Now that BAA's mammoth £4.2 billion Terminal 5 project is nearing completion, where should contractors look for new work in the airport sector? In this special four-page feature, David Taylor looks at prospects for expansion around the UK and the impact of Ferrovial's takeover of the country's largest airport operator
FOR MORE than three years, the construction industry has been putting on a bravura performance at the western end of Heathrow Airport. Site of Europe's largest construction project and an object lesson in modern construction management, Terminal 5 is going to be a tough act to follow.
And, with the bulk of the construction work finished, people are, indeed, beginning to wonder: what could possibly follow T5?
There is no denying that T5 is exceptional - a oneoff mega-project by the UK's largest private-sector construction client. But it is wrong to assume that the complet ion of T5 will leave a gaping void in the market. There is plenty more construction work where that came from.
A clear indication of future construction workloads in the airport sector was given in the Government's December 2003 White Paper, The Future of Air Transport. This document, which set out a strategic framework for the development of UK airport capacity over the next 30 years, noted that air travel had increased five-fold over the preceding 30 years, and predicted that it would continue to grow to two or three times current volumes by 2030.
The White Paper also pointed out that 'some of our major airports are already close to capacity, so failure to allow for increased capacity could have serious economic consequences'. This is seen by the airport sector as a green light to development - planning permitting, of course.
Air travel is by definition a global phenomenon, and the development of Britain's airport infrastructure is driven by global factors. The rapid rise of the Chinese and Indian economies are certain to fuel growth worldwide. China, for example, already has plans to build 55 new airport hubs by 2020 and will topple Japan as the world's second-largest civil aviation market by 2010.
Even rising fuel prices and the heightened threat of international terrorism do not seem to have slowed passenger volumes significantly. On the contrary, leisu re t ravel is increasing rapidly, and one of the fastest-growing sectors of the air travel industry is lowcost passenger services provided by the likes of Ryanair and Easyjet.
These so-called 'no-frills carriers', or NFCs, increased their annual passenger figures from 2 million passengers per annum in 1998 to 13 million in 2002, according to the Government's White Paper.
And that rapid growth rate is showing no sign of slowing down.
'The airline industry is expanding - and that's a fact, ' declares Roger Bayliss, construction director with the UK's biggest airport operator, BAA.
'There is already latent demand in the London area and we are going to have to meet that demand , which means there will have to be more development work at our airports.'
Details of what this work would comprise were made public in May, when BAA published its annual 10-year traffic forecast and capital investment plans for the three big London airports: Heathrow, Gatwick and Stansted.
The figures were music to the ears of any construction company: on the strength of a 3 per cent per annum growth in traffic volumes, BAA aimed to spend around £9.5 billion at its London airports between now and 2016. Following hard of the heels of T5 would be the £1.5 billion redevelopment of Terminal 2 and the Queen's Building at the eastern end of the airport, and the construction of a £105 million pier to handle the Airbus A380, which is due to come into service next year.
But almost as soon as the forecast was published , BAA was snapped up by Spanish infrastructure and construction company Ferrovial, thus throwing all capital investment plans into doubt.
While the new owner might yet adopt the existing BAA expansion strategy, it is inconceivable that the investment plans will remain unchanged. At the very least, we can expect to see a root-and-branch review of all major projects and - since Ferrovial is a construction company and owns British contractor Amey - an overhaul of existing framework agreements is to be expected (see pages 26 and 27).
Admittedly, there is unlikely to be anything of quite the same magnitude as the £4.3 billion T5 project in the pipeline and BAA's total investment at the three airports is, in any case, set to fall from £1.3 billion in 2006-7 to £771 million in 2007-8. But the long-term trend is for more development.
According to the current 10-year capital investment plan, spending at BAA's three London airports is forecast to peak in 2013-14 at almost £1.6 billion.
Meanwhile, at BAA's other UK airports at Edinburgh, Glasgow, Aberdeen and Southampton, plans have also been drawn up to expand and improve facilities.
Nobody in the construction industry needs to be reminded of BAA's stature as a construction client.
But, although it is the UK's largest airpor t operator by a long way, BAA is not the only one. Number two in the UK is Manchester Airport Group, which owns and runs Manchester, Nottingham East Midlands, Humberside and Bournemouth airports. These together handle about 30 million passengers a year.
Jim Bethell, managing director of MAG and its development vehicle, Manchester Airport Developments Ltd , says all the UK's regional airpor ts were bound to see some significant development in the next few years.
'At Manchester alone we have plans to spend between £125 million and £150 million over the next three years, ' he says. 'One third of that will be spent on airfield improvements and replacement of lifeexpired infrastructure, such as new taxiways, resurfacing work and so on. Another third will be on terminal extensions and improvement, such as retail development and improved baggage-handling facilities; and another third will go on car park construction and improvement.'
