taken to assessing risk of delivery for the three schemes and stated “The assessment of risk associated with the delivery of Gatwick’s expansion plans as relatively modest reflects our own analysis, based upon a detailed understanding of the reduced level of complexity and reduced number of interdependencies in the critical path programme.”

As highlighted in DfT’s – Review of the Airport Commission’s Final Report – section 101, the risk analysis of all schemes is largely qualitative. Accordingly, to improve the quality of information on the delivery of the recommended scheme within the final NPS and resultant decision making process, it would be prudent to develop a full quantified risk analysis so that there is improved confidence as to when LHR-NWR can be delivered.

8.8 Conclusion

Whilst the NPS acknowledges that delivery of LHR-NWR is more complex than expansion of LGW-2R (para 3.45), it is clear that the consequences of this complexity have not been fully understood or explained in the draft NPS. In particular, the draft NPS does not make clear that the delivery date for LHR-NWR is significantly more risky than the delivery date for LGW-2R.

A thorough quantified analysis of the relative delivery risks of the two projects along the lines of the work presented by Bechtel would show a much greater ‘gap’ between the two schemes and is likely to indicate that a more realistic opening date for LHR-NWR will be beyond 2030. Such an analysis will also make clear that the much earlier opening of LGW-2R would deliver significant additional economic benefits for that scheme that should be reflected in a revised NPS.

Because of its simpler planning and construction, reduced environmental effects, and significantly stronger position regarding financing, LGW-2R provides a better and more certain way of delivering economic benefits sooner than LHR-NWR and this important point should be recognised in a final Airports NPS. This must be also factored into Government’s overall evaluation of the relative merits of the shortlisted schemes.

It follows that the draft NPS is wrong to attach “particular weight” to the assertion that LHR-NWR will deliver economic benefits sooner than LGW-2R because (as explained above) this is based on the assumption that the Heathrow runway will open in 2026. This date, although asserted by HAL, is clearly unfeasible in the light of the realities described above, and impossible in the light of the air quality challenges.

139 Review and Commentary on Airports Commissions Consultation Document and Module 16: Delivery, dated January 2015


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The Government in its National Infrastructure and Construction Pipeline report140 lists over 700 projects and programmes with a total value of more than £500bn including Hinckley Point C and HS2 which are in planning, design or delivery. The LHR-NWR expansion will be delivered alongside a number of major infrastructure projects which will all be acquiring resources from the same supply chain and labour pool. This uncertainty around resource and labour will place additional pressure onto the already highly ambitious programme and capex expenditure profile at LHR-NWR. While LGW-2R will experience some of the same pressures, its less aggressive programme and expenditure profile and less complex nature mean that the impacts can be addressed and mitigated more easily.

The currently planned Government designation of the NPS in December 2017 is approximately two years later than that assumed in the original programme analysis contained in the Bechtel report141. Having revisited the risks associated with delivery, Bechtel have determined that there has been minimal change associated with the key risks to both the LHR-NWR and LGW-2R original delivery programmes. They have therefore concluded that the impact of the delay in NPS designation would result in a direct knock on effect to the previous analysis with LGW-2R completion now projected in 2026 and LHR-NWR completion in 3rd Quarter 2030.

140 National Infrastructure and Construction Pipeline Analysis, Overview, Para 2.2, page 7 141 Review and Commentary on Airports Commissions Consultation Document and Module 16: Delivery, dated January 2015


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9 Gatwick response to draft airports NPS: Financeability


The draft NPS reaches three main conclusions on financeability:

All three schemes could be financeable without Government support;

The level of debt and equity required for the LGW-2R scheme would be considerably lower than for LHR-NWR; and

LGW-2R would have comparatively higher demand risk compared to the LHR-NWR.

GAL’s Response

The underlying evidence does not support this broadly neutral view. There is strong evidence that puts into doubt whether LHR-NWR is financeable without Government support. Furthermore, LGW-2R has a clear comparative advantage when each of the elements of financeability are assessed.

Summary

(i) There is strong evidence to suggest that LHR-NWR is not financeable without Government support. The draft NPS needs to take account of this. In particular, one of the prerequisites for LHR-NWR, as outlined by the Secretary of State for Transport, is to keep airport charges broadly flat in real terms. The implications of this requirement have not been assessed, neither have other conditions such as capacity restrictions should air quality limits not be met, as well as a ban on night flights, minimum levels of domestic connectivity, periods of noise respite and a noise envelope.

(ii) The comparative advantage of Gatwick’s financing case over Heathrow is significant and this has not been properly represented in the draft NPS. These advantages include:

Gatwick offering to bear more of the commercial risk

Gatwick’s scheme is low complexity and low risk

Gatwick has a clearer and much less challenging surface access plan

Gatwick’s phasing lowers demand risk and is another source of advantage

in financing

Gatwick’s airport charges are competitive

Securing debt funding for Gatwick is lower risk

The final NPS must acknowledge and give significant weight to the evidence that

LGW-2R is considerably more resilient in financial terms than LHR-NWR; and that

there is very significant risk that LHR-NWR is not financeable at all without

Government support. As a minimum, a much deeper analysis of financeability is

required before a choice can be made.


