Capital Investment Plan 2009 - Heathrow Airport

4 Regulatory and Legislative Context
Capital investment led development at Heathrow, as outlined in this document, takes
place within a framework of regulatory and legislative policy. This framework gives rise
to a series of assumptions with regard to how the development / investment takes
place. This section provides an overview of the current key issues.
4.1 Aviation and Airport Policy
Government policy essentially provides the context for the development of the third
runway and associated infrastructure at Heathrow and as such is, for the purposes of
this CIP publication, detailed within Appendix A: Project for the Sustainable
Development of Heathrow.
4.2 Economic Regulation
4.2.1 Current Regulation
The 1986 Airports Act established a system of economic regulation for those airports
with an annual turnover in excess of £1 million (in at least two of the three previous
financial years). Under the terms of the Act, such airports must have permission, granted
by the Civil Aviation Authority (CAA), in order to levy airport charges. In addition, the
act also allows for the designation of airports, by the Secretary of State, for price cap
regulation. For such airports the (CAA),sets an airport charges price cap for a five year
period. The price cap is reviewed every five years.
Heathrow Airport is currently a designated airport and as such regulated with a price
cap regime by the CAA.
Section 39 of the Airports Act imposes four duties on the CAA in determining the price
formula, namely;
• To further the reasonable interests of users of airports within the United Kingdom;
• To promote efficient, economic and profitable operation of such airports;
• To encourage investment in new facilities at airports in time to satisfy anticipated
demand by the users of such airports; and
• To impose the minimum restrictions that are consistent with the performance by the
CAA of its functions under those sections.
It should be noted that under the third duty above, anticipated demands for airport
users includes future users as well as current users. The definition of users (in Section
82 of the Airports Act 1986) includes both airlines and passengers, and no priority is
specified between these two groups.
The March 2008 CAA Decision 23
sets out the relevant regulatory parameters for Q5
which include the planned capital expenditure totals for Q5. This publication relies of
the capital expenditure allowances set forth in the decision document.
4.2.2 Future Regulation
23
Economic Regulation of Heathrow and Gatwick Airport 2008 - 2013, CAA Decision, March
2008.
Internal File Name: 0903XX-CIP 2009 Main Document-V71-IG 29