heathrow.docx

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Chapter 1 London Heathrow Airport

After nearly two decades of planning and construction, the highly congested London Heathrow Airport was

finally on the verge of opening its much anticipated Terminal 5 (T5). With its completion, Heathrow would be

capable of providing important new capacity for its tenant airlines and increase its overall revenue while

improving its public image and status. On March 27th, 2008, T5 would become the new home for British Airways

International (BA), currently occupying the largest amount of space at Heathrow compared to other airlines. Asthe profitable summer season approached, both British Airport Authorities (BAA) and BA would be hoping for a

windfall of revenue as a result of this expansion.

As typical with many large construction projects, timelines tend to slip and overall completion dates begin to

move. The delays tended towards decisions impacting overall quality on a variety of areas such as a marked

reduction in testing and staff orientation with the premises. As these schedules slipped, the topic of

postponement, however undersirable, had come up an option. Any delays in the opening, however, were not

to be taken lightly as the demand on the airports facilities were at their highest in the summer months. Any

delay would last not only weeks but months, with October being the only viable option to the March opening. A

six-month delay meant a six-month reduction in the expected increase in revenue, a loss of cost recoveryoptions from a massive construction effort, angry tenants, failed contracts, drastic negative political implications

and an expected public relations nightmare. A delay would likely end the careers of many, and potentially place

many companies in financial risk. However, to proceed on schedule could risk technical failures, business

interruption, loss of confidence and customers and, again, negative publicity.

Chapter 2 Background: The Air Travel Industry

Initially a government owned and operated industry in the majority of countries, air travel has undergone a

dramatic transition: From not-for-profit to a profit-driven and highly competitive industry. Overall demand for air

travel has been increasing between 5% and 15% annually since the 1950s. There is also a substantial trendtoward consolidations and partnerships within the highly competitive industry yielding massive operating

companies like those which own BAA. Globalization and other similar trends only further increased the demand

for air travel necessitating the rapid expansion and growth of all air transport related companies. Although,

nationally, most countries have regulatory bodies governing the actions of the industry, no ownership is typically

implied. In the UK, the Civil Aviation Authority (CAA) oversees and regulates all aspects of aviation.

Chapter 3 Background: The Players

British Airport Authorities Ltd. Lead by CEO Colin Matthews, BAA owns and operates six British airports,including Londons Heathrow Airport, making it one of the worlds largest transportation companies, generating

over GBP 2.5 Billion per year. The company is wholly owned by the international consortium ADI Ltd, led by the

Spanish infrastructure company the Ferrovial Group and is headquartered on the grounds of London Heathrow

Airport. Formed in 1966 by federal mandate, BAA was originally a state-run organization. It was privatized in

1986 and publically traded until July 2006 when ADI paid over GBP 10 Billion for ownership and the company

was delisted. Also during this time, the company was renamed from the British Airports Authority plc to BAA

Ltd.

The largest source of revenue for most airports is airline landing fees based on a per-seat pricing basis. This

means the more passengers an airline brings to the airport, the more fees they pay. It is, therefore, within

BAAs interest to facilitate as many passengers traversing its airports (including Heathrow) as possible.


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London Heathrow Airport London Heathrow Airport (Heathrow) is the largest and busiest airport in the United

Kingdom (UK) and second busiest airport in the world with respect to total passenger traffic. Heathrow handles

more international passengers that any other airport in the world and has the most passenger traffic in the

European Union (EU). With a history spanning back to the 1930s, Heathrow currently services almost a half-

million planes annually and facilitates over 65 million passengers through 90 airlines across 4 strained terminals.

Heathrows primary regional completion for the most profitable transatlantic trafficis Paris Charles De Gaulle

Airport, owned by a different consortium. Capacity has typically been a concern, limiting airlines from bringing

in more passenger traffic and in turn limiting revenue.

Heathrow is the primary hub for three airlines including BA, British Midland International, and Virgin Atlantic

Airways.