At Nottingham East Midlands, MADL is spending another £50 million to £75 million on similar improvements over the next three years, while at the two smaller airports in the portfolio, investment will be confined to minor 'terminal enhancements'.
Mr Bethell is confident that capital investment by MADL will increase over the 30-year period considered by the 2003 White Paper. This is good news for companies like Mace, a prominent BAA framework contractor, which also has a framework agreement with MADL.
'Our agreement with MADL has been in place for about two years and covers projects up to a value of £10 million, ' says Mace Infrastructure Group director Mark Reynolds. The value limit allows MADL to test the market for any projects of higher value. So far, Mace has undertaken terminal extension and refurbishment contracts at Manchester for MADL and has had a team of 20 people working on site almost continuously for the past two years.
Mace also has a big presence at T5, where it is not only part of the project's Building Integration Team, but also currently has responsibility for about £75 million-worth of fit-out work - 'everything is on a huge scale on that project, ' comments Mr Reynolds.
Kevin Mitchell, aviation sector leader with Amec, also relishes a fast-growing airport development market after T5.
'Passenger numbers are increasing between 3 and 6 per cent a year at the moment and airports throughout the UK are planning for future growth, ' he says. 'BAA has issued masterplans for all its airports, as have many regional airports, including Cardiff, London City, Bristol, Birmingham, Manchester and Newcastle - they all forecast sustained growth. It's a very attractive market for conglomerates to operate in.'
Not all this development will be new runways or new terminals, points out Mr Mitchell.
'The first focus for development is to improve the utilisation of existing infrastructure to accommodate changing flight patterns and changing passenger profiles. So this is mainly upgrading and refurbishment work, ' he says. Retail developments and improved baggage handling are two essential features of this, believes Mr Mitchell.
'The second focus is on expanding airport infrastructure - so that's new terminal buildings, hangars and other buildings, and the construction of new runways. But the main priority is to leverage what the airport operators already have, ' he says.
Suppliers like Mace and Amec hope to continue working with BAA (and, for that matter, other airport operators, including MAG) on the basis of the longterm framework agreements that have delivered some very high-quality construction projects.
Speaking before Ferrovial's successful takeover bid, Roger Bayliss insisted that 'we are passionately committed to the concept of long-term strategic alliances'. But nothing can be taken for granted in the wake of BAA's change of ownership and there has already been speculation that BAA might be inclined to return to less forward-thinking procurement methods.
The company has recently shown a willingness to deviate from its practice of negotiating contracts and last year it put the £14 million contract for a new South East Pier at Edinburgh airport out to competitive tender. Mace was the successful bidder.
'I'm quite happy for BAA to test the market, ' insists Mr Reynolds. 'Five years ago we never tendered projects at all. When this came along, we found we'd forgotten how to do it. It made us focus a bit more, ' he says.
Whatever comes out of BAA's change of ownership, there is little doubt that the airport sector as a whole will be getting plenty of construction work in the years to come. With air travel growing and our regional airports expanding to meet demand, the manpower and expertise currently being deployed on T5 will not languish for long.
The White Paper proposals
IN 2003, the Government published its White Paper entitled The Future of Air Transport, which it intended as a blueprint for airport development to the year 2030.
While neither promoting nor precluding any specific project, the White Paper sought to support economic growth by enabling ordinary people to make flights at reasonable cost, while managing and mitigating the social and environmental cost.
Nevertheless, the White Paper supported several specific developments in various regions of the UK. These include:
Terminal development and a new runway at Edinburgh
Possibility of a second runway at Glasgow
Terminal extensions at Prestwick, Aberdeen and Dundee
Further terminal development and transport links at Cardiff as the main airport for south Wales
Development of Belfast International within existing boundaries
Terminal extension at Manchester
Development of Liverpool John Lennon with the possibility of a runway extension
Terminal expansions and runway extensions at Newcastle, Teesside and Leeds Bradford airports
Second runway at Birmingham International
Runway extension and new terminal at Bristol Airport
Terminal expansion at Bournemouth
Provision for two new runways in the south-east by 2030, the first at Stansted.
Further development of Heathrow, including a third runway
Development of other airports in the south-east (namely London City, Norwich and Southampton) plus some smaller existing airports to meet local needs
Some significant development proposals are not supported by the White Paper. These include:
The option to develop two or three new runways at Stansted
The option for two new runways at Gatwick
The option of a new runway at Luton
The option to develop a new airport at Cliffe, north Kent
The option of a new airport north of Bristol
The option of a new airport between Coventry and Rugby