“The current reference to the Competition Commission (CC) is only part of the quinquennial review process, the final determination of charges being by the CAA in the first quarter of 2008 after taking into account our recommendations and a further round of consultation with BAA, the airlines and other interested parties. Prior to making the current reference, the CAA encouraged a process of ‘Constructive Engagement’ between BAA and the airlines, with the aim of their reaching agreement on the main issues. That process has continued throughout the six months of our inquiry. During this period BAA has made substantial changes to its future capital expenditure (capex) programmes at both Heathrow and Gatwick. The scale of these increases in capex is surprising coming as they do at the very end of a lengthy process of consultation. There have also been significant increases during the reference in forecast operating expenditure (opex) (primarily to improve security service standards following significant increases in security requirements in 2006). It is unusual for there to have been so many substantial changes to key inputs into a pricing determination during the course of a CC inquiry. The consequence is that a number of them will require further detailed examination by the CAA before it can put forward its final proposals. There are also a number of other outstanding issues for consideration by the CAA.”
“We consider that the CAA’s treatment of the cost items that it allowed for separately (for example, security costs, the net cost of opening Terminal 5 and closing Terminal 2, night-noise costs, the cost of the Heathrow Express and pension costs) is broadly sound, although we have revised the treatment of several of these cost items to take account of more up-to-date information. In particular: (a) Additional security costs, including the most recent BAA projections of additional costs not only to meet the current service standards but also to meet an improved security standard adopted by BAA, that queue lengths should not exceed 5 minutes for 95 per cent of the time (see paragraph 6.40). We considered whether to disallow these costs, given that airlines were opposed to this revised standard and that BAA, as it acknowledged, failed to consult with them, although the revision was supported by the CAA. On the other hand, increased expenditure is likely to be desirable, first to improve the resilience of BAA’s security operation, which has been the source of extensive criticism by airlines and others; and secondly to meet the additional security standards we recommend in paragraph 6.33 et seq. As we note in paragraph 6.34, revisions to the current security service standards are subject to further consultation between BAA, the CAA and the airlines, following which we recommend that the CAA examine the appropriate level of security costs to be allowed for in airport charges to take into account the final standards agreed for the SQR.”
“1.12 While this document constitutes notice by the CAA of the conditions it intends to impose for the purposes of Regulation 12(1) of theCivil Aviation Authority (Economic Regulation of Airports) Regulations 1986 , some of the proposals in this document are necessarily provisional in nature. In its final decision on the conditions the CAA will take into account the representations made in response to these proposals as well as any new or updated information that emerges during the period of consultation up to the end of January 2008. ……. 1.17 The CAA proposes to publish its final decision in early March 2008 that will set the price controls from1 April 2008 . Consequently, the CAA will not be able to take into account any further submissions made to it after the oral hearings at the end of January 2008. ……. 6.30 The CAA is concerned about the scale of BAA’s revised security cost estimates and the fact that it has not had the opportunity to consider BAA’s projections in detail nor to discuss these with airlines or other interested parties. Airlines have also expressed concerns, in particular around the extent of the cost increases proposed and the lack of transparency over BAA’s cost modelling of these standards. For these reasons, the CAA intends to initiate a work programme over the next two months through which it will scrutinise these costs thoroughly and will work closely with BAA and with airlines to ensure that all parties have a clear understanding of the costs associated with delivering higher levels of queuing standards. 6.31 The CAA will ensure that any additional costs allowed for in price caps are consistent with the service standards agreed through the service quality regime and with the CAA’s statutory duties, in particular the duties to further the reasonable interests of airport users and to promote the efficient, economic and profitable operation of airports. As a holding position, the CAA has adopted the Commission’s projections of security costs (net pensions costs) in the modelling for this document.”
“The increases to operating costs proposed by BAA are unprecedented and unexplained….BAA has provided no transparency on the increased security costs detailed above, other than a brief presentation to airlines and the CAA made on19 December 2007 . An analysis of the data provided suggests that incremental costs are significantly overstated….”
“BAA believes that its modelling approach is robust and therefore the costs that were presented to the tripartite meeting on19 December 2007 (ref. BAA-Q5-586) are an accurate representation of the costs that will be incurred by BAA in order to provide the agreed 95%: 5 minute service level within a “more than one bag” security regime. BA believes that BAA’s modelling adds contingencies at all stages, resulting in an inflated forecast of the number of lanes required and the costs for central search. We believe that 3 fewer lanes are required and that at least£10m of annual opex can be reduced compared with BAA’s current estimate for central search. Most of the work has concentrated on the central search costs because we believe that this accounted for the major part of the costs as well as the major part of the cost increase. Information provided last week by BAA shows that the other security costs are just as significant as central search, however it has been difficult to examine this and the data that we have seen does not account for the large increases proposed.”
