the CAA said - Heathrow Airport

CAP 1027
Chapter 4: Capital Expenditure
respond to new developments and changes (see chapter 13).
4.18 A programme on this scale will maintain the current level of service at
Heathrow. In addition it will improve resilience, which is supported by
the airlines given their growth and fleet ambitions. The CAA would
welcome the views of HAL and airlines on the scale of the capex
budget in light of the CAA’s initial proposals for the other building
blocks of the price cap calculation.
4.19 The CAA appreciates that it is important that the capital budget is set
with value for money as a paramount objective. To strengthen the
challenge on providing value for money, the CAA has commissioned
expert consultants to review HAL’s approach. However, given the
relatively early stage costing of almost all the programme, the
consultants have not been asked to do substantive analysis of
individual projects at this stage. The focus of the CAA’s initial
proposals is on the aggregate scale and phasing of a prospective
investment programme and its effect on regulated charges. The CAA
may commission a greater level of validation for its final proposals.
Specific issues in relation to the capex programme
4.20 While the CAA is not focusing on the detail of individual projects in
these initial proposals, there are some issues of wider significance
that it considers it should comment upon. These are where the
programme will either make changes or not make changes from the
current status quo for passengers or where there is disagreement
between HAL and the airlines following CE.
Renewal costs
4.21 The CAA commissioned Steer Davis Gleave (SDG) to review HAL’s
renewal costs. In the broadest terms, SDG do not consider that the
size of the programme for Q6, at approximately £1.5 billion, is out of
proportion to the HAL asset base.
4.22 SDG considers that it would be appropriate to revisit the scope of
proposed renewal works under many of the programmes. For
example, the scale of the £650 million engineering asset renewal
programme seems to have been determined largely by a 'top-down'
reduction from an initial cost of circa £900 million and it is not clear
what level of analysis lies behind the reduction. Overall, but based on
rather limited information provided to it, SDG was able to identify core
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