2015 GATWICK CAPITAL INVESTMENT PROGRAMME

Transcription

1 GATWICK CAPITAL INVESTMENT PROGRAMME Published July 2015 following consultation with Gatwick s airlines and the Passenger Advisory Group Figures correct as at March

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3 CONTENTS... SECTION SUBJECT PAGE Foreword by Stewart Wingate 5 INTRODUCTION 9 CHAPTER 1 Key Drivers for Investment 13 CHAPTER 2 Consultation on the Capital Investment Programme 19 CHAPTER Capital Investment Programme 21 CHAPTER 4 Major Development Projects Overview 27 APPENDIX A Commitments Capital Investment Consultation Schedule 31 APPENDIX B Consultation Activities 35 GLOSSARY 75

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5 2015 Gatwick Capital Investment Programme 5 FOREWORD BY STEWART WINGATE was a landmark year for Gatwick Airport. In January, our Regulator, the Civil Aviation Authority, accepted our Contracts and Commitments framework for the next seven years as the best way forward for working with our airline customers to deliver exceptional passenger service, and in December, we celebrated five years under independent ownership. During this five year period we saw: 1 billion invested across the airport in the new and improved facilities below: - New baggage systems for both terminals; - North Terminal extension providing better facilities in departures, arrivals and check-in; - South Terminal International Departure Lounge upgraded with new walkthrough World Duty Free store; - Main Runway and taxiways resurfaced; - New South Terminal Security facilities; - Improved Immigration facilities in South Terminal; - Fully refurbished Inter Terminal Shuttle; - Introduction of A380 aircraft facilities; - Refreshed forecourts on both terminals; Greater competition with Heathrow, Stansted, and other major European airports; Achievement of all of our monthly service targets for 35 months with security clearance targets achieved in every month; A move from being ranked 12 th to 8 th in our comparator group of the Airport Council International s independent Airport Service Quality survey; 6 million more passengers using the airport with 20 successive months of traffic growth; World record 906 air transport movements achieved in one day in August 2014; and More destinations offered than any other UK airport. Over the last year there have been significant developments to our business. In March 2015, we achieved record traffic growth of 38.7 million passengers for the year 2014/15 which was an increase of 7.8% over the previous year. This has been achieved through working in co-operation with our airline customers to develop their services

6 2015 Gatwick Capital Investment Programme 6 and new routes for passengers. Notable additions in the year were the Norwegian long-haul services to the US which were launched in July, as well as their new services to Warsaw, Berlin, Madrid, and Larnaca; easyjet s new winter services to Tel Aviv and Keflavik; and British Airways new services to Grenoble, Fuerteventura, and Friedrichshafen. Following the exceptional weather events experienced on Christmas Eve 2013, and the independent review by David McMillan, we set up a 30 million fund to implement his recommendations to reduce the likelihood of a recurrence and the impacts of such events. We have now successfully implemented all 27 of the recommendations relating to flood prevention and alleviation planning; contingency and resilience planning; passenger welfare issues; safety and network issues; and management of the recovery from such an event. In particular, we invested 10 million during 2014/15 on capital projects in the areas of flood prevention, power, and IT resilience. We have worked collaboratively with our airline customers to develop new processes to reduce disruption for our passengers in the event of any future occurrences. This is certainly not the end of our focus on resilience and we will continue to identify where improvements can be made to our facilities and processes, particularly in the areas that could be impacted by weather events and power outages. Following the approach from our largest airline customer, easyjet, to consolidate their operations into one terminal, we looked at the options available and found that only the North Terminal was large enough to accommodate all their operations and services. We have been engaging with a number of airline partners to deliver an outcome that will see each of our major airline customers operate from a single terminal. This has led us to the conclusion that a number of airline moves will be necessary: easyjet consolidated in North Terminal, British Airways to South Terminal, and Virgin Atlantic Airways to North Terminal. This will mean less confusion for passengers and make the airport and airlines more operationally efficient. We undertook formal consultation with our top 12 airlines (representing 93% of passengers) and the Passenger Advisory Group on this proposal during 2014, and found that none of the consultees raised any reason why the easyjet consolidation should not happen. We therefore announced our final decision on 20 January 2015, confirming that we would bring this consolidation about and have since been working with our airline partners accordingly. The costs associated with implementing each airline move are embedded within this Capital Investment Programme. Throughout 2014 and 2015 we have continued to engage with the Airports Commission on our second runway proposal (Gatwick R2). Our work programme has covered all issues relevant to the Commission s work. We are strongly committed to working with the local community, local authorities, airlines and other key stakeholders and interest groups. We carried out a public consultation during April and May We published a Report of Consultation in July 2014 which confirmed our preference for a wide spaced runway of the type evaluated by the Commission. The Commission undertook its own analysis of their shortlisted options at Gatwick and Heathrow which it published on 11 November 2014 in a consultation report, to which we responded in February We have also provided comprehensive response to the Commission s recent consultation on air quality. On 1 July 2015, the Commission released its Final Report which recommended the Heathrow North West runway scheme to Government, subject to a significant package of measures to address its environmental and community impacts. The report also made it clear that a second runway at Gatwick is a credible and deliverable option. We remain of the view that the Commission has understated Gatwick s traffic forecasts and economic benefits and overstated those of the Heathrow options, whilst giving insufficient weight to the significantly greater environmental and deliverability challenges facing development at Heathrow.