London Heathrow Terminal Five Planned to be opened in March of 2008, T5 was to be the largest free standing

structure in the UK, capable of handling 35 million passengers annually. The subject of the longest planning

inquiry in British history, T5 took 19 years from inception to completion with actual construction lasting almost 6

years. The terminal would become BAs central hub for all international flights with a plan to move 70% of BA

flights at other terminals to T5 on opening day; the remaining 30% was to be moved over within weeks ofopening day. By transferring BA, representing 40% of the routes and traffic to T5, Heathrows capacity for, as

well as revenues generated from, the other 90 airlines would increase as well. These properties would be

transferred as quickly as feasible to generate the highest rents possible. Heathrow and BAA were strongly

anticipating the opening of T5 to alleviate that congestion and help facilitate growth. Nearing the completion of

T5, it became evident that additional capacity may be necessary and plans for a sixth terminal were finalized.

The opening of T5 was to be the panacea to the much maligned congestion from which Heathrow was

suffering. Its highly anticipated opening was celebrated nationwide with the being invited Queen to make an

appearance in mid-March to officially open the Terminal.

British Airways BA was a nationalized airline established by consolidating two large and two smaller airlines in

1974. In 1987 the company was privatized and expanded rapidly through acquisitions. During the 1990s,

during a highly competitive market, BA became the most profitable airline in the world. By 2007, BA had a large

fleet of over 248 planes, consisting of very large capacity carriers such as Boeing 787s and 747-400s. Using this

fleet, in 2008, BA carried over 35.7 million passengers to over 150 destinations; making it the second most

popular UK airline generating over GBP 8 Billion in revenue

BA has a reputation of dominating Heathrow airport, earning it the nomenclature Fortress Heathrow within

both the airline and industry. Obtained through both grandfathering clauses and purchasing of routes, BA ownover 40% of the landing and taking off flights slots at Heathrow. In September 2005, Willie Walsh, former CEO

of Aer Lingus, took the CEO position at BA.

Chapter 4 Background: The Project

T5 is a state-of-the-art facility dedicated entirely to BA. It was is designed to handle 35 million passengers a

year and built with a budget of GPB 4.3 Billion. Involving over 60 contractors, the project consisted of 16 major

separate projects and 147 separate sub-projects. For example, the project included not only the terminal, but a

new transit system, a rail station, and even required a river system to be diverted. The excavation aloneuncovered over 80,000 archaeological finds at the dig site! (London Heathrow Terminal 5, 2010)


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Due to the large and complex nature of the project, BAA chose to take what is considered to be a unique

contracting approach to this project. They structured the contracts with their vendors such that BAA held all of

the (financial and liable) risk, which was intended to ensure the contractors would focus their energy to

being on-time and on-budget. To accomplish this, BAA had contractors risk payments pooled together, which

was then used as incentive: If the contractors finished on time and on budget, they would be rewarded with a

share from the pool; if there were cost overruns, contractors would lose out on their potential bonuses. This

strategy also encouraged the vendors to work together to solve problems instead of just finger-pointing, as it

meant that they all benef from collaborating and completing their respective projects. Another approach BAA

took with the contractual arrangement was to require an open-book approach with the vendors to ensure that

all expenditures were being accounted for fairly (Airport-technology.com, n.d). According to BAA, 80-85% of

the project deliverables were completed on time at T5, compared to only about 60% in the general construction

industry, so they feel their innovative approach has worked very well (Blue Skies Thinking, 2005)

Another reason for high confidence was that the entire building and all its systems were fully designed and

modelled electronically. From the building to the baggage systems to piping and wiring routing, every

component of the terminal was modeled. This allowed the designers to find issues before construction started,

thus avoiding costly rework and delays.

A major element of T5s design was to focus on passenger self-service. BAA aimed to have 80% of customers

using self-serve systems for both check-in and baggage drop, in the hopes of help saving money and increasing

passenger satisfaction by decreasing queuing and wait times throughout the terminal. The terminal includes 96

self-serve kiosks. (Airport-technology.com, n.d)

The baggage system was, and continued to be, a central component of T5s infrastructure, designed to handle

up to 70,000 bags a day. It is the largest system in Europe, designed and installed by Vanderlande Industries of

The Netherlands who had installed similar systems in some of the largest airports in the world such as Schiphol

Airport in Amsterdam, Hong Kong Airport, and Atlanta International Airport among others (Vanderlande

Industries, n.d.).


