Valuing Dublin Airport Land

[This is a revised version of Chapter 6 of "The Economics of the Proposed Runway" submitted to An Bord Pleanála as part of UPROAR's appeal against FCC's granting of planning permission to the new runway on 12 April 2006.]

There is the further issue of the valuation of the entire 2,500 acre site at Dublin Airport and of all the land in existing and proposed safety zones, which is of particular relevance to the determination of airport charges by the Commission for Aviation Regulation (CAR). If, contrary to current practice, airport land and losses to sub-flightpath land were valued at full opportunity cost, the result would have a major effect on airport charges and consequently on national aviation policy.

The Commission for Aviation Regulation (CAR) and economic efficiency.

The CAR lays much emphasis on economic efficiency as a principle of the regulation of airport charges. One of its stated objectives is: "to facilitate the efficient and economic development and operation of Dublin Airport which meet the requirements of current and prospective users of Dublin Airport." In its draft determination of airport charges in 2005 the CAR says that: "an assessment as to the required CAPEX(3) programme and its efficiency is…….a central element of the economic regulation of airports(4)." In a press release in 2001(5) the Commission chided Aer Rianta, inter alia, for: "inadequate or non-existent cost-benefit-analysis or business cases undertaken to justify specific CAPEX projects;" Cost-benefit analysis requires assets to be valued at opportunity cost. Yet the CAR does not value the land at Dublin Airport at its true market value, which is what one would expect if economic efficiency were really fundamental to its mission.

Determining maximum passenger charges - the RAB

In determining the maximum the airport can charge airlines per passenger, the CAR determines the value of assets at Dublin Airport and requires that these assets be remunerated at a rate of 7.4% per annum. These assets form the Regulatory Asset Base (RAB). CAR then determines the maximum charge per passenger by adding adjustments for depreciation and the differences between the airport's operating costs and its net commercial income. If the value of land is included at all in the RAB for Dublin Airport, it is at a minimal valuation that cannot possibly reflect its true market value.

Legal basis for CAR's treatment of assets

The Commission for Aviation Regulation was established on 27th February 2001 under the Aviation Regulation Act, 2001. The 2001 Act, setting out objectives in respect of airport charges says that for the development and operation of cost-effective airports the Commission shall have due regard to: "… (b) a reasonable rate of return on capital employed in that investment, in the context of the sustainable and profitable operation of the airport, (c) the efficient and effective use of all resources by the airport authority, …………."

Any reasonable interpretation of "capital employed" and "all resources" would include the DAA's own land. When the objective is economic efficiency, this would demand that all assets at Dublin Airport be valued at full opportunity cost, including land. These are public assets. Why should the taxpayer not be entitled to a return on all public assets, especially including land, whose value at Dublin Airport dwarfs other assets that are charged for? Aer Rianta has staunchly defended its right to earn a full return on its assets, even citing a European Court of Justice decision(6).

There are also state-aid and anti-competitive issues here. How, for example, could private interests compete in the airport business, when they would have to charge for the land for a new airport, but the DAA does not? Private airport charges would have to be high enough to allow for this land. If land had been bought by way of a loan, repayments would be required. If the private interests owned the land, shareholders would demand a market return/rent for it. They could not, as the DAA does, treat its value as of no consequence, because it was bought a generation ago. Could our EU neighbours, or the European Commission complain that we are unfairly attracting business to our state airports because we do not charge users nearly enough to generate market returns on the assets occupied by Dublin Airport?

Determining the RAB

In document CP2/2005 the regulator says: "In its first Determination (CP8/2001), the Commission established an initial valuation of Dublin Airport's RAB, which it based on a valuation of the Indexed Historical Cost of the Net Fixed Assets as at 31 December 2000 prepared by Aer Rianta…" What value did Aer Rianta include for Dublin Airport land?(7)

The DAA's 2005 Annual Report and Accounts(8) in a footnote to Table 9, page 40, notes that land, as distinct from airfields, is valued at €19.6 million. It is not stated how much land is concerned. The same figure has been used in the DAA's accounts for the last four years. In the 2001 accounts, it was actually higher, at €19.8 million.