7 2015 Gatwick Capital Investment Programme 7 The Government has announced that it will make a decision on how to respond to the Commission s report by the end of 2015 and we are now participating in a process of engagement with the Department for Transport. We were extremely pleased to find that the Chancellor s Autumn Statement in December 2014 confirmed that funding would be made available for the 120 million redevelopment of the airport s railway station. We have committed to contribute 30 million to this redevelopment project. A project team led by Network Rail has been established to take forward the project, which will have input from the Department for Transport, Gatwick Airport (led by our Commercial Director), and Southern Rail. It is anticipated that construction will commence in 2017 and the station will be completed in The station is critical for the airport and will provide a seamless link between the station and the airport concourse. It will also be designed in such a manner so that if we were to get approval for a second runway it can be altered to accommodate the anticipated increase in passengers with minimal cost and disruption. The transition to Contracts and Commitments from April 2014 has meant that we have been able to enter into mutually beneficial contracts with our key airline customers, allowing us to work better together, for the benefit of passengers. This new way of working has also given us greater flexibility for achieving the right services for passengers by being able to more easily change our capital developments to meet their needs. In particular, we have been able to accelerate projects in the North Terminal to make improvements to our arrivals, check-in and bag drop, security, immigration, and retail facilities earlier than previously planned to meet forecast passenger demand. In addition, the change of mix in services following our decision in January 2015 to consolidate easyjet s services into North Terminal, and the associated moves for Virgin Atlantic Airways and British Airways, has meant that the requirement for additional capacity in the North Terminal can be deferred for several years. Our planned Pier 6 southern extension development is now phased later in this Capital Investment Programme. Our 2015 Capital Investment Programme sets out plans to invest a further c 1 billion through to underlying drivers for our Capital Investment Programme remain as outlined below: The Capacity Service Quality Cost Efficiencies Commercial Revenue Environmental, Health and Safety (EHS), Security, and Compliance Asset Stewardship and Resilience We review our Capital Investment Programme annually, giving us the ability to adapt it to the changing needs of our airline customers and passengers. Later in this document, we will explain the key changes from the 2014 Capital Investment Programme from having undertaken that review. The result is that we plan to invest 205 million in 2015/16 and a total of 927 million over the next five years in 2014/15 prices. This takes into account projects which will benefit the airport, our airline customers, and our passengers. These projects include the developments to the North Terminal including a new check-in and bag drop area, new security lanes, providing improved facilities for arriving passengers, as well as transforming the International Departure Lounge with a new walkthrough World Duty Free store. In addition, we aim to provide an offering of shops and restaurants for our passengers which best suits their needs and this is factored into our plans. We are also aware that with growing passenger numbers there will be additional pressure on our car parks and surface access facilities, which is why we

8 2015 Gatwick Capital Investment Programme 8 are planning additional car and coach parking spaces, car rental facilities, and contributing 30 million towards the redevelopment of the railway station. As directed by the Department for Transport, we are investing 140 million in upgrading our hold baggage screening equipment by September 2018, which will ensure our passengers will remain safe and secure. This Capital Investment Programme includes the completion of the transformation of Pier 5 in the North Terminal and the new Pier 1 and baggage facilities for the South Terminal completing in As we move towards delivering our Capital Investment Programme, we will continue to meet our airline customers, both individually and multi-laterally, and the passenger community, seeking to understand the needs of both of these stakeholder groups. Since April 2014 we have convened working groups to consult on four of our Major Capital Development Projects, and future working groups will be organised as and when projects are sufficiently developed to allow for meaningful consultation. We are looking forward to delivering this ambitious c 1 billion Capital Investment Programme over the next five years. As London s airport of choice, we believe that this programme will significantly enhance passenger experience at the airport in many critical areas including the consolidation of easyjet s operations into one terminal, improvements in North Terminal for both arriving and departing passengers, the redevelopment of the railway station, upgrading of our security processes, and the provision of shops and restaurants best suited to our passengers needs. Stewart Wingate Chief Executive

9 2015 Gatwick Capital Investment Programme 9 INTRODUCTION..... The 2015 Capital Investment Programme is an annual document which we publish under our Commitments framework. This document is consulted with our airline customers and the Passenger Advisory Group (PAG). This document sets out the capital investment we are proposing for the second year under Commitments (April 2015 to March 2016) and the programme proposed for the following four years. With the airport business having ever-changing needs, we are pleased that under our Commitments framework we are able to have a rolling 5-year capital programme which adapts to our dynamic business needs. We look forward to continuing to develop the airport through the flexibility the Commitments framework has given us, by working with our airline customers and PAG to provide the right investment at the right time. The Capital Investment Programme in Context Within our Commitments framework we have committed to consult on our investment plans with both the airline community and PAG, and to annually publish a rolling 5-year Capital Investment Programme. In addition to this Capital Investment Programme, we will publish a revised Master Plan (high-level strategic development direction for Gatwick comprising current and future land use plans) at five yearly intervals (or as directed by Government policy), on which we will consult with airlines and the wider community prior to its publication. The details of capital investment consultation under our Commitments framework (as set out in the Airport s Conditions of Use) can be found at Appendix A. To fulfil our capital investment consultation under the Commitments framework we have established the following forums: Capital Investment Programme published annually and consulted upon with our airline customers and PAG; Meetings held jointly with airlines and PAG (through their Capital Plan Review Working Group) to review the performance of the previous 12 months Capital Investment Programme and the programme for the following 12 months; Airport and Airlines Group bi-monthly meetings consulting with the airlines on strategic issues; and Individual working groups for Major Development Projects jointly with airlines and PAG at an operational level. Together the Master Plan and Capital Investment Programme documents provide a clear picture of Gatwick s roadmap of development within the current, medium, and long term view. Assumptions for this Capital Investment Programme This 5-year Capital Investment Programme is based on the assumption that Gatwick will remain a single runway, two terminal airport, although. Gatwick continues to safeguard for a second runway. There is still room to grow in the short to medium term, by using unutilised runway capacity during off-peak periods. In addition, the introduction of larger aircraft with higher seat capacities will lead to further passenger growth. By making full use of the potential of the single runway we believe Gatwick can build capacity to accommodate future demand. The Capital Investment Programme included within the 2013 Regulatory Business Plan was based on the assumed