“…what we have set out in a note we put on the web I think last week…was that there are some continuing constructive engagement discussions going on. The last dates for submission for anything is the 31st. If at the end of these sessions parties feel there are points where they need to add some further clarification to what they have said, then they may put something further in, but everything has to be in by the 31st and that is the final deadline. ”
“In summary, our main concerns at both Heathrow and Gatwick are that BAA have included excessive costings in their proposals and have not sought to deliver a reasonable level of operating cost (manning levels) to deliver the required service standard, but an overstated one”
“We note in addition, we have not been able to review other security areas and consider this is an area that warrants further review by the CAA”
“(ii) The airlines repeatedly suggested to BAA that: (a) The airlines and BAA work collaboratively to determine the reasons for the differences between the modelling. (b) The airlines would welcome BAA running the CAST model to verify the findings of the BA simulation model. (c) The airlines would like to collaboratively devise an approach with BAA that both parties agree would accurately evaluate the additional infrastructure requirements to accommodate any increases in demand caused by potential extreme exogenous shocks. (iii) Until today, 31st January, BAA's position has been that there is insufficient time left. However, some of the information requested has been provided today and the airlines are willing to consider further work if this is of benefit to the CAA.” (a) The airlines and BAA work collaboratively to determine the reasons for the differences between the modelling. (b) The airlines would welcome BAA running the CAST model to verify the findings of the BA simulation model. (c) The airlines would like to collaboratively devise an approach with BAA that both parties agree would accurately evaluate the additional infrastructure requirements to accommodate any increases in demand caused by potential extreme exogenous shocks. (iii) Until today, 31st January, BAA's position has been that there is insufficient time left. However, some of the information requested has been provided today and the airlines are willing to consider further work if this is of benefit to the CAA.”
“If airlines had had access to BAA's model, they could have run a variety of alternative service options though it, or through any improvements to that model, and seen what difference it made to resource requirements. Our perspective on such data might have been very different from that of BAA, which was concerned to achieve the maximum earnings from any hours and secure the maximum cushion on its levels of staffing.”
“So far there is in our judgment nothing in the scheme which blocks the application of the longstanding default principle that the common law will supplement such procedures to the extent necessary to ensure that they operate fairly”
“To use the phrase which better expresses the underlying concept, what the requirements of fairness demand when any body, domestic, administrative or judicial, has to make a decision which will affect the rights of individuals depends on the character of the decision-making body, the kind of decision it has to make and the statutory or other framework in which it operates. In particular, it is well-established that when a statute has conferred on any body the power to make decisions affecting individuals, the courts will not only require the procedure prescribed by the statute to be followed, but will readily imply so much and no more to be introduced by way of additional procedural safeguards as will ensure the attainment of fairness. It follows that the starting-point for the examination of all the appellants’ submissions on this aspect of the case is the Act of 1982”
“…(1) where an Act of Parliament confers an administrative power there is a presumption that it will be exercised in a manner which is fair in all the circumstances. (2) The standards of fairness are not immutable. They may change with the passage of time, both in the general and in their application to decisions of a particular type. (3) The principles of fairness are not to be applied by rote identically in every situation. What fairness demands is dependent on the context of the decision, and this is to be taken into account in all its aspects. (4) An essential feature of the context is the statute which creates the discretion, as regards both its language and the shape of the legal and administrative system within which the decision is taken. (5) Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result; or after it is taken, with a view to procuring its modification; or both. (6) Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests fairness will very often require that he is informed of the gist of the case which he has to answer.”
“Whether the model has weaknesses is a matter on which consultees may properly have something to say. Indeed, they already do have things to say on the basis of the read-only version, and attention is properly paid to their representations. The carrying out of additional tests that are possible only with the fully executable version does not give rise to any difference of principle. On the face of it, to limit the extent to which consultees can engage in the legitimate task of testing such an important element in the appraisal process does seem to me to be unfair.”
“I did at one stage wonder whether the notice was indeed within Regulation 12 on the basis that there were no firm proposals in a number of respects. Regulation 12 requires that the notice should contain the conditions or modifications the CAA intends to impose. The lateness of the increased security costs made it impossible to reach a firm view on this major issue and there were other investigations to be made as a result of the CC’s recommendations. It would have been open to the CAA to defer the imposition of Q5 for up to 12 months, but in the end the claimant has not submitted that that course should have been adopted. Suffice to say that there were good reasons not to do that. But, as was made clear in Paragraph 20 which I have referred to, the intention to reach a particular figure was expressed albeit it might change as a result of the further consultation or CE to be carried out. Thus I am satisfied that the notice did comply with Regulation 12.”