Airline and government officials around the world are smarting under the effects of charges levied by the British government that more than double the cost of landing a plane at London's Heathrow Airport.
Under new rates introduced by the British last April, it now costs nearly $10,000 to land a Boeing 747 at Heathrow during peak hours. This amount includes fees for landing, terminal use, passenger service, security and parking. A year ago, the same landing cost about 40 or 50 percent less.
The new charges run to millions of dollars a year for each of the airlines operating at Heathrow. The cost averages about $40 a person on a jumbo jet, airline officials suggest.
"When you look at some of the fares we have, you don't have to be a genius to figure out the impact," says John Champion, vice president for international affairs of Pan American World Airways.
In addition to charter flights, Pan Am each week now sends about 75 regularly scheduled round-trip flights -- most of them using 747s -- into Heathrow and another seven into London's secondary Gatwick Airport, where charges have not been raised to the same degree as at Heathrow.
Trans World Airlines is in the same position as Pan Am. Richard Rieder, TWA's assistant general counsel, says TWA will pay the British $16 million in airport charges this year, up from $7.5 million last year.
To place in context the $9,722 that it now costs to land a 747 at Heathrow during peak hours, a list of representative landing charges compiled by the International Air Transport Association indicates that elsewhere in Europe the same landing costs about $3,780 at Charles de Gaulle Airport in Paris, $3,921 at Amsterdam and $4,122 in Geneva. Comparable charges in Madrid, Rome and Athens range from $1,194 to $1,776.
An airline sending the same 747 to New York's JFK Internationl Airport, the most expensive in the United States, pays about $3,616, using IATA figures. At Los Angeles, the landing of that 747 cost $446 and at Washington's Dulles International Airport, $967. Figures from the U.S. government indicate that 747 landings in Miami, Houston and Chicago cost between $531 and $618.
In the past, it was primarily U.S. airline officials who were angry at the British. The U.S. carriers felt mistreated because the British Airports Authority used to impose higher landing charges for planes on transatlantic routes than on European routes. It was a policy that hit the U.S. carriers especially hard.
But now the British have begun to even out the charges by eliminating the differential between transatlantic and European flights -- and raising all of them considerably. Consequently, some of the charges for the European airlines have gone up by a greater percentage than for transatlantic carriers.
Now everyone is angry:
"They've spread the damage now and offended everyone," says one U.S. source
"We feel exactly the same as the Americans," confirms Keith Pickering, British Airways' manager here for the East. "Since London is our main base, we pay more of the charges than anyone."
There is some feeling among the airlines that the transatlantic carriers are still paying a disproportinate share of the peak period charges at Heathrow. Because of time zone differences, airport curfews and other scheduling constraints, transatlantic airlines are forced to conduct their operations during those peak hours.
In addition, transatlantic carrier's tend to use heavier, wide-bodied equipment. Airline sources say the charges increase more sharply as aircraft weight increases but contend that there is little connection between aircraft weight and the cost to the British Airports Authority of the services provided.
British charges have always been high as compared to airports in most other nations. But they have shot up recently because of the policy enunciated by the Conservative government of Prime Minister Margaret Thatcher limiting the borrowing ability of the so-called nationalized industries, including the airports run by the British Airports Authority. The industries were also told they had to begin making a proper return on investment -- a real rate of return of 6 percent on their assests, that is, 6 percent with inflation removed.
"Basically, they have undertaken to finance future improvements through current user charges," B. Boyd Hight, deputy assistant secretary of State for transportation affairs, explained in a recent interview. "Their charges were out of line before, and now they're double comparable figures for the rest of Europe."
According to U.S. airline and government officials who would like to see the charges lowered, there are questions about the British policy that have to be answered before deciding whether action is appropriate or justified. h
For instance, are the charges "just and reasonable" as required by Bermuda II, the agreement that governs air services between the United Kingdom and the United States? To be considered just and reasonable, they are supposed to reflect, but not exceed, the full cost of providing appropriate airport and air navigation facilities and services, and may provide for a reasonable rate of return on assets, after depreciation. As provided in Bermuda II, the user charges also are supposed to be based on "sound economic priniciples" and on the "generally accepted accounting practices" of the country concerned.
The airlines' and governments' lawyers, accountants and economists think that the airport charges can be attacked on a number of grounds and that the British may have failed to comply with the terms of the Bermuda agreement.
For instance, in determining how much revenue must be raised from the airlines in order to meet the target return on investment for nationalized industry, the BAA apparently fails to take into account enormous profits -- about $77 million in a recent reporting year -- made on its various concessions. It counts in only the money made from traffic operations (landing fees and so on) -- a paltry $15 million, by comparison, that same year.
If BAA's concession revenues were added to its operating revenues, the rate of return would exceed 6 percent, according to one analysis. Under British government policy, exceeding the 6 percent mark would qualify it to outside sources of financing as an alternative to recovering all of its capital requirements from the airlines, this analysis goes on.
Numerous other BAA economic or accounting practices are being questioned.
Is the BAA fair in its definition of assets on which it is seeking return? Runways are considered assets listed at replacement cost using today's inflated currency, despite the fact that they will be repaired, not replaced.
Is BAA's use of depreciation reasoable? When BAA's assets are fully depreciated, they are revalued again, at replacement cost, for purposes of computing the rate of return. This grossly inflates the BAA asset base and gives rise to a much higher ROI, says one analysis. If BAA is actually using replacement cost basis accounting, as it says, it should be showing substantial depreciation in its accounts -- but it doesn't appear to.
It is fair to require BAA to get a return on new investment each year even though the investment is not ready yet? Users begin paying for projects and facilities that are under constuction -- facilities they do not and may never use.
"The basic question is what's the United States government going to do about it, and I don't know," says one industry expert.
The government doesn't know yet either.Right now, says Bruce I. Selfon, chief of the Department of Transportation's international aviation division, the government is attempting to reach some conclusions about whether the British have in fact violated the terms of the agreement. U.S. officials have already had some discussions with the British.