The regulator's initial valuation of the whole airport was £457.3m (it was €614 million at 1 January 2004). If land is included in that figure, it must be a very small figure, similar to Aer Rianta's value for land. If the Aer Rianta figures were like those contained in Dublin Airport's Annual Report 2004, airport land is valued at less than €20 million and is clearly not treated at opportunity cost, or anything like it. In May 2006, the CAR confirmed by email that it did use the DAA value in determining the Regulatory Asset Base of Dublin Airport.(9)

These Aer Rianta land values are no doubt based on long-standing accounting practices. Commercial accounting practices do not always reflect true economic value or even current market values and opportunities. If the CAR has simply accepted the accounting procedures of Aer Rianta/DAA in valuing land at Dublin Airport at minimal (possibly agricultural prices), it is not following the economic efficiency paradigm it advocates. In chiding the DAA for not doing adequate cost-benefit analyses of capital project proposals, the CAR was implicitly asserting the need to evaluate the opportunity cost of assets correctly.

It is easy to make a quick estimate of the effect on the maximum passenger charge of adding the true value of land to the asset base. As there is no depreciation of land, we simply multiply the value of land by 0.074 (the CAR's annual discount rate of 7.4%) and divide by the number of passengers per annum, at present about 20 million ppa. So, if the 2,500 acres owned by the DAA is valued (conservatively) at €1 million an acre, we get (0.074*2500)/20 = €9.25 per passenger. As the real value of airport land is probably about €2 million and acre in 2006, the charge would increase by €18.5 per passenger. This does not include the loss of value of land under the airport's flightpaths. In socio-economic welfare terms it would be appropriate to attribute those costs also to the DAA's operations and to require it to cover those costs.

Guidelines.

Various guidelines exist to assist in the evaluation of investment proposals by public bodies. The Department of Finance requires all significant projects (defined as those costing over €30 million) to be subjected to a full cost-benefit analysis(10). A fundamental principal of cost benefit analysis is that assets be valued at their opportunity cost. This is the value in their best alternative use, determined as far as possible by reference to market valuations.

Although a fundamental tool of cost benefit analysis methodology, the economic principle of opportunity cost is highly relevant to the determination of airport charges and the valuation issue raised there. An objective determination of passenger charges must have recourse to the same core economic principles, given that the CAR is required to have regard to economic efficiency as a guiding principle of its determination of airport charges.

Apart from the Finance Guidelines there are also guidelines set down by the European Commission, originally for the evaluation of investments using Structural and Cohesion Funds(11). These guidelines now apply to all investments under the National Development Plan, regardless of the source of funds(12). The new National Development Plan 2007-2013 envisages spending €1.8 billion on infrastructure at Dublin, Cork and Shannon airports. This includes Dublin Airport's expansion plan and it is therefore subject to the evaluation standards set down in the NDP. Announcing the plan, Finance Minister Brian Cowen said all projects in the new NDP costing over €30 million must be subjected to a full cost benefit analysis(13). The NDP evaluation guidelines therefore apply to all elements of Dublin Airport's expansion in particular as regards the valuation of state assets. The same valuation principles should therefore apply the assets of Dublin Airport for the purposes of determining economically efficient charges.

Regarding state land, these EU guidelines state (page 32):

"Many projects in the public sector use capital assets and land, which may be state-owned or purchased from the general Government budget. Capital assets, including land, buildings, machinery and natural resources should be valued at their opportunity cost and not at their historical or official accounting value. This has to be done whenever there are alternative options in the use of an asset, and even if it is already owned by the public sector."

Note the exclusions: in the case of land, historical cost or official accounting value should not be used, even if the land is already publicly-owned. This is precisely the situation in the case of land at Dublin Airport, which has been valued at historical cost/accounting value for the purposes of determining passenger charges.

The National Roads Authority (under the same parent department as the DAA) also has a set of evaluation guidelines(14). Regarding land the NRA guidelines state (page B6):

"It is important that all land and property costs be considered in the appraisal and included in the cost estimates….The costs should also include the value of land already owned by the road authority.

