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Brisbane battle: Emma Kelly reports on a rising conflict over funding at the Queensland airport.

A battle is under way in Australia between Brisbane Airport Corporation (BAC) and airline operators at the Queensland airport over funding for its proposed A$1.3 billion (US$1.35bn) new parallel runway (NPR).

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In 2012 the airport started initial groundwork, and dredging is due to start this year to allow sand to settle before construction starts to meet the 2020 in-service date. While airlines agree that Brisbane needs a new runway to cope with rising and projected traffic levels, they do not think they should be paying for it seven years before it is due to be in service.

BAC is proposing that 75% of the cost will come from contributions from its shareholders and loans, while 25% will come from landing fees. This year, the airline contribution would see an extra A$0.35 (US$0.36) per domestic passenger, which will increase gradually over the next five years to an additional A$1.80 (US$1.87) per domestic passenger by 2017 and, at the most, an extra AS3.15 (US$3.27) per international passenger. While BAC argues that this is the normal model for funding major airport infrastructure, airline operators are not budging in their opposition, with the standoff threatening to delay the whole project.

"The issue is that BAC wants to impose an aeronautical charge that includes full cost recovery for money spent on constructing the runway from the start of construction," says Warren Bennett, Executive Director of the Board of Airline Representatives of Australia (BARA), which represents 29 airlines flying to and from Australia, including most of the carriers operating to Brisbane (although Qantas and Virgin Australia are also holding separate discussions with BAC). He adds: "BAC will spend about A$550 million [US$570.9m] on extracting sand from Moreton Bay, transferring it to the runway site and letting it settle for about three to four years, then BAC will commence the actual runway construction. That means BAC expects airlines to pay for the cost of the runway for seven to eight years--or perhaps longer--before the runway is available for use."

The fact that Brisbane is planning development of a second runway is nothing new, with the NPR on the cards for more than 20 years. Brisbane is the country's third largest airport in terms of passenger numbers, with a record 21.5 million passengers using the airport in 2012 -4.5% up on 2011. Passenger numbers are forecast to grow to around 25.3 million in 2014/15 and 50 million by 2035. As a result Brisbane Airport has undertaken significant upgrade and expansion work, including new car parks, skywalks, pick up areas, domestic terminal expansion, road upgrades, international terminal expansion and upgrade.

Julieanne Alroe, BAC's Chief Executive Officer and Managing Director, says: "BAC is continuing to plan for the future to meet the demands of expected passenger growth and, this year, the focus is on Phase One works for the new runway, the launch of the next airport master plan, a significant redevelopment within the International Terminal, as well as over 50 civil, building and strategic planning projects across the airport!'

The NPR project was approved by the Australian Government in September 2007. The runway will be 10,827ft (3,300m) long and will be located 1.2 miles (2km) west of the existing one. BAC says it will, "significantly reduce capacity-related flight delays". It will allow the airport to maximise the number of flights that can arrive and depart over Moreton Bay, reducing noise exposure, particularly at night. Overall, BAC believes the NPR will deliver regional economic benefits of around A$5 billion (US$5.2bn) per year by 2035. To achieve this, and in order for the NPR to be in service in late 2020, work needs to be undertaken now. Construction is split into two phases. Phase one, scheduled from 2012-2018 involves the preparation of the site, including civil works, dredging and reclamation and a ground settlement period. Phase Two--2018-2020--will see the construction of the pavement and the airfield.

Some A$50 million (US$51.9m) of phase one site works started last year but the whole project is now being threatened by the stand-off between airlines and the airport owner.

Ms Airoe says over the last five years, BAC has been in "deep discussions" with the airlines about when the NPR will be needed and how it should be paid for. "BAC wants to build this runway and we want to fund it the same way that all major aviation infrastructure at Australia's airports has been funded for over a decade," she says. "That means a combination of a major investment from the airport and a smaller proportion of contribution by the airlines during construction. This is the normal model for funding major airport infrastructure and in many other industries," she adds.

Furthermore, a BAC statement on April 10 from claimed that: "the suggestion of an additional A$2.50 [US$2.60] passenger 'levy' as an alternative to increasing the landing fees was one option that was previously considered and rejected." It added: "BAC is not proposing a 'new' or 'alternative' passenger 'levy' above and beyond the incremental 'landing fee'."

Ms Alroe says the idea of paying up front for something is exactly what the airlines make their passengers do.

"The idea of charging customers now to fund not only current expenditure but future development is not that unusual in businesses big Or small. Airlines, for example, do just that when charging their own passengers. You pay for your ticket in advance, sometimes weeks or months and the airline gets the financial benefit of having your money long before it incurs the cost of flying you anywhere. Your ticket costs also help pay for the airline's own plans, including new aircraft and maintenance facilities, terminal improvements and marketing."

BAC argues that if private investment in Australia's airports is to continue, this funding model must be allowed to keep working.

The Australian Airports Association (AAA) agrees. MA Chief Executive Officer Caroline Wilkie says that A$9 billion's (US$9.34bn) worth of airport infrastructure has been delivered this way over the last decade and a further A$9 billion is expected over the next ten years.

"The current successful funding model has been in place since 2002 and since then any infrastructure delivered at airports, such as runways, taxiways, roads, terminal expansions and aircraft parking areas have all been funded using this process," added Ms Wilkie. The AAA describes BAC's proposed increases as a "modest incremental increase". Ms Wilkie suggested: "It is not unreasonable to expect users to share one-quarter of the risk on a project of this magnitude, which will deliver airlines and their passengers such significant benefits on a national scale." Despite the current impasse, BAC says it is "hopeful of a solution", which it would like to lock in before the end of this year.

The April 10 statement added: "While referring the matter to the [Australian Competition & Consumer Commission] ACCC is an option, BAC remains committed to reaching agreement with the airlines in commercial negotiations which are still ongoing."

The airlines, however, disagree. "There has been no progress in talks between BABA and BAC regarding cost recovery for the NPR. BAC has not entered into any meaningful discussions on the matter with BARA since November 2012. BARA sees no sign of a resolution," says Mr Bennett.
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Title Annotation:BRISBANE
Comment:Brisbane battle: Emma Kelly reports on a rising conflict over funding at the Queensland airport.(BRISBANE)
Author:Kelly, Emma
Publication:Airports International
Geographic Code:8AUST
Date:Apr 1, 2013
Words:1237
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