10 2015 Gatwick Capital Investment Programme 10 continuation of split terminal operations for easyjet. This 2015 Capital Investment Programme, similar to the 2014 Capital Investment Programme, is based on the consolidation of easyjet s operations into the North Terminal, moving British Airways to the South Terminal, and Virgin Atlantic Airways to the North Terminal in autumn The airline moves associated with easyjet s consolidation have been carefully considered and of the three options proposed in the January 2014 consultation, this is the only viable solution which provides the capacity required within the terminals and runway scheduling limits, moves the least number of airlines, with the least disruption to operations, and has the lowest cost. We are continuing to work with the airlines most affected by this consolidation to achieve this goal. The Structure of the Capital Investment Programme The content of this document is guided by our Commitments framework for consultation on the Capital Investment Programme and is intended to describe the capital investment for Gatwick over the next five years. It aims to provide details regarding the drivers and priorities for investment as well as giving specific information on current and future projects. The structure of this document is as follows: Chapter 1 describes Gatwick s key drivers for investment and articulates how these drivers are translated into capital investments. Chapter 2 provides details of the consultation process for capital investment under the Commitments framework. Chapter 3 provides the programme of capital investment for the next five years as presented to our Board in March 2015, and this programme compared to the 2014 Capital Investment Programme, with reasons for any material differences. In addition the programme as at March 2015 is also compared to the programme set by the Civil Aviation Authority at the conclusion of their regulatory review. Chapter 4 provides details of the Major Development Projects Appendix A provides the extracted schedule from the Commitments framework setting out the consultation arrangements for capital investment Appendix B provides details of our consultation activities held with Gatwick s airlines and PAG including copies of their subsequent feedback with our responses This Capital Investment Programme document should be regarded as a product of consultation at the time of publication and also as a basis for future consultation and thus, does not represent a mandatory investment programme. Annual Capital Investment Performance Review This Capital Investment Programme document does not include a review of the performance of the Capital Investment Programme. This information was shared separately at a joint meeting with airlines and PAG following the completion of the 2014/15 financial year (on 21 May 2015), as set out in our capital investment consultation Commitments in Appendix A.

11 2015 Gatwick Capital Investment Programme 11 Feedback This document was distributed to the members of the Airport Consultative Committee (the Gatwick airlines consultative body) and PAG as a draft for consultation on 28 April 2015, with feedback requested by 29 June This two month period of formal consultation has since expired with this being the final version of the Gatwick 2015 Capital Investment Programme. We appreciate the contribution that the airlines and PAG have made in this consultation process and we would like to thank them for helping us to shape Gatwick s future capital plans. We do, of course, value feedback throughout the year. The feedback will help us improve Gatwick s facilities and services for all passengers.if you have any queries on this document, or would like to comment, please Maureen Spence: maureen.spence@gatwickairport.com.

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13 2015 Gatwick Capital Investment Programme 13 CHAPTER 1: KEY DRIVERS FOR INVESTMENT..... Our key drivers for capital investment are set out below: Capacity Service Quality Cost Efficiencies Commercial Revenue Environmental, Health and Safety (EHS), Security, and Compliance Asset Stewardship and Resilience 1.1 CAPACITY The capacity we need to provide for our airlines and passengers is determined through our traffic forecasting, to enable us to plan capital investments to meet future demand. As reported in previous Capital Investment Programme publications, we commissioned ICF SH&E, a leading aviation consultancy to produce an independent view of the future demand for Gatwick. The ICF SH&E forecast for the year commencing 1 April 2015 is for 39.3 million passengers (base case) to be handled through our airport and this has been prepared using the same methodology as in previous Capital Investment Programme publications. We now believe that passenger traffic in 2015/16 will be in excess of 40 million passengers, nearer to the mid-point between the base case and high case per the forecast below. Traffic Forecasts GAL Forecast at March 2014 Year Low Case Base Case High Case Million Passengers Per Annum Million Passengers Per Annum Million Passengers Per Annum 2015/ / / / / Total Assumptions The three traffic scenarios produced in these forecasts are intended to provide a range of growth profiles for Gatwick over the forecast horizon. A set of optimistic and pessimistic assumptions have been analysed and a set of scenarios created, which provide a reasonable boundary for upside and downside risk. Over the very long term, the three cases converge towards the assumed runway capacity of Gatwick, beyond which they all grow very modestly.

14 2015 Gatwick Capital Investment Programme 14 Low Case Scenario The low case reflects the downside risk in the forecasts, with a more pessimistic set of assumptions in both the short and the long term. Possible scenarios include: Even lower economic growth, for a prolonged period Fuel price hike, leading to higher fares Loss of recently gained long haul services, and/or established carriers due to competition Base Case Scenario In the first three years, growth is driven by known and expected capacity additions by existing and new carriers. The base case takes a balanced view of both positive and negative factors. Over the long term, a Gross Domestic Product (GDP) elasticity of around unity is assumed in the base case, reflecting an on-going link to economic growth, but also increasing market maturity and a combination of negative influences on demand, such as increasing air travel costs relative to other modes. High Case Scenario The high case is intended to reflect a reasonable optimistic scenario, illustrating a set of positive conditions but remaining within previously sustained growth rates seen at Gatwick. Possible scenarios include: Faster economic recovery and higher sustained growth rates Greater success in capturing market share from other London airports A continued period of low fuel price, leading to lower fares The High case is considered appropriate for the purposes of capacity planning, as it provides an indication of the maximum likely traffic volume at Gatwick over the planning horizon. As with all forecasts, actual events may, and probably will, differ from those assumed previously. Using Gatwick Traffic Forecasts to Determine Facility Requirements The driver for infrastructure capacity is demand on a busy summer day. This is calculated by taking the third Friday in August (in terms of aircraft movements) and applying forecast load factors for the Friday average of the busiest six summer weeks. The need for infrastructure to satisfy the peak demand remains, regardless of annual passenger numbers, as some slots will always be more commercially viable as certain times of the day are more attractive to passengers. It is for this reason that the busy day schedule and medium term forecasts are used to model facility requirements looking forward ten years. The chart over the page (Figure 1.1) illustrates how the projects within our Capital Investment Programme will provide the capacity required to meet the forecast traffic demands by 2019/20, when we anticipate passenger numbers approaching 45 million passengers per annum (high case).

15 2015 Gatwick Capital Investment Programme 15 Airport Capacity 2019/20 Figure Chart depicting potential projects to grow capacity to 45 mppa A key to these capacity projects is given below: NTDP North Terminal Development Programme (Arrivals, Check-in, Security and IDL World Duty Free) NT BD & ST BD Upgrade Check-in and Bag Drop in both terminals NTDP Gen 2 and ST Gen 2 Generation 2 Security process improvements in both terminals P1/P5, 75C, 33E Pier 1 and Pier 5 developments and the reconfiguration of Stands 551 and 552 into a single larger stand will enable the provision of a maximum of 75 pier served stands for Code C size aircraft and a maximum of 33 for Code E aircraft, maintaining 95% pier service for the airfield NT Borders North Terminal Immigration Hall improvements including installation of e-gates NT Dom to Int North Terminal Baggage Reclaim project We are cognisant of the capacity restrictions beyond 45 million passengers of both our departure lounges and pier served stands. Projects to increase capacity of both departure lounges (South Terminal and North Terminal) and pier served stand availability are included in the latter years of our Capital Investment Programme. We may choose to accelerate these projects should the rate of passenger traffic continue to grow at similar pace to 2013/14 and 2014/ SERVICE QUALITY Gatwick operates in a competitive environment and has a strong ambition to become London s airport of choice; therefore, the quality of service we provide for our passengers is one of our key drivers for investment. Our service performance is measured through the Core Service Standards (Rebates) scheme, which was introduced in April 2014 under our Commitments framework and continues to be monitored by the CAA. This scheme provides targets that we need to achieve and report on monthly; details of these targets can be found on page 35 of our 2015/16 Conditions of Use publication available on our website through the link below:

16 2015 Gatwick Capital Investment Programme / conditions-of-use---clean-30jan15.pdf Our Product Matrix, developed through extensive consultation with our airlines and PAG, identifies our aspirations for future service outcomes for our passenger segments (core, premium, business, assistance and family) and is designed to deliver our ambition for Gatwick. We pride ourselves on not limiting service improvements to only meet our monitored service standards, but focussing on the wider remit to provide our passengers with an excellent experience whilst passing through our airport, as demonstrated through our commitment to deliver the examples below. Delivering the combination of our Core Service Standards and the Product Matrix requires investment across the entire airport in facilities for both our customer airlines and passengers. Furthermore, in developing our Capital Investment Programme, we are mindful of airline and third party operational performance targets and the impact of these on our passengers. Projects to improve passenger service by reducing check-in and immigration queue times and arrivals baggage waiting times are included in this 2015 Capital Investment Programme. These projects will significantly improve the passenger experience at the airport. Examples of some of the service improvements this Capital Investment Programme will deliver are: Less confusion for passengers by consolidating all of easyjet s services into the North Terminal Vastly improved passenger experience for onward travel with the redevelopment of the railway station Quicker processing of passengers through our Generation 2 Security process which has already been successfully implemented in the South Terminal and will be realised through the North Terminal Development Security project for that terminal Reduced Check-in queues through working with the airlines to upgrade their check-in and bag-drop facilities Reduced Immigration queues through the installation of e-gates for EU passengers by working collaboratively with UK Border Force Improved Arrivals facilities for passengers through the North Terminal Development Programme Enhanced facilities for departing passengers with the new North Terminal International Departures Lounge walk through World Duty Free store and the subsequent redevelopment of the existing store Improved baggage storage facilities for passengers to enable earlier check-in Minor projects responding to feedback from PAG as below: - improving facilities in the departure lounges for families - providing additional toilet facilities for passengers with reduced mobility and upgrading toilet facilities generally - providing a reception facility on the South Terminal forecourt for passengers with reduced mobility to match that already provided in the North Terminal - improving signage in all car parks - providing a dedicated covered bus and coach waiting area in North Terminal - making available real time information from the bus and coach operators for services from both terminals

17 2015 Gatwick Capital Investment Programme COST EFFICIENCIES Another key driver underlying our investment decisions is to drive down costs for the airport and our airline customers. We look at where cost efficiencies can be made through developing innovative processes, which may necessitate capital investment to realise them. Some examples of projects which are reducing costs are listed below: easyjet consolidation into the North Terminal will provide operating cost efficiencies for our largest airline customer Generation 2 Security will reduce the number of security lanes required in both terminals to process passengers, leading to reduced staff costs Upgrades to passenger self-service bag drop units will provide operational savings for the airlines taking advantage of these by reducing the numbers of their hosting staff 1.4 COMMERCIAL REVENUE We strive to maximise the revenue we can generate through commercially returning projects. Whilst this benefits passengers by providing restaurants, shops, car parking, car rental, and other services enhancing their experience whilst passing through the airport, it also benefits our airline customers who under the single-till regulatory regime have their airport charges off-set by the amount of income generated from these commercial facilities. Examples of Commercial projects within our Capital Investment Programme are: Walk through World Duty Free Store in the North Terminal Additional car parking capacity New restaurants in both terminals Upgraded car rental facilities 1.5 ENVIRONMENTAL, HEALTH, AND SAFETY (EHS), SECURITY, AND COMPLIANCE Providing a safe and secure environment for our passengers is paramount for our business. We need to invest to comply with the requirements from a range of authorities to be able to continue to operate safely. These include the CAA for granting our licence to operate the airfield, the Department for Transport for security regulations and the Environment Agency for protecting the environment. Examples of projects which fall into this investment driver are: Water Management Enhancement Hold Baggage Screening (HBS) replacement project to be compliant with the Department for Transport s security directive to install Standard 3 machines by September 2018 Projects contributing to our Decade of Change strategy For more information on our environmental approach please use the link below to the Corporate Responsibility

18 2015 Gatwick Capital Investment Programme 18 section of our website: and for specific information on our Decade of Change strategy please use the link below to our booklet: 010/decade_of_change_aug10.pdf 1.6 ASSET MAINTENANCE AND RESILIENCE At the heart of our business is the importance of keeping a smooth running operation for our passengers and airline customers by maintaining our existing assets. These can be categorised into: Airfield, Facilities, Commercial, IT, and Compliance/Risk. Additionally we need to invest in measures to enhance the airport s ability to be operationally resilient in the face of unexpected events, whether these are weather related such as snow or flood, or power outages due to third party supplier failures. Examples of such projects in our Capital Investment Programme are: Operational resilience projects implementing the recommendations from the 2014 McMillan Report and other measures in excess of those recommendations; examples being: - NT switch rooms flood protection northern end - ST tunnel IT rooms flood protection - Crawters Brook de-silt - On-site weather station Fixed Electrical Ground Power replacement Taxiways rehabilitation Stands Slot Drain replacements South Terminal Boilers upgrading and replacement CCTV