"Payments for land and property may be made at various times before, during and after construction. Where land has been purchased in advance of its use for the scheme, the value of the land may have changed in the interval. This change reflects a change in the "opportunity cost" of the land, that is, the value of the land when put to its best alternative use. Irrespective of the original purchase price, the current price estimated by the Valuer should be used in the scheme appraisal."

The U.S. Office of Management and Budget issued updated guidelines in 2003 for "Regulatory Analysis"(15) referring to land and property already owned, they say:

"The use of any resource has an opportunity cost regardless of whether the resource is already owned or has to be purchased. That opportunity cost is equal to the net benefit the resource would have provided in the absence of the requirement. For example, if regulation of an industrial plant affects the use of additional land or buildings within the existing plant boundary, the cost analysis should include the opportunity cost of using the additional land or facilities."

The UK's investment appraisal guide (The Green Book) referring to sunk costs says the following: "5.15 Costs of goods and services that have already been incurred and are irrevocable should be ignored in an appraisal. They are 'sunk costs'. What matters are costs about which decisions can still be made. However, this includes the opportunity costs of continuing to tie up resources that have already been paid for."(16)

International experience.

What is the international experience of this issue of valuing airport land for the purposes of regulating public airports?

In 2002 the New Zealand Commerce Commission, as part of its enquiry into whether New Zealand's main airports should be controlled, decided that airport land should be valued at opportunity cost(17):

"In determining the appropriate asset base for each of the airports, the Commission decided that relevant land should be valued at opportunity cost."

Their main report, paragraph 33, states (18,19):

"Valuing airfield land at opportunity cost provides appropriate signals either to continue operating the land in its existing use (as an airfield), or put the land to alternative use and relocate the airport. It also provides the appropriate incentives for new investment. Opportunity cost should be determined based on the highest alternative use value of airfield land, with that being the higher of the value with or without the sealed surfaces (the latter being after the costs of removing the sealed surfaces)."

In 2000, Sydney Airport Corporation Limited (SACL) arguing for including the full opportunity cost of land in the determination of airport charges, said in its proposal(20):

"2.1 Inclusion of land Under the Federal Airports Corporation, land was not included in the regulated asset base. In the draft notification SACL provides four separate reasons why it believes a return on the value of land should now be included in aeronautical charges, as follows: Valuing land according to its alternative use provides the economic signal for efficient decisions regarding the continuing use of the land as an airport, compared with the cost of an airport based further out of the city, with cheaper land, but increased costs in travel time etc;   The Commonwealth, as a rational investor, would only continue to use Sydney Airport for aviation purposes if it could not achieve a higher return from an alternative use….   Any possible future airport in the Sydney basin would be unable to compete with Sydney Airport as the cost of the latter's locational advantage is not reflected in current aeronautical charges;   ……."

The Australian Competition and Consumer Commission's (ACCC) agreed in principle with the SACL proposal and recommend use of an indexed historical cost method instead of current market valuation(21).

These New Zealand and Australian cases show that the same arguments made by UPROAR in favour of valuing airport land at opportunity cost have been accepted by policy makers in other jurisdictions. The case for full opportunity cost valuation has been accepted for land valuation in the assessment of the economic efficiency of airport operation and for the determination of regulatory airport charges.

Land Zoning and value.

The argument will be made that the land involved is zoned for airport use and therefore has no alternative use value. That would require accepting the assumption that rezoning is impossible. The UK's Green Book, when dealing with the issue of zoning when valuing land, states(22):

"Alternatively, the value of a property may be depressed by restrictions on development. It should be considered whether or not these can be lifted (and at what cost), and the result of this should be reflected in the valuation. In all cases, the prospect for obtaining a higher planning consent should be considered by the appraiser and his professional property advisor."

In the New Zealand case discussed above, one argument put against a full market valuation of airport land, was that the airport land was zoned agricultural and it should be so valued. The Commission ruled against that argument and decided land should be valued, like other land in the area, as if it were available for mixed residential and commercial use (see Annex)(23).