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The evidence indicates that LHR-NWR may not be financeable without Government support

9.2 The key Government requirement of keeping Heathrow’s airport charges broadly flat with LHR-NWR does not appear to have been considered in the analysis of financeability

In order to finance the core scheme and surface access requirements, the AC’s 2015 analysis indicated that, with LHR-NWR, Heathrow’s peak charges would need to increase from 2018 by circa 60%142. In addition, the AC assumed all risks to financing could be absorbed by an uncapped rise in airport charges if required143.

This is clearly inconsistent with the Government’s stated requirement that airport charges are kept flat in real terms144. In his statement to Parliament on airport capacity on 25 October 2016, the Secretary of State for Transport stated:

“(The CAA’s)...aim should be to deliver a plan for expansion that keeps landing charges close to current levels”.

This aim was subsequently endorsed by Andrew Haines of the CAA145 who stated:

“The need for additional aviation capacity is clear and we welcome the Government's announcement. We now expect Heathrow to set out how it will meet its promise not to increase prices…”

And the critical importance of this aim was emphatically underlined by Alexandre de Juniac, IATA’s Director General and CEO146:

“The government’s desire to keep charges close to current levels cannot be compromised”.

The objective of keeping charges close to current levels should obviously feed into the underlying assessments of economic benefit and financeability. Yet analysis for the AC and the DfT of the financeability of the LHR-NWR scheme did not reflect this objective. Accordingly, Government needs to undertake revised analysis in which financing mitigation is provided through additional equity funding rather than higher airport charges.

GAL has carried out an analysis that shows that HAL would need to be willing to accept a pre-tax, real Weighted Average Cost of Capital (WACC) of lower than 4% in order keep airport charges broadly flat in real terms. The lowest historical regulatory WACC settlement for UK airports has been 5.3%147. This analysis accepts (without prejudice) the current DfT input assumptions on traffic, scheme and surface access costs, and programme and assumes that HAL is allowed to increase its movement cap by 25,000 ATMs prior to delivery of the third runway. However, as this response highlights, there are significant weaknesses in each of these assumptions: insufficient risk is provided in the scheme cost surface access schemes have been omitted, and the programme completion date does not take into

142 Airports Commission. Funding and Financing Update – Section 3 – LHRNWR – Charts and underlying data 143 Airports Commission. Cost and Commercial Viability: Funding and Financing. July 2015. Table 15. 144 https://www.gov.uk/government/speeches/airport-capacity 145 http://www.caa.co.uk/News/CAA-sets-out-expectations-to-LHR-NWR-Airport-for-delivering-a-new-runway/ 146 http://www.iata.org/pressroom/pr/Pages/2016-10-25-02.aspx 147 CAA. Economic regulation at Heathrow from April 2014. CAP1151. P289.

https://www.gov.uk/government/speeches/airport-capacity

http://www.caa.co.uk/News/CAA-sets-out-expectations-to-Heathrow-Airport-for-delivering-a-new-runway/

http://www.caa.co.uk/News/CAA-sets-out-expectations-to-Heathrow-Airport-for-delivering-a-new-runway/

http://www.iata.org/pressroom/pr/Pages/2016-10-25-02.aspx


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account the complexity of the project. It is therefore entirely feasible that Heathrow would need to accept a WACC substantially lower than 4% in order to keep airport charges broadly flat.

There is historic evidence of some Nationally Significant Infrastructure Projects (NSIP’s) being financed at a lower WACC than 4% (Thames Tideaway Tunnel - TTT) being the most recent example). However, in those instances, significant risks have either been carved out or protections have been put in place to materially down-weight them148. TTT for example received a substantial Government support package. This package carved out the risk of financial market disruption by offering TTT short term liquidity. It was also designed to down-weight construction risks by mitigating high impact/low-likelihood risks. It included insurance cover of last resort and an additional equity contribution in the event of a significant construction overrun. In addition, Ofwat’s exceptional regulatory regime for TTT provided additional risk shields in the regulatory formula during the construction period. This mechanism transfers risk to consumers and requires them to pre-fund more of the project.

Such mechanisms do not easily lend themselves to the airport sector. Airlines are strongly opposed to the idea of paying in advance for capacity, or pre-funding infrastructure149. This is clear from Easy Jet’s statements and, similarly, Willie Walsh at ABTA’s conference in June 2016 noted that ‘…there is no justification for pre-funding investment in infrastructure150.’ Accordingly, on the basis of these views of LHR key third runway customers, it seems unlikely that Ofwat’s exceptional regulatory concepts are portable into airport regulation.

GAL is unable to find evidence of any NSIP that have been financed at such a low headline WACC without Government support. It should also be re-iterated that a very conservative set of assumptions have been used by GAL to estimate this WACC. On this basis, GAL strongly asserts that LHR-NWR (as currently proposed, with charges kept close to current levels) is unfinanceable without substantial Government support, and it is clear that introducing such support at this late stage of the process would be unfair and probably illegal.

The DfT’s assessment of financeability, will also need to take into account further commitments offered by HAL as well as conditions proposed by the AC and Government including a ban on night flights, minimum levels of domestic connectivity, periods of noise respite, and a noise envelope.