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Chapter 5 Background: Preparations for Opening

Testing for the opening began a year in advance. Over 15,000 people were involved in 68 different trials. The

tests involved members of the public, BAA employees, BA employees, and other steakholders trialling various

scenarios and situations carefully designed to stress test the terminal and its systems. Over 400,000 pieces of

luggage were ran through to fully test the baggage handling system and related systems. With construction of

the building running late in 2007, the testing and preparations were proving to be a challenging. Deliveringmore than 200 IT projects was easy when compared to the people element of the plan, said Glen Morgan, BAs

programme head of information management for T5. He went on to say that getting people to understand the

new role of technology and buy into the new proposition was our biggest challenge(Krigsman, 2008). Due to

construction delays, BA also had to defer by six weeks the start of its training program for passenger service

and ramp employees. Other training programs were reduced in scope to accommodate the revised schedule.

Chapter 6 -Information System Uncertainty

A six-week building delay was not directly related to the Information Systems, but caused by a bullwhip effect. A

six-week delay meant that additional time would be recovered by sacrificing the completion and testing of

IS, among other areas, in order to keep the opening date unchanged.

The planned sequence and content of some of the proving trials changed significantly (either reduced in scopre

or cancelled altogether) because of the inability to access the whole of the T5 site. BA also deferred by six

weeks the commencement of the on-site familiarisation programme for its passenger service and ramp

employees. (House of Commons Transport Committee, 2008)

Several stakeholders, including BA, were pressed for time to conclude testing and training on vital equipment

such as the baggage system, airbridge jetties and ground handling equipment. These components all had

software components important to Heathrows IS. Deferring the commencement of testing meant that there was

less time to react to and fix any problems that might have arised.

In other words, they were testing late and testing less.


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These critical facilities in the T5 building remained incomplete and short of the design specifications up

to opening day:

The Operating System of Jetties (Jetways) did not meet performance specifications. Maintenance engineerswere required to reset the operating system on each jetty before it could be reused.

Stand guidance systems which provides guidance to incoming aircrafts on the airfields had been calibratedbut there was no time to run complete tests.

The baggage handling system: HELIXORTERS(TM), BAGSTORE(TM), and BAGTRAX(TM), which weredesigned by Vanderlande industries is a proven technology that has been implemented in other aiprorts,

however, the scale of the system at T5 is greater than anywhere else in the world. The building delay cut

into valuable testing time for the baggage handling system. During testing, BA and BAA realized that there

were some technical problems that could cause potential delays on opening day. In the last few weeks

before opening day, BA and BAA have been doing tests on the belt system and realized the computer could

cope with the number of bags going through

The end-to-end integration testing of key BA operational IT systems was delayed until October 31, whichaffected ability to run both trials and staff familiarisation as planned:

People were taken to a hotel and shown some sort of film or slides and told this was what it looked like.They were then given familiarisation training for three days to cover an area as big as Hyde Park. That

was not sufficient at all. For that reason people were totally confused. Two days out of the three were

devoted to putting them into a coach to show them x, y and z, and where to enter and exit and so on, but

what was missing was hands on training as to where the spurs were, where the bags would come in and

so on. For baggage in particular it was still a building site. You cannot start to train people there unless

you have on a hard hat and all the rest of it. Therefore, the only time available to show these people

around was the very last few weeks. (House of Commons Transport Committee, 2008)

Chapter 7

Other UncertaintiesIn addition to IS uncertainties, there were also problems with the infrastructure of the airport:

Temperature control for the building needed to be operated manually. Regular fixed electrical ground power unit failures, requiring the unplanned towing of mobile ground power

units around the airport.

Lifts, with a number of passenger and staff lifts remaining either not fully commissioned or unserviceablefor customer and staff use. 28 of the 192 lifts at T5 were not in service on opening day. Half of the lifts

that were out of service were in the Terminals short stay car park. The reason for lifts not being completed

on time was primarily blamed on the difficulty of finding suffcient lift engineers due to the high demand in

the construction industry at that time.

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