When calling for a proper assessment of the runway proposal, UPROAR is not proposing that Dublin Airport be relocated (although that prospect did not deter the New Zealand Commission), only that alternatives to the proposed runway be considered both within the existing airport and elsewhere. If one objectively examines the options of developing runway capacity elsewhere at a new or existing regional airport, one is entertaining the possibility that it would not be built at Dublin Airport. Appraisal guidelines all require that the "do nothing" option should be examined first to provide a baseline. Doing nothing in this case means not building a runway. In which case, the presumption that the land then not needed for the runway could be rezoned for its best alternative use must be accepted as highly probable. If one excludes that possibility, one is ruling that there is no option but to build a new runway on it, and that makes an absurdity of the requirement for proper evaluation of alternatives and of any attempt to impose an economic efficiency paradigm on airport operations. The land must be assessed at its opportunity cost, any necessary rezoning assumed. Land under the flightpath is in a similar situation. With no runway there is no flightpath, so no planning restrictions are required. Therefore its loss of value due to the runway should be measured by the loss of market value and counted as a cost of building this runway and operating this airport.

Zoning should not be a decisive issue for the land destined for the proposed runway, given recent zoning decisions by Fingal County Council. The FCC Dublin Airport Masterplan allows for the rezoning of land in the Designated Airport Area for commercial development even for "non-aviation related commercial development" (page 3)(24). If Designated Airport Area land can be so rezoned, there is nothing to stop other land within the airport area being similarly zoned if it were no longer needed for a runway. There can be no doubt that its value under such conditions would be full market value for similar land in the surrounding area, which is currently €1-2 million an acre(25). Actual sale of the land need not even be envisaged as it could be developed by the DAA, but its value has to be determined by its opportunity cost, i.e., its value if sold for its best alternative use. Current airport charges should properly reflect the opportunity cost of that undeveloped land at least, because there can be little doubt as to its real market value. If that were done and charges were increased substantially, the poor economic justification for this land's use as a runway would become very transparent.

As revealed in the Mahon Tribunal, a site of 24 acres completely surround by Dublin Airport land was rezoned unanimously by FCC in September 1993, from agricultural to industrial. This is known as the Cargobridge land which Dublin Airport had been trying to acquire for airport use. It is clear that FCC had no difficulty rezoning land close to Dublin Airport for industrial use when it was judged to be appropriate. There is no reason to suppose land currently zoned for airport use could not be similarly rezoned in the right circumstances. In 2000, 8 acres of this Cargobridge land were sold for €20 million or €2.5 million per acre in 2000 giving a clear indication of the market value of immediately adjacent airport land(26).

These cases demonstrate that the current zoning of Dublin Airport's land for "Airport and Related uses", should not limit its alternative use-value, whether for evaluation purposes or for charge determination. Its potential use as land rezoned for mixed development close to the city should be the valuation reference. That should at least apply to undeveloped land, such as that destined for the new runway. If the New Zealand and Australian cases are a guide, it should also apply to the whole airport and if sound economic principles are to apply, the loss of value to private land under the flightpaths, and all other social costs, should also be reflected in airport charges.

The implications for airport operations are immense but the debate has never taken place in Ireland. UPROAR raised this issue with the CAR, as we believed land had not been properly valued in the CAR's Draft Determination of Charges (CP2/2005)(27) . The response received did not address the questions raised.

The CAR is required to undertake an economic assessment of the DAA's CAPEX programme. It follows that as part of its role in determining the charge for the airport as a whole it is obliged to apply sound economic evaluation principles to its evaluation of the DAA's CAPEX programme, of which the proposed runway is a large element. It follows that in such an evaluation the principle of opportunity cost valuation should be applied to all the assets consumed by the proposed runway.

London City Airport (LCA) and the value of Dublin Airport

LCA is a private airport (formerly owned by Dermot Desmond) in Docklands 10 km from the City of London, 16 km from the West End. Dublin city centre is 9 km from Dublin Airport. LCA was sold for STG£750 million (€1.1 billion) on 11 October 2006, according to the Irish Times of 12 October 2006.