19 2015 Gatwick Capital Investment Programme 19 CHAPTER 2: CONSULTATION ON THE CAPITAL INVESTMENT PROGRAMME FORM OF ECONOMIC REGULATION From April 2014, we adopted our seven year Commitments framework, under which we have made price, service quality, capital investment, and consultation undertakings to our customers. This replaced the regulatory model previously used by the Civil Aviation Authority (CAA). This framework gives the airport and airline customers the opportunity to grow our relationships, and to focus on commercial goals through similar contractual arrangements seen elsewhere in the industry. The CAA is monitoring the development of this framework, through a licence, established for the first time at the airport, and through formal reviews. 2.2 OBLIGATIONS UNDER THE COMMITMENTS FRAMEWORK The CAA in their February 2014 document, Economic regulation at Gatwick from April 2014: Notice granting the licence, recognised our obligations for consultation on capital investment and these are firmly set within our form of regulation. The Commitments framework clearly sets out our obligations to continue to consult with the airline community and passenger representatives on our Capital Investment Programme. The relevant schedule from the Commitments can be found at Appendix A. Prior to the introduction of the Commitments framework in April 2014, we agreed terms of reference for appropriate consultative forums with our airline customers to undertake the consultation requirements as set out in Appendix A. Our consultative structure for capital and other consultative requirements under the Commitments framework is shown below (Figure 2.1): Figure 2.1 Consultative Structure for capital and other consultative requirements

20 2015 Gatwick Capital Investment Programme 20 This structure was reviewed at the Airport and Airlines Group in November 2014, following six months of implementation, where it was agreed that it continued to fulfil the airport community s consultation requirements under our Commitments framework. 2.3 PASSENGER ADVISORY GROUP The Passenger Advisory Group (PAG) is a sub-group of the Gatwick Airport Consultative Committee (GATCOM). GATCOM was established in 1956 as a statutory body constituted by Gatwick in accordance with the Civil Aviation Act 1982 (as amended by the Airports Act 1986 and the Civil Aviation Act 2012). GATCOM acts as an advisory body for Gatwick providing views on how the operation and development of the airport affects the local community, passengers, airlines, and other users of the airport. Its membership represents a wide range of interests including local authorities, civil aviation, passenger, business tourism and community, and environmental groups. We consult with PAG to hear their views on the facilities and services we provide to passengers and their recommendations for improving the passenger experience. The CAA s primary duty under the Civil Aviation Act 2012 is to further the interests of users (passengers and owners of air freight) regarding the range, availability, continuity, cost and quality of airport operation services; where appropriate, by promoting competition. Within this duty the CAA has recognised a role for PAG in the consultation on Gatwick s Capital Investment Programme, which since April 2014 we have formalised under the consultative structure outlined above. As detailed in the previous section, PAG are consulted alongside the airlines for their views on the airport s development projects, our asset stewardship programme, and they will be consulted on the Master Plan at the appropriate time. A PAG working group has been established specifically to undertake capital investment consultation. In addition to PAG being consulted on capital development projects, they have set up a number of consultative work streams based upon our Product Matrix, looking at each category of passenger and their particular requirements. 2.4 AIRLINE AND PAG INPUTS As part of the consultation for this Capital Investment Programme, we asked the airlines and PAG for their suggestions for any projects they would like us to consider for inclusion in the 2015 Capital Investment Programme. These suggestions were discussed and responded to at consultation meetings held on 21 January and 21 May The notes of these two consultation meetings and our other consultation correspondence can be found at Appendix B.

21 2015 Gatwick Capital Investment Programme 21 CHAPTER 3: 2015 CAPITAL INVESTMENT PROGRAMME BACKGROUND As outlined in the 2012 and 2013 Capital Investment Programmes, the airport consulted with its airline customers in 2012 through a process known as Constructive Engagement, to develop our capital programme for the five years commencing April The output of this process was submitted to the CAA in our Business Plan in January 2013, and after the CAA s consideration and further consultation with the airport, airlines, and other stakeholders, the CAA published its forecast of our five year capital programme commencing April 2014 in their final decision on the airport s form of economic regulation in January They also provided their forecast capital expenditure plans for the additional two years of 2019/20 and 2020/21, albeit noting that due to the early stage of developments in these years, the costs were likely to change before the projects were delivered. The CAA published these costs in 2011/12 prices to be consistent with the commencement of their consultation. For comparative purposes, the annual core capital investment totals assumed by the CAA for Gatwick have been uplifted to 2014/15 prices using a consensus of forecasts for 2014 and 2015 (c2.9% per annum) and are given below (Figure 3.1). CAA Capital Plan Forecast Price Base 2014/15 m 2015/16 m 2016/17 m 2017/18 m 2018/19 m 2019/20 m 2020/21 m 2011/ / Figure 3.1 CAA annual core capital investment forecast totals We published our 2014 Capital Investment Programme (commencing April 2014) in October 2014 following a two month consultation period with our customer airlines and PAG. The performance of the first year of that programme (2014/15) will be the subject of separate review with these stakeholders following the completion of the 2014/15 financial year, as set out in our capital investment consultation Commitments in Appendix A. 3.2 CAPITAL INVESTMENT PROGRAMME 2015 As part of our normal business planning cycle, we have reviewed the 2014 Capital Investment Programme in light of changes to our business, the latest traffic forecasts, and the other key drivers for investment set out in Chapter 2. This has resulted in an updated programme of projects in this 2015 Capital Investment Programme as set out in the table on the following page (Figure 3.2). 1 CAA Document CAP1139: Economic regulation at Gatwick from April 2014: notice of the proposed licence - published January 2014 (see pages )

22 2015 Gatwick Capital Investment Programme 22 Capital Investment Programme in 2014/15 prices ( m) 5 Year Total 2015/ / / / /20 PIER 1 AND PIER 5 ST Baggage & Pier Pier ASSET STEWARDSHIP, OPERATIONAL RESILIENCE, COMPLIANCE AND EHS Airfield Asset Stewardship Facilities Asset Stewardship Commercial Asset Stewardship IT Asset Stewardship Operational Resilience Compliance and EHS CORE PROJECTS - Capacity and Service NT Development Programme - NT Level 00 Arrivals NT Level 10 Check-in NT Level 20 Security NT Walkthrough World Duty Free Retail Churn of ex-wdf areas Stand Reconfigurations & 551, Pier 6 South (95% Pier Service) Upgrade Check-in and Bag drop implementation NT Early Bag Store NT Baggage Reclaim ST Baggage Reclaim NT Borders NT Coaching Bays Public Transport/DDA Access ST IDL Capacity Railway Station Contribution NT Logistics (previously NT goods lifts/stores) CCTV Capacity on All Stands and ATC CCTV Project Chronos Terminal Works Pier Works Property Minor Works Operational Minor Projects (less than 1m each) CORE PROJECTS - Commercial Destinations Place Jubilee House Accommodation BLOC Hotel Extension Car Parking - Product Development NT Short Stay Car Park Car Rental & Motor Transport Facility ST IDL Level 30 Restaurant NT IDL "Teardrops" Stores Reconfiguration NT IDL Phase Energy Efficiency: Car Park Induction Lighting Additional Staff Car Parking Capacity Commercial Products Industrial Bays Commercial Minor Projects (less than 1m each) DEVELOPMENT PROJECTS HBS Replacement Business System Transformation & Renewals (LEDS) Implementation GRAND TOTAL Figure 3.2 Programme of forecast projects for the 2015/16 Capital Investment Programme