9.3 Capacity release has to be contingent on meeting air quality limits, but financiers may well not be prepared to take this risk

The AC recommended a legally binding planning condition which would prevent the use of additional capacity from LHR-NWR until it is clear that the air quality at sites around the airport will not delay compliance with EU limits151.

148 http://www.oxera.com/Latest-Thinking/Agenda/2015/The-Thames-Tideway-Tunnel-returns-underwater.aspx 149 EasyJet’s submission to the Commission urged them ‘…to ensure the expansion proposals are not reliant on raising funds from passengers paying in advance” http://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/about-easyjet/easyJet-response-to-the-airports-commission-consultation-jan2015.pdf 150 http://www.airportwatch.org.uk/2016/06/walsh-hits-out-at-runway-costs-doing-nothing-is-better-than-doing-the-wrong-thing/ 151 Airports Commission: Final Report, paragraph 14.113

http://www.oxera.com/Latest-Thinking/Agenda/2015/The-Thames-Tideway-Tunnel-returns-underwater.aspx

http://www.oxera.com/Latest-Thinking/Agenda/2015/The-Thames-Tideway-Tunnel-returns-underwater.aspx

http://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/about-easyjet/easyJet-response-to-the-airports-commission-consultation-jan2015.pdf


http://www.airportwatch.org.uk/2016/06/walsh-hits-out-at-runway-costs-doing-nothing-is-better-than-doing-the-wrong-thing/

http://www.airportwatch.org.uk/2016/06/walsh-hits-out-at-runway-costs-doing-nothing-is-better-than-doing-the-wrong-thing/


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With a likelihood of LHR-NWR breaching air quality limits in 2026 (the targeted albeit unrealistic opening date), and uncertainty about when compliance will be achieved, coupled with the resultant punitive effects of limiting capacity and stranding significant capital costs, there is a strong likelihood that financiers will not be willing to lend without substantial Government support.

LGW-2R has a clear comparative advantage over LHR-NWR in terms of commercial risk and financeability which has not been properly reflected in DfT analysis

9.4 Gatwick offered better allocation of commercial risk but the AC decided not to take this into account

The differences between LHR-NWR and LGW-2R in terms of commercial risk have not been adequately considered in either the DfT or AC assessments.

GAL proposed a long-term framework with binding obligations that committed it to delivering a new runway and appropriate infrastructure by 2025, while meeting appropriate service standards and setting airport charges within defined limits152. Under this obligation, GAL would assume the majority of risk associated with a new runway development, including long-term traffic, market price and construction risks.

GAL’s commercial approach offers two significant advantages. First, the demand risk associated with escalating airport charges is limited. (LHR-NWR assumes that airlines or passengers will bear any increase in airport charges as a result of this realisation of risk.) Second, airlines and consumers would not be unfairly burdened and financially penalised for risks that are clearly not in their control.

The AC’s assessment of this offer is summarised in paragraph 11.24 of the Final Report:

“The details of this (GAL’s Commercial proposal) would be a matter for subsequent negotiation between the Government, the airport and the regulator. The Commission’s judgement is that the contract does not significantly alter its assessment of the commercial viability of the Gatwick Airport Second Runway Scheme.”

In other words, the AC decided not to take Gatwick’s offer into account. HAL has not made any equivalent commitment, and it can safely be assumed that they will not be able to, given the huge risks inherent in their scheme. It is therefore likely that a RAB153 based approach will be adopted for LHR-NWR, leaving users and/or taxpayers to bear with a significant proportion of key project risks, as well as long term traffic risk154.This is a significant factor in LGW-2R’s favour and it is unreasonable for the key elements of this offer to be excluded from consideration in DfT’s evaluation of the options – notwithstanding that precise details are likely to be a matter for subsequent negotiation155.

152 A Second Runway for Gatwick Response to Airports Commission Consultation. 3 February 2015. Module 13 Cost and Commercial Viability. 153 Regulatory Asset Base 154 Implications of current Heathrow Airport RAB-based regulatory approach 155 Airports Commission: Final Report, Para 11.24.


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9.5 Gatwick’s scheme is low complexity and low risk

LGW-2R has a straightforward development concept. It offers a project with a low cost base and a low risk of cost escalation and delay. GAL has presented a significant amount of evidence comparing the complexities of the two projects156. It is clear157 that the planning and construction risks are much more extensive with LHR-NWR and this would place significant pressure on HAL’s ability to finance its expansion.

A proper comparative assessment of the construction risks between the two schemes would have brought this out. In accordance with WebTAG158, a full ‘Quantitative Risk Assessment’ should have been carried out for both projects, including producing a scheme-specific risk register. This register would provide a clear comparison between projects of the magnitude and quantity of risks, as well as likelihood of occurrence. The end result – based on a probability cost distribution – would show a much greater likelihood of significant cost escalation occurring in the LHR-NWR scheme. Accordingly, the DfT’s financeability analysis needs to provide for greater headroom in HAL’s financing ratios, which ultimately would lower their overall debt capacity.

9.6 Gatwick has a clearer and much less challenging surface access plan

LGW-2R’s surface access requirements are clear and the necessary funding has been included in GAL’s financing requirements159. By contrast, the question of who pays for a number of the surface access schemes for the LHR-NWR options has been left unresolved. This opens up a financing gap of circa £6.3bn – a very significant sum160. Furthermore, as it is unclear who is responsible for delivery of these projects, it is unclear who will assume the programme and other risks associated with them.