LCA is a small (STOL) airport.

LCA is a Short Take-Off and Landing (STOL) airport(28). It has one runway only 1.3 km long. It had 2 million passengers in 2005 - Dublin had 21 million in 2006. Operations are restricted to between 5:30 and 21:30 Monday to Friday, with an even more restricted service on Saturday and Sunday. In fact, restrictions require the airport be shut for at least 24 hours every weekend. Only emergency flights are allowed outside these hours. The severe restrictions on airport use at night and at weekends lowers the commercial value of the airport compared to an unrestricted airport like Dublin.

The size of the airport, constrained by the water-filled Royal Albert and King George V docks to the north and south respectively, means that there are no covered maintenance facilities for aircraft. It has virtually no land apart from the runway and a terminal - it is nearly surrounded by water(29).

The overall site area of the airport is only about 40 hectares (100 acres)(30). Dublin Airport is 1000 hectares or 2500 acres - twenty-five times the size(31).

It is claimed LCA could double or treble passengers to a maximum of about 5 million per annum, because of the site's limitations. The maximum allowed aircraft movements are 73,000 per annum. The landing fee is now £700 (€1000) per aircraft at peak, £350, off-peak(32).

In 2005 LCA had 71,000 movements with 1.998 million passengers(33). That is 28 passengers per plane. There is no break-down for peak to off-peak usage, so the per passenger charge is between €17.75 and €35.5, to give an average somewhere around: €26.6, compared to Dublin's €6.34. That is what a competitive market is willing to pay for the luxury to take-off and land 10 km from the centre of London. LCA assumes 73,000 (the maximum allowed) movements could eventually deliver 5 million passengers, obviously needing to increase the load factor significantly. That would be to 68 passengers per plane. Therefore the per passenger charge, on average, could more than halve, if they did not increase their per aircraft charge. They almost certainly would increase it, as the market would take it. As they are not regulated - charge-wise, they may charge what the competition will allow and that appears to be about €26 per passenger. Their current per plane charge is probably designed to get the load factor up, bringing more business through the airport shops(34).

Comparative airport values.

Table 1: A Tale of two City Airports

LCA is a small airport with a minimal amount of land, but it is worth nearly double Dublin Airport. The Commission for Aviation Regulation (CAR) valued all of Dublin Airport at €614 million in 2004. Yet LCA is a tiny airport with 1/10 the current capacity of Dublin with very restricted operation and limited scope for future development. Dublin property prices are nearly comparable to London. LCA has little alternative use-value because of its location. It is practically an island. It follows that even without including its vast land bank, Dublin Airport is seriously undervalued and its users are being subsidised, on these figures, by something like €20 per passenger. It is notable that this (estimated) difference of €20 in average charges corresponds to the estimated charge subsidy of €18.5 if the airport's 2,500 acres are valued at €2 million per acre.

The CAR's CAPEX evaluation and the new runway.

UPROAR's main concern is with the new runway, rather than with Dublin Airport as a whole; although the inclusion of all the land at, or affected by, Dublin Airport in the determination of charges would obviously have major implications for the new runway proposal. Whatever about a debate on whether or how much of such land should be valued at opportunity cost, our position regarding the 840 acres ear-marked for the new runway and the 3,500 plus acres in the new safety zone, is categorical. Our demand for a market opportunity cost valuation of this land does not question the continued existence of Dublin Airport or propose relocation.

Much of the proposed new runway site is a greenfield site. The existing northern runway 11/29 occupies some of it. If the DAA is proposing to demolish that old runway it is, in their opinion, expendable; and the site is therefore subject to a full independent determination of its real alternative use-value. By choosing to build a new runway on it, the DAA is saying its current use is sub-optimal and is implicitly claiming that the proposed use of it under a new runway is economically optimal. In our view, that is a hypothesis that must be tested. If the land can realise €1--€2 million per acre, the DAA has to demonstrate that their proposal for its use can yield a return that would remunerate that investment of public land. And that is before consideration of other costs, such as the new safety-zone land devalued by restricted development, to which we have to add construction costs, road congestion costs, etc.