23 2015 Gatwick Capital Investment Programme 23 Figure 3.3 below provides a graphical representation of our 2015 Capital Investment Programme. Figure Capital Investment Programme per investment category 3.3 COMPARISON OF CAPITAL PLANS The ability to review and alter our Capital Investment Programme annually to meet the ever-changing demands of our airline customers and passengers is one of the key benefits of our Contracts and Commitments regulatory framework. Below are details of the key changes in this 2015 Capital Investment Programme versus the prior year s Capital Investment Programme following the undertaking of this annual review (see Chapter 4 for further detail). Figure 3.4 below provides a comparison between our 2014 and 2015 Capital Investment Programmes. Comparison of Capital Investment Programmes (2014/15 prices) 2014/ /19: 2014 CIP 2015/ /20: DRAFT 2015 CIP Variance * 2014/15 outturn figure to be confirmed ** 2019/20 figure not previously published 2014/15* m 2015/16 m 2016/17 m 2017/18 m 2018/19 m 2019/20** m Figure 3.4 Comparison table between the 2014 and 2015 Capital Investment Programmes In rolling the five year plan forward by one year, the Capital Investment Programme no longer includes the forecast spend for the projects in 2014/15, but includes 2019/20. There will be a separate review of 2014/15 capital investment performance as per our Commitments (Appendix A, Clause 6). However, key variances include a more efficient delivery of the North Terminal Development Programme, increased investment in operational resilience and rephasing of certain commercial projects.

24 2015 Gatwick Capital Investment Programme 24 We have developed and adjusted the 2015 Capital Investment Programme to meet our business needs and our changing operating environment, which has seen significant growth in traffic in the last year. We have increased our focus on maintaining stable operations whilst accommodating this growth. As a result, we have made choices on accelerating some projects and rephasing others. Due to the nature of a rolling programme, the monetary effect in this programme may be different than the effect on the overall cost to deliver the outcome. In addition, we are constantly working to deliver projects and outcomes efficiently and this is highlighted below, particularly in regard to HBS and the railway station. Below describes how our Capital Investment Programme has evolved into its current form. HBS EDS standard 3; this project has been developed over the past year reducing uncertainty; as a result we have reduced the cost estimate by 18.4 million. Railway Station contribution; commercial negotiations have now been completed and Gatwick has committed to contribute 30 million to the redevelopment of the station, a reduction of 20 million compared to our 2014 Capital Investment Programme. In response to growth, a number of projects have been accelerated, where investment previously planned for post 2014/15 has already taken place in the last year. In total 11.2 million has been accelerated including Operational Resilience, NT Borders, and Upgraded check-in and bag drop. During the annual review, a number of smaller projects have been introduced for 2015/16 and 2016/17. These are a mixture of operational improvements and commercial opportunities that have arisen in the past year. Total forecast value for these projects is 13.9 million. A number of projects have been rephased for business or contractual reasons with the result that investment planned for 2014/15 is now forecast to be carried into 2015/16. This includes Pier 5 and ST L30 restaurant with a total value of 6.3 million. The Hangar project ( 6.4 million) has been removed from the Capital Investment Programme until a suitable business opportunity arises. If the rate of traffic growth seen in the past year were to continue growing at such a pace, then we would look to bring forward certain projects to meet this demand from those which are currently planned in the latter years of the programme. Examples of such projects are: NT Short Stay Car Park as part of reviewing the requirements in light of the growth in passengers, we have commissioned a study to find the best options for adding capacity in the future NT IDL Phase 2 this is being investigated in line with passenger growth, as the next phase of the NT Development Programme, following completion of the walk through World Duty Free Store and subsequent IDL changes in 2018 ST IDL Capacity ST Baggage Reclaim The table below (Figure 3.5) compares the CAA s annual capital investment profile with our 2015 Capital Investment Programme. The projects in the CAA s capital plan forecasts below and those in this 2015 Capital Investment Programme have evolved during the development of this and the preceding 2014 Capital Investment Programme. As referred to

25 2015 Gatwick Capital Investment Programme 25 previously in this document, the material difference between the CAA s forecast and the 2015 Capital Investment Programme is that the CAA forecast was based on easyjet s operations split between both terminals versus the current Capital Investment Programme with easyjet consolidated into the North Terminal. Amongst other things, this resulted in the rephasing of the Pier 6 Southern Extension project now anticipated to commence in winter 2017 and forecast to be complete in The shift in timing of Pier 6 Southern Extension is illustrated in the table on the next page, showing reduced capital investment in 2014/ /18, but increased capital investment in the latter years of the seven year period. However, in total we are planning to invest c 1.4 billion over the seven year Commitments period which is 100 million greater than the capital investment plan included in the CAA s fair price calculation for the same period. Comparison of GAL Capital Investment Programme (CIP) and CAA Capital Plan Forecast in 2014/15 prices GAL CIP excluding Development projects CAA Forecast - Core Variance - Pier 6 variance only 2014/15 m 2015/16 m 2016/17 m 2017/18 m 2018/19 m 2019/20 m 2020/21 m 5 year total 7 year total , , GAL CIP including Development projects ,388.8 Figure 3.5 Comparison of GAL Capital Investment Programme and CAA Capital Plan Forecasts in 2014/15 prices 3.4 SUMMARY The total expenditure outlined in this investment plan for the five years commencing April 2015 is million in 2014/15 prices. We are responding to the feedback received from our airline customers and passengers to the products and services that they have told us would enhance their experience of using the airport. We are doing this by efficiently developing and delivering the projects in this Capital Investment Programme to meet their requirements. These projects include the improvements we are making to both arrivals and departures in the North Terminal, the consolidation of easyjet s operations into one terminal, redeveloping the railway station, upgrading of our security processes, and the provision of shops and restaurants best suited to our passengers needs. We are continually striving to deliver more value for less by working more efficiently, ensuring that the projects appearing in this Capital Investment Programme have been fully explored, considering people, process, systems, and infrastructure. Looking ahead to 2015, there is significant further investment required to expand current facilities where required, achieve greater operational efficiency, and improve the passenger experience for all of our passenger segments. Beyond 2016, we are forecasting approximately million of capital expenditure between 2016/17 and 2019/20, thereby continuing a similar rate of expenditure and improvement since the airport changed ownership in December As noted, this is a live rolling five year Capital Investment Programme and where an investment case exists, we may look to accelerate projects at the back end of the programme or introduce additional projects. This document represents a Capital Investment Programme issued as an output of, and for the purposes of, further consultation, and thus does not represent a mandatory investment programme.

