Heathrow expansion plan faces sky high challenges

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Heathrow’s management is poised to relaunch plans to build a third runway at the airport, assuming the government signals its strong support this week, marking the return of one of the UK’s most expensive and controversial infrastructure projects.

Bosses at the UK’s hub airport are keen to seize on the sudden window of political opportunity that has opened up, with chancellor Rachel Reeves expected to signal her backing for the expansion in a major speech on economic growth this week.

Heathrow chief executive Thomas Woldbye has long said the airport will only press ahead with the full support of government.

The prospect of a third runway at Heathrow has alarmed residents, environmental groups and some Labour politicians, concerned about the prospect of higher carbon emissions, as well as noise and air pollution in the local area.

But it is the scale and cost of the construction which could pose the biggest barrier to expansion.

People briefed on the airport’s plans said that if it went ahead, the current thinking would favour updating the pre-pandemic blueprint for a multibillion-pound megaproject outside the current perimeter.

As well as a 3.5km runway and taxiways on land to the north-west of the airport’s current boundary, the work would also involve diverting the nearby M25 motorway into a tunnel to make room for the expansion. In the process, 750 homes and a primary school would be demolished.

Other options, such as a smaller third runway within the airport’s current boundaries, are not being considered, the people said, in part because the northwestern runway project has been through six years of scrutiny and was backed by a government appointed Airports Commission in 2015, parliament in 2018 and the Supreme Court in 2020. 

The biggest unknown is the project’s pricetag. A third runway at Heathrow would be one of the most expensive private sector infrastructure projects in the UK. The estimated cost was £14bn in 2014, but that number would now be far higher.

Noble Francis, economics director at the Construction Products Association, said costs had been rising quickly, and there were now questions over whether the UK had the construction skills to deliver a project of that size.

A third runway would compete for workers with the government’s plans to build 1.5mn homes over five years, as well as more transport and water infrastructure, data centres and gigafactories.

The number of people working in construction has fallen by 366,000 in the past five years and is at its second lowest level since 2001.

“The big question in construction is who will actually do all the work and how much more will it cost,” Francis said. “It’s very unclear whether we have the skills.”

Thomas Woldbye
Thomas Woldbye, Heathrow’s CEO, has long said the airport will only press ahead with the full support of government © Soeren Bidstrup/Scanpix/AFP via Getty Images

Aviation industry executives believe the expansion is so politically and technically challenging that Heathrow will want Reeves to go beyond simply signalling her approval for the idea of a third runway this week.

The airport’s management will want clarity on how the government’s planning reforms could smooth the way, including potential delays caused by judicial reviews, and a commitment to redrawing the UK’s airspace to fit in all the new flights.

But most of all the government will need to agree to reform how Heathrow is financed.

As a regional monopoly, the airport is funded via the regulated asset base model, much like the water companies which raise equity and debt and recover the costs from consumers.

Heathrow is regulated by the Civil Aviation Authority, which agrees every five years how much can be recouped from the take-off and landing charges it levies on airlines. These charges and the cost of servicing Heathrow’s debt, currently about £19bn, are passed on to passengers.

Heathrow and its airline customers agree the airport’s charging model needs to be reformed, but do not agree on how.

One option would be a far longer charging cycle — potentially as much as 25 years — to run alongside the current system to help pay for the runway.

Tim Alderslade, chief executive of lobby group Airlines UK, said carriers backed growth, but it must be “affordable, aligned with industry’s net zero commitments and deliver meaningful improvements in operational resilience”.

Video grab from 2017 showing the proposed Heathrow expansion over the top of the M25
The proposed Heathrow expansion would involve diverting the nearby M25 motorway into a tunnel © Heathrow

The airport’s next steps would be to submit a planning application for expansion, which would need to be granted a “development consent order” by the transport secretary.

While there are live DCO applications for the Gatwick and Luton expansions, Heathrow’s plans are not as advanced.

Some experts believe the challenges of building a third runway are so significant that the project will never get off the ground.

The government has previously said no runway expansion would be authorised unless it is compatible with meeting Britain’s climate targets, complies with noise pollution and air pollution limits and provides economic growth across the country.

Paul McGuinness, chair of the No 3rd Runway Coalition pressure group, said: “Expansions at other London airports undermine the case for Heathrow’s uniquely complicated and costly third runway, making it an even riskier, if not uninvestable proposition.”

Sir Sadiq Khan
Sir Sadiq Khan, Labour mayor of London, speaking against the third runway at a rally in 2015. He is a long time opponent of Heathrow’s expansion © Chris Ratcliffe/Getty Images

Sir Keir Starmer, prime minister, voted against the scheme in 2018. Sir Sadiq Khan, Labour mayor of London, last week said that if Heathrow came back “with plans for a new runway that was supported by the government, I wouldn’t hesitate to launch, with partners and colleagues, another legal challenge”.

The airport’s new board met last week, following a change in its ownership, in which French private equity group Ardian and Saudi Arabia’s deep-pocketed sovereign wealth fund bought a 38 per cent stake.

The board was supportive of expanding the airport in principle, ahead of hearing more details from Reeves, said a person familiar with the matter.

Tony Travers, professor of economics at the London School of Economics, said it was a key moment for the government.

He said: “The scale of opposition to a third runway at Heathrow means the chancellor’s renewed interest in it poses the ultimate test of the government’s commitment to growth. Drive a third runway through, and pretty much any planning obstacle can be overcome.”

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