UPROAR has called for an independent cost-benefit analysis to be done of the new runway proposal, as required by Department of Finance Guidelines, and EU/NDP Guidelines. UPROAR has estimated that the new Dublin Airport runway option will lead to an economic loss of some €3 billion compared to a return of 7.4% for an alternative site. See: www.norunway.com/cba.

We understand the CAR does not feel obliged to remunerate "externalities" in airport charges. The opportunity cost of the 840 acres to be used for the new runway is not an externality and cannot be ignored by the DAA or the CAR. Furthermore, the loss of development value for land in the Inner and Outer Safety Zone may be external to the balance sheet of Dublin Airport, but most certainly is not an external cost to the economy of Fingal, about which both Fingal County Council and central government should be very concerned. As a semi-state body the DAA should also be mindful of its duty to society rather than pursuing what appears to be its own private purely commercial interest. The CAR should include it, as it claims that economic efficiency is a guiding principle of the regulation of airport charges. UPROAR believes that airport charges should reflect the full social costs of airports. If they did, we would eventually achieve an economically optimal and sustainable national airport infrastructure.

In its latest determination of Dublin Airport charges (September 2005) the CAR noted that it had been unable to take account of a recent assessment of the DAA's new CAPEX programme(35) . It stated further than given the central importance of efficiency in the economic regulation of airports, it was calling for submissions from users on the DAA's new CAPEX programme(36). UPROAR will make such a submission.

The future for Dublin Airport

Should Dublin Airport be relocated? That is an interesting subject for study and debate, and it is not the point of UPROAR's challenge to the new runway, which, as we stress, is a marginal investment issue. Whatever the outcome of a wider debate, it is obvious that a slimmed-down, more efficient operation is required at Dublin Airport. At the very least, the hugely loss-making old northern runway 11/29 (that the DAA is planning to demolish) should be demolished as it occupies land that is, without question, worth at least €1 million an acre. If the new runway proposed to replace it, would be a huge economic loss, how much of a loss is 11/29 at its present very low usage?

If economic principles were applied, land not needed at Dublin Airport could be sold for mixed development, probably at least 1000 acres, and so realising €1 billion to €2 billion. Those proceeds could be invested in improving the existing main runway, improved taxiways, a new terminal, improved commercial facilities, etc. DAA's debt of €500 million could also be repaid(37). With a smaller asset base to be remunerated, a more efficient airport could operate at a charge level acceptable to users. It could become, in effect, a more efficient Dublin City Airport as has happened in other major cities. Charges would still be higher than the charge at the new airport, but the convenience of landing and taking-off 10 km from the centre of a capital city has to be paid for.

If Dublin Airport had to compete fairly with a new Greater Dublin Area airport it would be forced to become efficient. It seems rather obvious that whatever the future for Dublin Airport, a new second airport serving the GDA and nearby regions is needed to provide an economically viable option, competition with which would determine what the sustainable future is for Dublin City Airport. As UPROAR has repeatedly said, we need a proper independent study to determine best national aviation policy rather than having such policy dictated by the DAA which seems reluctant to act in the national interest and has refused to contemplate such a study, or claims that it has already been done.

Annex: Valuing Land at Airports: New Zealand experience, some issues.

In the case taken to the Commerce Commission asking whether three of New Zealand's international airports should be controlled, arguments were put against a full market valuation of airport land. This included the charge that full market value could not be ascribed to airport land because if such a large parcel of land were sold, local land prices would be depressed. The second point was that the airport land was zoned agricultural and should be so valued. These issues are likely to emerge when the issue of valuing Dublin Airport land at true market value is raised. The Commission ruled on these points as follows(38):

"10.73. Opportunity cost estimates derived are based on an assessment of the proceeds that would be obtained from an orderly sale of the land (in economically manageable parcels) over such time period as would likely be needed to achieve the highest and best alternative use value of that land. They are not estimates of the proceeds that would be obtained by the sale of CIAL's [Christchurch International Airport Limited] airfield land in a single parcel tomorrow (this would be akin to 'scrap' value).