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27 2015 Gatwick Capital Investment Programme 27 CHAPTER 4: MAJOR DEVELOPMENT PROJECTS OVERVIEW..... The table below provides summary details of our Major Development Projects predominantly over 10 million (excluding Asset Stewardship projects) to be undertaken within our five year capital programme: Project Name Project Cost in 2014/15 prices Start Date End Date Purpose Total 2015 CIP Pier m 1.1m Winter 2010 Summer 2015 The facility was completed and operational on 1 July 2015 Delivers improved pier service levels to meet future growth in passenger numbers in the North Terminal and improve the passenger experience through reconfiguration of stands, modernised dedicated gaterooms for each stand and improving the passenger flows within the pier ST Baggage and Pier m 38.5m Spring 2010 Winter 2015 Provides five new stands which will increase airfield efficiency with new modernised gaterooms which will enhance the passenger experience. The new baggage facilities will provide a reliable and more efficient service for airlines and passengers which supports reduced checkin transaction times and earlier check-in via the automated baggage store for up to 2600 bags. NT Development Programme - Level 00 Arrivals NT Development Programme - Level 10 Check-in 10.5m 7.8m Autumn 2014 Spring 2016 Improves the passenger experience by modernising the arrivals product through improving the layout and orientation to provide efficient passenger flows and enhanced onward travel facilities, including a small increase in retail space 35.2m 27.5m Autumn 2014 Autumn 2015 Provides check-in and bag-drop facilities, utilising newer technology, in a better layout, to provide efficiency gains by reducing queues, and with the relocation of these facilities from level 20, this will enable a new security facility to be provided in the vacated space

28 2015 Gatwick Capital Investment Programme 28 Project Name NT Development Programme - Level 20 Security NT Development Programme - Level 20 Walkthrough World Duty Free Store Project Cost in 2014/15 prices Start Date End Date Purpose Total 2015 CIP 28.3m 26.9m Spring 2015 Autumn 2016 Increases passenger throughput capacity through security in line with passenger growth by the introduction of new technology and improved processes, at the same time as improving the overall passenger experience with this new facility 12.7m 12.7m Autumn 2016 Summer 2018 Provides a walkthrough store immediately after exiting security which will provide increased commercial revenues as well as a better retail experience for passengers Reduces queues for passengers in the Immigration Hall by providing more capacity through an improved layout and installation of e-gates in line with forecast passenger growth NT Borders 7.4m 5.5m Winter 2014 Summer 2016 Phase 1 completed June 2015 Check-in and Bag Drop Implementation 17.5m 15.9m To be determined after pilots in 2015 and airlines readiness Stand Reconfigurations and Stands 551, 552 To be determined after pilots in 2015 and airlines readiness Reduces queues for passengers through check-in process efficiencies, provides passengers with check-in product choices, provides technology and infrastructure solutions leading to reduced costs for airlines and allows airlines to respond to current and future passenger requirements 15.0m 15.0m Summer Maintains 95% pier service in line with passenger growth whilst providing flexible infrastructure to accommodate different aircraft types and operational models, supporting on time performance for our airline customers NT Early Bag Store 24.1m 23.0m To be determined following HBS Replacement works completing summer 2018 To be determined following HBS Replacement works completing summer 2018 Provides an automated bag storage facility for up to 3,000 bags with connectivity to existing baggage systems and hold baggage screening facilities, enabling check-in for passengers up to 18 hours prior to scheduled flight departure and allows flexible check-in times for airlines with the potential to reduce their cost of operation Pier 6 Southern Extension 175.9m 77.8m Winter Provides sufficient pier served stands to maintain 95% pier service levels in line with forecast passenger growth and delivers flexible stands to accommodate different aircraft types and operational models

29 2015 Gatwick Capital Investment Programme 29 Project Name Project Cost in 2014/15 prices Start Date End Date Purpose Total 2015 CIP ST IDL Capacity 64.0m 15.0m 2018/19 Programme yet to be determined Provides an extension to the existing IDL by circa 35% to meet forecast passenger growth including additional seating, information availability, circulation space, toilets, and a good mix of retail facilities improving the overall passenger experience Railway Station Development 33.0m 33.0m /20 Provides station improvements which offer a much improved passenger experience by relieving crowding, improving vertical circulation, and providing a more integrated concourse which offers intuitive connection with airport terminals and/or onward travel HBS Replacement 140.0m 138.1m Spring 2015 Summer 2018 Provides compliance with Department for Transport security regulations to replace existing HBS machines with Standard 3 machines by 1 September 2018 NT Short Stay Car Park 20.0m 1.9m 2019/20 Programme yet to be determined Provides additional car parking capacity to meet forecast traffic growth NT IDL Phase m 20.7m 2019/20 Programme yet to be determined Provides additional departures capacity to meet forecast traffic growth