9.7 Gatwick’s phasing lowers demand risk and is another source of advantage in financing

LGW-2R has a modular and phased approach that allows GAL to pace investment in line with traffic growth. This significantly de-risks the project and enhances financeability – a point that has not been taken into account when the DfT states that the LGW-2R scheme would have comparatively higher demand risk161. Given LHR-NWR’s unavoidably heavy upfront expenditure on residential/commercial property acquisition, surface access, site preparation and land remedial work, it is not possible to phase the scheme in any significant way.

A further significant error exists in the comparative assessment of demand risk. The AC’s use of DfT’s traffic model allocation significantly underplayed Gatwick’s traffic performance since 2012. Now that this base traffic has been updated in the DfT’s

156 A Second Runway for Gatwick Response to Airports Commission Consultation. 3 February 2015. Module 16 Delivery. 157 Gatwick Response to Draft NPS, Appendix 1, Page 60-68, Deliverability, 25th May 2017 158 Department for Transport (2014). TAG Unit A1.2: Scheme Costs. Paragraph 3.1.1 159 LGW-2R Second Runway – A Privately Financed Expansion. Presentation to DFT and Treasury 23rd March 2015 160 Draft NPS, Financeability Section para 3.44, page 26 161 Draft NPS, new runway capacity and infrastructure at airports in the South East of England. February 2017. Paragraph 3.44.


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‘Further Review and Sensitivities Report’, the comparative assessment of demand risk must be re-evaluated.

9.8 Unlike Heathrow, Gatwick’s airport charges are competitive – a key factor excluded from DfT’s analysis

Gatwick’s airport charges are competitively positioned today compared to other European airports and there is headroom for modest increases to fund LGW-2R’s scheme within Gatwick’s commercial offer referred to earlier. Heathrow’s charges on the other hand are already the highest among major European airports, significantly higher than the second highest, Athens162. With LHR-NWR targeting (or committing to provide capacity) on some of the most price-elastic markets (domestic routes163, transfer traffic164, short haul easyJet routes165), there must be real doubt as to how or whether the market will bear Heathrow’s prices.

Instead, the DfT’s financing methodology takes the view that airport charges will have no effect on traffic demand and, in turn, financeability166. The absence of a comprehensive assessment of the level of airport charges that could be borne by the market, and therefore support the generation of cash flows necessary to earn an appropriate return, is therefore a fundamental omission.

9.9 Securing debt funding for Gatwick is lower risk

LGW-2R’S lower funding requirement means that it faces lower liquidity risk. This point has not been acknowledged in DfT’s analysis but it constitutes a significant advantage of LGW-2R over LHR-NWR. In fact, GAL has submitted an analysis167 to the DfT, which shows that LGW-2R could finance its entire programme of work prior to construction by securing upfront lending with suitable maturity, such that liquidity risk is eliminated at the point of executing construction agreements. As LGW-2R’s capex requirement for its first phase of development is relatively modest168, and the absolute quantum of debt required could be funded upfront through commercial bank lending. A tenor longer than the construction period would be possible, and LGW-2R’s prudent capital structure would be able to absorb the additional financing costs associated with commercial bank lending.

On the other hand, there is no recognition in DfT’s analysis of the scale of the funding challenge for LHR-NWR and the liquidity risk associated with this. HAL would need to issue at least one benchmark bond (c. £300 million) every single month for six years, irrespective of market conditions169. The equivalent for LGW-2R is only one each year.

162 A Second Runway for Gatwick Response to Airports Commission Consultation. 3 February 2015. Module 13 Cost and Commercial Viability. 163 LHR-NWR’s Statement of Principles. 2016 164 Strategic Fit: Forecasts July 2015. Table 6.15. 165 http://corporate.easyjet.com/~/media/Files/E/Easyjet/pdf/about-easyjet/easyJet-response-to-the-airports-commission-consultation-jan2015.pdf 166 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/440104/cost-and-commercial-viability-additional-sensitivities.pdf 167 Supplementary information pack to 23rd March Presentation to Department for Transport / HM Treasury (presented 27th May 2015) 168 LGW-2R Second Runway – A Privately Financed Expansion. Presentation to DFT and Treasury 23rd March 2015 169 A Second Runway for Gatwick Response to Airports Commission Consultation. 3 February 2015. Module 13 Cost and Commercial Viability. Figure 4.13.5



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9.10 Conclusion

As demonstrated above, LGW-2R is considerably more resilient in financial terms than LHR-NWR; and there is very significant risk that LHR-NWR is not financeable at all without Government support.

The issue of financeability needs to be given much more thorough consideration by DfT which has, at this point, failed to undertake an adequate analysis of sensitivities and scenarios in relation to their impact on project finance. Given the national importance of the decision, DfT’s approach is very high risk as it: (i) downplays the range of challenges which LHR-NWR faces and the possibility that the benefits claimed for the scheme will not be delivered (ii) hides the advantage which LGW-2R has over LHR-NWR in this respect, and (iii) ignores the considerable risk that LHR-NWR may not be financeable without Government support.