"…….

"10.77. The current zoning of CIAL's airfield land limits the best alternative rural (farming) use. However, if the airport were to cease to operate it is highly likely that the zoning would change. The current zoning reflects the present use of the land as an airfield and a desire to control development around the airport, so as to avoid noise controls. Without the airport, there is no need for the restrictions on development to continue."

10.78. The Commission is of the view that the best alternative use of CIAL airfield land would be for urban/lifestyle development, incorporating a range of uses including commercial, retail, industrial, lo density residential and lifestyle blocks. The location of the land (both in proximity to the City, and to State Highway one north and south of the City), the existing infrastructure/amenities in place at the airport, and the type of land uses undertaken on nearby land lead the Commission to this view."

(1) "A price of €3.3 million was secured in January 2005 for a 1.33-hectare site on the Old Airport Road opposite Airways Industrial Estate." [€1 million per acre]. See: http://www.ireland.com/newspaper/commercialproperty/2005/0601/1451944554CPBUTLER.html

A site for mixed development was reported for sale by Dublin County Council for €2 million an acre at Clare Hall near Dublin Airport in April 2006. Northside People, 26 April - 2 May 2006.

Cargobridge land completely surrounded by Dublin Airport land, having been rezoned by the Fingal County Council from agricultural to industrial use in 1993 was sold for €2.5 million per acre in 2000. Evidence to the Mahon Tribunal on 19/9/2006. See Irish Independent of 20/9/2006.

(2) Uproar consulted three North County Dublin property experts who wish to remain anonymous in mid 2005. They all agreed that an average loss of €500,000 per acre for the land in the Outer Safety Zone is a conservative estimate and expect that, if queried, no reputable valuer would challenge that figure. One example in the Portmarnock area was cited where land restricted because of the existing main runway was sold mid 2005 for €1.2 million per acre while a site across the road, but not restricted, sold for €2.4 million an acre around the same time. That represents a loss of value of €1.2 million per acre due to safety zone restrictions, considerably more than €0.5 million. These experts also believe that the valuation of runway land is conservative at €1 million per acre, as that land could easily be zoned residential and be worth €2 million an acre.

(3) Capital Expenditure.

(4) See Draft Determination CP2/2005, page 42. www.aviationreg.ie.

(5) See: http://www.aviationreg.ie/downloads/press270801.pdf

(6) "It is clear that, in all circumstances, Aer Rianta is fully entitled to earn an appropriate return on and of capital with respect to its assets. Indeed, this was acknowledged by the Advocate General in the context of access to airport installations in his opinion to the ECJ in the Flughafen Hannover case: "…the right of access to installations should be remunerated at a fair value, that is to say that it allows for the depreciation of the installations and the costs of the management and that it provides airports with a reasonable level of profit.""

See: http://www.aviationreg.ie/images/ContentBuilder/a_Draft_CP3_Final.pdf

(7) This information should be available at the CAR website, but seems in accessible.

(8) DAA Annual Report and Accounts 2004

(9) Dear Sir,

I refer to my e-mail of last week. I understand that the figures used are based on those as published by Dublin Airport Authority in its annual report of 2005. Note 10 to the financial statement of that report states that the figures in respect of lands and airfields, for group and company, include airport land at a cost of €19.6 million.

I have no further details.

yours faithfully,

David Hodnett
Deputy Head of Legal Affairs
15/5/2006.

(10) Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector

(11) "Guide to cost-benefit analysis of investment projects", (Structural Fund-ERDF, Cohesion Fund and ISPA), Evaluation Unit, DG Regional Policy, European Commission, 2002. See: http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/guide02_en.pdf

(12) http://www.csfinfo.com/htm/evaluation_process/index.htm

(13)See Minister Cowen's speech of 23 January 2007

(14) "Guidelines for the Appraisal for Cost Benefit Analysis.", National Roads Authority, St Martin's House, Waterloo Road, Dublin 4, June 2005.