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31 2015 Gatwick Capital Investment Programme 31 Appendix A Commitments Capital Investment Consultation Schedule Schedule 4 (Capital Investment Consultation) 1. Definitions For the purposes of this Schedule the following definitions apply: 1.1 Major Development Projects, means those individual projects or individual programmes of projects in excess of 10m (excluding the Asset Stewardship Programme) and the Second Runway Project; 1.2 Minor Development Projects means those individual projects or individual programmes of projects less than 10m (excluding both the Asset Stewardship Programme and Second Runway Project); and 1.3 Asset Stewardship Programme means all asset maintenance and replacement projects in the following asset groups: Airfield, Commercial, IT, Facilities and Compliance/Risk. 1.4 Commercial Return Project is any project with associated commercial revenues that has a positive Net Present Value not taking into account incremental Airport Charges. 1.5 A Dedicated Airline Project is a project undertaken for the benefit of one or more specified airlines and which is remunerated by a separate commercial arrangement or specific airport charge payable by users of the project 1.6 ACC means the Gatwick Airport Consultative Committee 2. Airline consultative groups 2.1 Consultation with the airlines will need to be undertaken at a number of different levels, with groups formed appropriately: ACC: to consider strategic matters involving the medium- to long-term development of the airport; Capital sub-committee of ACC: to consider tactical matters involving the delivery by GAL of the capital development programme; and Working groups (informal and formal): to consider operational impacts of projects on the day-to-day activities of the airlines operating at the airport. These working groups (where required) will be project specific, involve affected airlines, and may require a formally constituted working group for significant projects requiring a high degree of airline input into the design and execution planning (e.g. check-in transformation). 3. Master Plan Before publishing a revised Master Plan for the Airport GAL will consult with Operators and the ACC as well as other business partners and the local community.

32 2015 Gatwick Capital Investment Programme Capital Investment Programme 4.1 GAL will publish annually a rolling five year Capital Investment Programme (CIP). Before publishing the CIP GAL will consult with the ACC and with the Gatwick Passenger Advisory Group such consultation to address: the principal business drivers behind the airport s development strategy, including service levels; forecast traffic demand and associated demand for airport capacities and services; the capacities that the airport intends to provide, taken in the context of forecasted demand; and the cost of the capital investment programme, and the resulting effect on the asset base of the airport. 4.2 The forecast cost of the capital investment programme will: summarise expenditure on each of the Major Development Projects; summarise aggregate expenditure on the Asset Stewardship Programme (across all five elements); summarise aggregate expenditure on Minor Development Projects; be at a level of detail that reflects the planning horizon and Tollgate status for projects, with those in the short-term being more granular and certain than those in the final years of the forecast; and provide an explanation as to any material differences between the latest forecast and both the prior year forecast and the forecast incorporated in Appendix C of CAP Individual Major Development Project consultation 5.1 As part of the annual Capital Investment Programme consultation with the ACC, GAL will consult with airlines in relation to Major Development Projects (with the exception of Commercial Return Projects and Dedicated Airline Projects) covering: high-level options for the development of Major Development Projects and the trade-offs involved between alternatives; the outputs that are expected to be delivered in terms of service, capacity, operating cost, and revenue; scope, programme and cost of the project required to deliver the business objectives; and the business case for the project. 5.2 GAL will consult with the Capital sub-committee of the ACC in relation to the Major Development Projects at Tollgate 2, Tollgate 3, and Tollgate 4. This will require meetings on a more frequent basis than annually. 5.3 Following Tollgate 4, progress with the delivery of Major Development Projects will be reviewed by the Capital sub-committee of the ACC as part of its annual Capital Investment Performance Review (see below). 5.4 GAL will consult with the Gatwick Passenger Advisory Group in relation to Major Development Projects at appropriate times in the life cycle of such projects. 5.5 In this paragraph 5 of Schedule 4: Master Plan refers to the plan prepared by GAL detailing how it intends to take forward its strategic framework in the form of airport specific proposals, designed to help inform the regional and local planning processes and facilitate engagement with a wide range of stakeholders and Tollgates 2, 3 and 4 respectively refer to the launch, design and deliver tollgate stages of GAL s current project development process or the similar stages of any revised process that GAL may adopt.

33 2015 Gatwick Capital Investment Programme Annual Capital Investment Performance Review 6.1 GAL will meet annually with the Capital sub-committee of the ACC and members of the Gatwick Passenger Advisory Group to review GAL s delivery of the Capital Investment Programme, specifically: in relation to the following 12 months: the schedule and expenditure for each Major Development Project; the priorities and aggregate expenditure of the Asset Stewardship Programme across each of the five broad elements (separately identifying individual projects in excess of 1m) the expenditure on Minor Development Projects (separately identifying individual projects in excess of 1m) in relation to the preceding 12 months, works undertaken and progress with: each Major Development Project; Minor Development Projects (separately identifying individual projects in excess of 1m); and Asset Stewardship Programme across each of the five broad elements (separately identifying individual projects in excess of 1m).

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35 2015 Gatwick Capital Investment Programme 35 Appendix A Consultation Activities This appendix contains: GAL letter requesting inputs for consideration from airlines and the Passenger Advisory Group (PAG) for the 2015 CIP Airport Consultative Committee (ACC) response to inputs request PAG response to inputs requests Notes from consultation meeting held on 21 January 2015 with the ACC and PAG Slides from 21 January 2015 consultation meeting providing responses to ACC and PAG input requests PAG s follow-up to 21 January consultation meeting Notes from consultation meeting held on 21 May 2015 with the ACC and PAG Slides from 21 May 2015 consultation meeting providing updates on ACC and PAG input requests Response to draft 2015 CIP document from the Airport Consultative Committee (ACC) Response to draft 2015 CIP document from Virgin Atlantic Airways (VAA) Response to draft 2015 CIP document from PAG GAL individual responses to ACC, VAA and PAG

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53 2015 Gatwick Capital Investment Programme 53 Note that both the actions recorded in the above meeting notes to provide information have since been completed.

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61 2015 Gatwick Capital Investment Programme 61 Virgin Atlantic Airways (VAA) Response VAA s response letter is marked Private and Confidential and therefore we are unable to reproduce it in this document. VAA have provided the following statement below for inclusion: VAA wrote advising they were involved in the written response from the ACC with some additional points: VAA recognised the format of consultation on CIP was as set out by CAA but felt there were benefits in managing in a more on-going and iterative portfolio review process (including timeliness of consulting on such). VAA supported the quarterly review proposal as suggested by ACC and were keen to discuss how such may be implemented; VAA re-iterated the importance of the timely delivery of the North Terminal Development Programme and also questioned why the ceiling was not in scope when it was in the original capital proposals as part of Q6 / welcomed its reconsideration; and VAA also raised concerns on car park capacity, particularly in relation to the closure of MSCP 6, in that there did not appear to be a solution within the plan to address and requested this be brought into scope

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