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UK government gives green light to Heathrow expansion

After decades of wrangling, the U.K. government announced Tuesday that it had taken the widely anticipated decision to approve the expansion of Heathrow Airport, paving the way for a third runway at Europe's busiest airport.

The announcement of the government's support for increasing the capacity of the U.K.'s airport infrastructure follows a meeting on Tuesday morning of its Airport committee, chaired by Prime Minister Theresa May and attended by senior Conservative party ministers.

In gaining the government's backing, this plan has now edged out Gatwick's bid for an additional runway and a competing idea to extend one of Heathrow's existing runways.

Heathrow chief executive John Holland-Kaye applauded the prime minister's decision as "a really good day for the country," that would help the country as it prepares to leave the European Union.

"Heathrow expansion has always been a vital cornerstone for the British economy," he told CNBC. "But with Brexit it has become even more important that we connect all regions and nations of the UK to all the emerging markets of the world."


Is Heathrow ready to expand?

In a sign that London may still be far from getting this additional infrastructure, May clarified last week that in a best-case scenario, a final decision made by way of a parliamentary vote would not be taken until at least the end of 2017, following a year-long public consultation process.

Agitation from several disgruntled stakeholders concerned about the impact on communities and the environment means many expect a vigorous battle ahead for proponents of the scheme and potential significant further delays to even that drawn-out timetable.

Among those expressing the most virulent opposition include MPs from May's own cabinet, including Foreign Secretary Boris Johnson, Education Secretary Justine Greening and losing London mayoral candidate Zac Goldsmith. The U.K. Government said on Tuesday Goldsmith has resigned from parliament after the expansion go-ahead.

Uniting the three is their representation of west London constituencies which are set to suffer from the uptick in noise and air pollution detailed in the review concluded in July 2015 by the independent, government-appointed Airports Commission, which backed the third runway plan.

The plan also faces determined opposition from several environmental groups, including Greenpeace, as well as multiple activist groups specially convened in an attempt to derail the project.

London mayor Sadiq Khan said he was considering whether or not to join a legal challenge, adding in a conversation with reporters, "I think the government has made a big mistake."

Nonetheless, Holland-Kaye told CNBC that the proposed plan had been the result of consulting with local communities.

"We have listened to our local communities, we have listened to our critics, we've improved our plan," he told CNBC.

"We now have something that works for local communities. It is sustainable. It is affordable for airlines and passengers. But it helps to build the economy that Britain needs to make sure we are a winner in a post-Brexit world."

In addition to the health and quality-of -living concerns for certain West London residents, Heathrow Airport Holdings, the private company which owns the airport, has said it intended to buy 750 homes on the site where the new north-western runway is to be developed, using compulsory purchase orders. The group says it will also offer the option of selling to a further 3,750 homeowners.

According to calculations from estate agency Countrywide, a potential buyout price for the houses calculated by adding 25 percent to full market value as recommended by the Airports Commission in its final report, could stack up to a cost of £330 million ($403 million) for the compulsory purchase area alone and up to £1.5 billion once the wider zone is included.

The dilly-dallying of the past couple of decades has driven this cost up dramatically due to soaring house prices in the U.K. capital in the intervening period. Countrywide estimates that had the runway's construction gone ahead in 2003 when the incumbent government had initially published a white paper report on the suggested project, the charge would have been around £861 million lower.

On the subject of costs, another challenge for this project seeing the light of day is the lack of willingness of many stakeholders to pick up its heady expense, with the latest estimates from the Financial Times as of Wednesday suggesting the venture will cost around £16.5 billion. Heated discussions over how the financial burden will be split between airlines, customers, the airports owners and taxpayers show little sign of being resolved in the near-term.

Willie Walsh, chief executive of British Airways-owner International Consolidated Airlines Group and a leading voice of opposition to the third runway this year, told reporters in the wake of the announcement, "the cost of this project will make or break it."

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