(15) See: "Circular A-4 September 17, 2003

(16) See: http://www.hm-treasury.gov.uk/media/05553/Green_Book_03.pdf

(17) http://www.comcom.govt.nz/RegulatoryControl/Airports/Overview.aspx

(18) http://www.med.govt.nz/templates/MultipageDocumentPage____3334.aspx

(19) Commerce Commission, Final Report, Part IV Inquiry into Airfield Activities at Auckland, Wellington, and Christchurch International Airports.

(20) The SACL proposal regarding land is available in a consultant's report: " Land valuation at Sydney Airport: A Report prepared for the Australian Competition and Consumer Commission by the Network Economics Consulting Group". Final Report, May 2000.
See: http://www.crai.com/.%5Cpubs%5Cpub_4689.pdf

(21) ACCC [Australian Competition and Consumer Commission] Decision on Sydney Airport Prices. See: http://www.accc.gov.au/content/index.phtml/itemId/87729

(22) See Annex 3, Land and Buildings at

(23) See: http://www.med.govt.nz/upload/7518/airports-full.pdf.

(24) "Draft Dublin Airport Masterplan", Fingal County Council, March 2006.

(25) Cargobridge land (24 acres) surrounded by DAA land was rezoned in September 1993 by FCC unanimously, from agricultural to industrial use. Eight acres of this land was sold for €2.5 million per acre in 2000. See: Irish Independent 20/9/2006.

(26) See: Irish Independent 20/9/2006. Referring to the Cargobridge land (under investigation at the Mahon Tribunal) it says in 2000, 8 acres of the Cargobridge land was sold for almost €20 million.

(27) See http://www.aviationreg.ie

(28) Wikipedia http://en.wikipedia.org/wiki/London_City_Airport

(29) See: http://www.lcacc.org/operations/oip.html

(30) See: http://www.lcacc.org/history/construction.html

(31) A Sunday Tribune article of 1 October 2006 said LCA has 120 acres with a option to develop 5 acres of dockland.

(32) http://www.lcacc.org/fees/fees06(1).pdf

(33) http://www.lcacc.org/statistics/lcystat2.pdf

(34)http://www.lcacc.org/future/index.htm

(35) http://www.aviationreg.ie/images/ContentBuilder/a_Draft_CP3_Final.pdf "Maximum Levels of Airport Charges at Dublin Airport Commission Paper CP3/2005 Determination on Maximum Levels of Airport Charges 29 September, 2005. " Page 54:
"Unavoidably, as stated previously, the Commission has not had adequate time to analyse, in the desired manner, the Pascall & Watson recommendations on the DAA capex programme presented to it by DAA on 26 September 2005 (just days before finalisation of the Determination). The Commission therefore is not in a position to quickly translate the revised DAA capex programme into airport charges for the period of the Determination without a proper examination and still meet its statutory objective of economic efficiency."

(36) "Maximum Levels of Airport Charges in respect of Dublin Airport. Draft Determination and Explanatory Memorandum." Commission Paper CP2/2005, 31 May 2005. See (pages 42/43: http://www.aviationreg.ie/images/ContentBuilder/cp22005.pdf
"An assessment as to the required CAPEX programme and its efficiency is, therefore, a central element of the economic regulation of airports. Consequently, it is necessary that a regulated firm's investment plans be carefully scrutinised as to their timing and efficiency.… Accordingly, the Commission seeks submissions from all users on the DAA Capex Programme as set out in Annex 7."

(37) http://www.ireland.com/newspaper/front/2004/0712/665116119HM1AIRPORT.html. This is the debt before undertaking the proposed development.

The DAA's annual accounts for 2005, page 66, show borrowings of €472 million (€517 million at "fair value". See: http://www.dublinairportauthority.com/media-centre/annual-report/index.html.
If borrowings exceed €700 million the Government, as shareholder, must amend legislation setting up the company, to allow a larger credit line.

(38) See: http://www.med.govt.nz/upload/7518/airports-full.pdf.