Lastly, in view of the many limitations in the airport capacity studies undertaken to date, and given the ambiguity that exists on the level of public sector contributions towards LHR-NWR’s surface access schemes, GAL considers it essential that the Secretary of State should confirm that aeronautical charges should be kept at current levels and that no State Aid will be permitted.


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10 GAL response to draft airports NPS: Surface Access


The draft NPS concludes that Heathrow has better surface access connectivity than Gatwick:

“To realise the benefits of expansion, passengers and users must have good access to the airport. On this basis Heathrow Airport has the advantage, because of its more accessible location and more varied surface access links.170”

“Heathrow Airport is better connected to the rest of the UK by road and rail. Heathrow Airport has already good road links via the M25, M4, M40 and M3, and rail links via the London Underground Piccadilly Line, Heathrow Connect and Heathrow Express. In the future, it will be connected to Crossrail, and linked to HS2 at Old Oak Common. The number of such links provide resilience”171.

It also states that:

“Access to Gatwick relies on the M23 and the Brighton Main Line, which means it serves London well but makes it less convenient for onward travel to the rest of the UK. It is also less resilient than Heathrow Airport.”172

GAL’s Response

10.2 Insufficient Clarity on which Schemes will be Necessary

Paragraph 5.5 of the draft NPS limits itself to stating the Government’s objective that road, rail and public transport schemes should be of high quality, efficient and

170 Draft NPS, Paragraph 3.34 171 Draft NPS, Paragraph 3.70 172 Draft NPS, paragraph 3.36

Summary

(i) The DfT’s approach to surface access is seriously flawed and does not provide sufficient clarity with regard to:

o Which schemes are likely to be “necessary” to support LHR-NWR o What the costs are likely to be o What the environmental effects are likely to be o Whether or not a road user charging scheme would be necessary and what the

implications of that might be for airport and non-airport related users o The risk of non-delivery of these schemes in a timely manner.

(ii) The DfT concludes that LHR-NWR would be more accessible than LGW-2R but is in

no position to draw such a conclusion given the absence of sufficient supporting analysis and understanding of Heathrow’s plans.

(iii) For these reasons, there is insufficient basis for Government to present surface access as a factor in favour of Heathrow.


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reliable. The same paragraph goes on to state that the Government wishes to see the number of journeys made to Heathrow by sustainable modes of transport maximised as much as possible. Paragraphs 5.8 to 5.19 outline the studies that Heathrow should undertake to determine which surface access schemes are necessary and what further mitigation should be provided.

This is a wholly inadequate basis for setting aviation policy. It demonstrates that there is lack of:

certainty over which schemes will be provided;

clarity on what they will cost or who will pay;

assessment of what the air quality implications would be as a result of delivering the necessary surface access schemes;

appreciation of what their other environmental effects will be;

information as to whether a road user charging scheme will be necessary, whether such a scheme can be devised, how it would operate and how it would affect local people as well as airport users;

understanding of how these schemes could be delivered in a timely manner;

understanding of the impact of construction traffic or the impact of airport construction on local road networks or rail services.

In the final analysis, there is no sound basis for the DfT to conclude that Heathrow is or will be more accessible to users of air transport.

In contrast, as the Airports Commission concluded, Gatwick’s surface access situation is clear and fully funded.

10.3 LGW-2R would be more accessible than LHR-NWR.

Public Transport. Gatwick has direct rail links to 129 stations, to central London and as far afield as Bedford, Reading, Southampton and Brighton. Direct connections to stations to Peterborough and Cambridge will be added in 2018, with onward connections across the UK without the need to change at busy central London stations.

In contrast, even with the proposed Western Rail Access (WRA) and Southern Rail Access (SRA) in place, Heathrow would still be directly connected to less than half the number of stations directly accessible from Gatwick.

Access to Heathrow via HS2 will not be available by 2026, and in any event HS2 will be readily accessible from Gatwick. Passengers could have a choice of either travelling via Farringdon (the interchange between Crossrail and Thameslink) or using a direct service by simply extending the existing Southern service, which runs from East Croydon and Clapham Junction to Milton Keynes, via the West London Line.

Furthermore, rail services to and from Heathrow suffer from congestion, with the AC predicting that both Crossrail and SRA will be heavily overcrowded in peak periods


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in 2030173. Little capacity would be available for additional traffic arising from expansion of Heathrow.

Gatwick’s strength in surface access is shown by the fact that Gatwick’s public transport’s mode share has increased by more than 10% over the last decade, rising from 33% to 44% between 2005 and 2015. In contrast, Heathrow’s public transport mode has been static for a decade and fell in 2015 to 39%, almost the same level as in 2005174.

Road. The draft NPS suggests that the simple number of motorway links to Heathrow provides resilience, but fails to take into account the fact that the road system in that area is the most congested in the UK, making journey times to and from Heathrow uncertain and unreliable.

Highways England confirms the position as follows:

“The [M25] South West quadrant is one of the busiest sections of the network and regularly experiences significant journey time delay. The proposed highway works, albeit that large elements are constructed off-line and even with careful phasing and traffic management is likely to make the situation significantly worse… The experience of Highways England teams is that the M25 already experiences over capacity periods in the area of Junction 14.”175

Gatwick’s road connectivity is more reliable than Heathrow’s. By way of example, the M4 in the vicinity of Heathrow is 12 times more likely, and the M25 in that area 7 times more likely, to suffer a major incident compared to the M23 near Gatwick. Speeds on the M23 are over 30kph (18mph) higher than on the M4 or M25 in normal conditions and over 40kph (25mph) higher following an incident.

The extent to which the M4 and M25 are far more prone to incidents than the M23 is shown in the table following:

Source: Airports Commission, Surface Access: Resilience Study, May 2015 (combined data from Tables

3.1, 3.2, 3.9, 3.10)

173Airports Commission Final Report, Surface Access: Dynamic Modelling Report – Heathrow Airport

North West Runway, Section 4.6, May 2015

174 Department for Transport, reproduced from Airport Operators Association, “Connecting the UK’s Economy: How better access to airports can boost growth”, November 2016 175 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.3, page32

No. of incidents/yr

(average)

Very Minor/Minor Moderate – Very Severe

To airport From airport To airport From airport

Heathrow M25 Jn 10-15

M25 Jn 15-18

M4 Jn 1-4b

M4 Jn 4b-8

400

278

567

133

393

270

805

133

50

30

69

30

29

27

106

21

Gatwick M23 Jn 7-9

M23 Jn 9-11

15

23

18

17

3

6

3

6


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Furthermore, Gatwick has a number of significant advantages over Heathrow in terms of its accessible catchment. The table below from the AC’s Module 4: Surface Access compares the accessible catchment areas for Heathrow and Gatwick measured by journey time. It demonstrates:

Gatwick’s current thirty, sixty and ninety minutes catchment populations are significantly greater than Heathrow’s.

On the AC’s extended baseline forecast for 2030, Gatwick’s catchment populations for journeys upto 90 minutes remain stronger than Heathrow.

Further, it should also be noted that, in respect of Heathrow, the AC’s assessment of the extended baseline for catchment areas more than 30 minutes assumed both SRA, which is not yet approved, and the HS2 Spur to Heathrow, which is no longer considered viable; thus overstating Heathrow’s catchment. Neither of these errors, nor the exclusion of terminal access times, which are longer at Heathrow, have been corrected to show an accurate comparison of catchment population. The CAA’s evidence showing that over 80% of passengers travel less than two hours to their airport of choice supports the view that Gatwick’s catchment area population is greater the stronger. Furthermore, because Heathrow’s journey time catchment relies on HS2 it has a larger overlap with catchments for other UK airports in the North and Midlands. This means that expansion at Heathrow abstracts more demand and economic benefits from other UK airports rather than adding value.

Gatwick Heathrow

Public transport travel time

Base (2012) Extended Baseline (2030)

Base (2012) Extended Baseline (2030) (HS2 Spur and

SRA)

Up to 30 minutes 530,000 570,000 230,000 700,000

Up to 60 minutes 4,400,000 5,000,000 2,400,000 3,800,000

Up to 90 minutes 11,000,000 12,000,000 9,900,000 11,500,000

Up to 120 minutes 16,000,000 18,000,000 16,000,000 20,000,000

Up to 150 minutes 20,000,000 25,000,000 22,000,000 29,000,000

Up to 180 minutes 25,000,000 34,000,000 28,000,000 38,000,000

Source: Airports Commission Module 4. Surface Access, November 2014 (combined data from Gatwick

and Heathrow reports, excluding terminal access times

It is clear, taking all of the above points into account, that the draft NPS is simply wrong to conclude that Heathrow has a significant advantage over Gatwick in terms of accessibility.

10.4 The Government’s assessment of the likely effectiveness of Heathrow’s surface access strategy is seriously flawed


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Unknown mitigation measures. In his oral evidence to the Environmental Audit Committee the Secretary of State confirmed that:

“[HAL’s] commitments to deliver no increase in the overall road access to the airport and the proportion of passengers accessing the airport by public transport will be regarded as “mandatory parts of the agreement process””176

In line with that requirement, the draft NPS states that Heathrow must provide:

“…details of how the applicant will maximise the proportion of journeys made to the airport by public transport, cycling and walking to achieve a public transport mode share of at least 50% by 2030, and at least 55% by 2040 for passengers.”, and “…details of how it will achieve a 25% reduction from the current baseline of all staff car trips by 2030, and a reduction of 50% by 2040 from 2017 levels.”177

These targets are based on the HAL submission to the AC, which relied on a series of measures to achieve mode shift to public transport.

However, none of those mitigation measures is committed, and some are not even mentioned in the draft NPS. For example, HAL’s submission to the AC suggests that a congestion charge could contribute over a third of the increase in its public transport mode share to 55% or higher by 2040 (see the table below), but other than a reference to the AC recommendation of a congestion charge at paragraph 5.28, the draft NPS ignores this entirely, and more statements cast significant doubt over Heathrow’s ability and commitment to introduce a viable charging regime.

Source: Taking Britain Further Part 1, Heathrow Airport Limited submission to the Airports

Commission (Section 4.4, p235)

Given the uncertainty as to what mitigation measures are actually proposed, the Government cannot reliably conclude that Heathrow is likely to be able to achieve the key mode share target set out above.

No assessment of the environmental impact of mitigation measures. There has been no assessment of the wider environmental impacts of HAL’s suggested mitigation measures. For example, the introduction of a congestion charge could plainly have significant environmental impacts, for example in respect of air quality

176 House of Commons Environmental Audit Committee, Chris Grayling, Oral Evidence, 30 November 2016, Q23 177 Draft NPS paragraph 5.16


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and /or highway conditions in and around the charge zone. It is plainly not reasonable for the Government to leave these sorts of issues to be assessed at a later stage.

10.5 Inadequate assessment of surface access costs

GAL has committed to fully fund all surface access works required for LGW-2R. These plans have been fully verified by Highways England, Network Rail, TfL and the AC as being sufficient to support expansion to 2040. This ensures there will be no risk of additional costs to the public purse with the LGW-2R, as the draft NPS confirms:

“For the Gatwick proposal, there would be no additional public expenditure solely because of expansion, as all road enhancement costs for airport expansion would be met by the scheme promoter. The Government has assumed that any improvements to the Brighton Main Line that may be required would take place regardless of expansion and would be publicly funded”178

In stark contrast, the surface access costs for LHR-NWR are uncertain and will be funded out of the public purse to a degree not yet understood. The draft NPS relies upon the AC assessment of Heathrow in 2030 and not at full capacity in 2040, saying that “The Government recognises that there may be some works which may not be required at the time the additional runway opens, but will be needed as the additional capacity becomes fully utilised.”179 This means the draft NPS takes no account of an additional 70,000 surface access journeys per day, on already heavily congested roads and overcrowded train services, as a result of growth to 2040. 180

The draft NPS does not properly assess LHR-NWR surface access costs, in particular:

The scope and costs of the surface access schemes remains unknown; with no credible plan to accommodate 2040 demand;

There is major uncertainty as to which surface access costs of expansion will be met by the promoter and which will be met out of the public purse;

With this level of uncertainty, it is not possible for Government to undertake a proper economic assessment and a proper benefit: cost analysis and it cannot confirm the costs to the public purse.

It is not clear from the draft NPS what surface access proposals will be required by Government if the recommended LHR-NWR is to be built. The list of measures that HAL relied upon in its submission to the AC comprised the following:

M25 diversion and tunnelling

A4 diversion

A3044 and local access road alterations

178 Draft NPS paragraph 3.39 179 Draft NPS paragraph 5.19 180 Draft NPS paragraph 5.19


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Crossrail – with a frequency of 8 trains per hour rather than the committed 4 trains per hour, and to Terminal 5/6 rather than Terminal 4 where it is currently planned to terminate

Western Rail Access – with a service frequency of 4 trains per hour

Southern Rail Access – with a service frequency of 4 trains per hour

Piccadilly Line services upgraded to 18 trains per hour

HS2 connection at Old Oak Common

New long distance express coach services and improved frequencies

Additional local bus routes and enhanced service frequencies

An access or congestion charge – without definition of the charging mechanism, and its delivery or feasibility

However, the draft NPS provides indicative costs only for the Western Rail Access and Southern Rail Access schemes, both of which are at early stages of development. Other measures are as yet completely undefined and uncosted.

As to who will pay for the works, Government has accepted HAL’s premise that where surface access measures have wider benefits than just to the airport, costs will be shared. However, there is as yet no agreed contribution from HAL and therefore uncertainty as to the costs that will have to be met from the public purse.

The draft NPS also acknowledges that there may be surface access measures required to mitigate impacts beyond what has been proposed to meet 2030 demand. This implies significant but as yet unknown potential further costs to the taxpayer, with the contribution from the scheme promoter to be determined at a later stage. This not only adds further risk to the economic value for money case, but could cost several £billions, with implied funding from Government and no guaranteed contribution from Heathrow, and therefore could be unaffordable.

There is also uncertainty on wider industry costs, including costs not accounted for by the promoter or in the DfT’s economic analysis. Highways England’s report181 identified an impact on costs that goes beyond the direct infrastructure capital costs, which will need to be accounted for by Heathrow or by the taxpayer:

“The stretch of M25 is part of a well-documented DBFO arrangement with Connect Plus. As previously noted in the Highways England initial response of the 27th November 2015, the contractual amendments brought about by the Heathrow options are likely to be both arduous in negotiation and costly in agreement… It is anticipated that a major change to the DBFO Contract such as for one of the Heathrow options would generate a significant quantity of contractual activity between HE and Connect Plus and potentially impede delivery timescales and impact on the cost of the Project… The cost of any change would not be limited to the maintenance of new infrastructure, but may have a lasting impact on the DBFO CO’s payment mechanisms - notably the Route Performance Management Adjustment; Lane Closure Charges, Safety Performance and any impact on Critical Incidents. Also the DBFO Co would inevitably seek relief from its forgoing and longer

181 Highways England Validation of Costs and Delivery Assumptions Report, published 25 October 2016


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term performance obligations due to the nature and size and duration of the Project.”182

There is clearly major uncertainty as to what surface access proposals will be required, what is the scope of the works, and who will be responsible for the costs. This renders it impossible for Government to undertake a proper economic assessment and a proper benefit: cost analysis, or to confirm the costs to the public purse.

10.6 Inadequate assessment of surface access delivery risk.

The draft NPS affords particular weight to the proposition that the economic benefits of LHR-NWR will be delivered sooner than LGW-2R, and assumes that the runway can be completed by 2026183. Although the NPS accepts that LHR-NWR is higher risk in terms of delivery, it fails to give sufficient recognition to key risks to delivery identified by the Highways England report issued at the time of the Secretary of State’s announcement of Government’s preferred solution in October 2016 including:

“Development of the M25 works in order to commence in 2020/21 is extremely challenging”184;

“the works to the M25 and shift into tunnels would require at the very least a re-assessment of requirements for this [RIS committed scheme between Junction 10 and 16] scheme and likely delay in commencement of construction with probable abortive and other significant costs being incurred.”185 and

“The scheme had not been progressed significantly since 2014 and as such there is a significant risk that delay would eventuate from a delayed DCO submission that would be accepted for examination186 ”

In contrast, the Highways England report indicates no such risks for the LGW-2R surface access works, noting lower risks and complexity, greater preparedness and no dependencies affecting other works.

“GAL were able to give the Highways England review team a good level of confidence in respect of their development of methodology and timeline… “187;

“This part of the proposal…represents a relatively low risk of not being delivered in accordance with the proposed timeline and is within the recent experience of the UK’s top contractors… The largely off-line nature of the works gives a relatively low impact on the existing network.”188;

“Evidence suggested that GAL were likely to have a sufficiently developed submission to meet programme requirements for the statutory process to proceed.”189

182 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.3, page 33 183 Paragraph 3.70 184 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.3, page 31 185 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.3, page 33 186 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.3, page 30 187 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.2, page 28 188 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.2, page 29 189 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.2, page 29


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and

“The scheme does not appear to have any specific or significant impact on the RIS programme”190…

Given the uncertainty and complexity identified for the delivery of the M25 and other strategic road improvements there is no evidential basis for Government to accept the 2026 delivery timescale of their preferred LHR-NWR scheme, and therefore puts at serious risk the earlier delivery of economic benefits cited in the draft NPS.

10.7 Other deficiencies in the draft NPS

Freight traffic. The draft NPS does not reference any assessments of the impact of increased freight volumes on the road network around Heathrow (despite the importance given to freight growth by Government in its recommendation for Heathrow expansion). This is a significant omission given that the AC identified South Perimeter Road and A4 Poyle Road/Bath Road as likely to suffer particular impacts from increased freight traffic191.

As part of its air quality assessment, the AC concluded it was unable to estimate the impacts on the diverted A4 due to the change in receptor location. This leaves an important gap in the air quality analysis underpinning Heathrow’s case, a gap highlighted by the AC’s Freight Impacts analysis accompanying its Final report:

“On the local road network, there is a significant increase of good vehicle volumes on the Southern Perimeter Road and Poyle / Bath Road across all time periods”192

Construction traffic impacts. Because of the lack of certainty over the surface access strategy there is no analysis of the impacts on road traffic during construction. This is a serious omission because:

Neither the AC nor the draft NPS has provided any assessment of, or plans to mitigate, the considerable disruption on roads around Heathrow during construction;

Works to the M25, M4, A4 and other local roads will disrupt an estimated 6 million journeys every month for four years, with Heathrow adding construction traffic to already overcrowded routes;

During construction, the impacts of traffic management works and diversion routes will create widespread delays and congestion across West London as far as, and including, the M40 to the north and M3 to the south, which are themselves already congested;

The air quality impacts and damage to the local economy during construction have not been included in the environmental assessment or business case analysis for LHR-NWR;

Highways England identifies added complexity associated with the planned works “The constraints on construction presented by the M4 and M25 level of congestion and availability of road-space mean construction is highly complex on these areas of the network” (ref. Highways England Validation of Costs and

190 Highways England Validation of Costs and Delivery Assumptions Report, Section 10.2, page 29 191 Airports Commission Final Report, Freight Impacts Study, para 5.3.6 and Section 8.1, June 2015 192 Airports Commission Freight Impacts Study, May 2015, Section 5.3.6, page 18


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Delivery Assumptions Report, Section 1.3.3, page 5). It also predicts that Heathrow’s proposals will directly affect completion of other planned works in the national Roads Investment Strategy, which is a dis-benefit that should be included in the airport’s business case;

There is considerable risk that congestion and disruption will cause delays to the overall project completion as the roadworks are programmed to coincide with site clearance, demolition, runway and terminal construction requiring many thousands of lorry movements to and from the airport.

10.8 Conclusion

Claims in the draft NPS claims regarding the advantages of surface access to Heathrow now and in future are overstated, and significant risks remain that a robust and affordable strategy to mitigate the effects of Heathrow expansion is undeliverable. The draft NPS fails to present a clear account of the surface access works and costs required to support the LHR-NWR proposal and takes no account of current and future crowding or congestion. Neither does it allay legitimate concerns over HAL’s ability to achieve mode share and road traffic targets to improve air quality, or concerning the amount of public money required to fill an estimated funding gap of several £billion.

In contrast, the evidence available, which is corroborated by analyses from the AC, Highways England and Network Rail, shows Gatwick to have a viable surface access strategy and no such risks to delivery, mitigation or public funding of surface access for LGW-2R.

appendix 1 detailed response to question 2 of the draft … · 2017-05-25 · detailed response to...

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