BAA Says South-east Airports are Not for Sale

The announcement sets the company on a collision course with regulators and means that BAA is certain to be referred to the Competition Commission.


BAA ruled out the sale of Heathrow, Gatwick or Stansted yesterday, claiming that air fares would rise if its monopoly over the three south-east airports was broken up.

The announcement sets the company on a collision course with regulators and means that BAA, now part of the Spanish toll roads operator Ferrovial, is certain to be referred to the Competition Commission.

The Office of Fair Trading said in December that it was likely to make a referral unless BAA gave undertakings which addressed the competition concerns arising out of its ownership of the three airports. But BAA said it did not believe separate ownership would answer the problems facing the south-east's airports. "There is, accordingly, no intention on the part of BAA to sell any of its airports," the company said.

Stephen Nelson, the chief executive of BAA, claimed the real problem for passengers was not the structure of the company but the lack of airport capacity. Breaking up BAA could make this worse because individual airport owners would not be able to afford the heavy investment so easily unless they were allowed to raise landing charges by a bigger amount. Mr Nelson said that common ownership of the three airports by one big company reduced financing costs and avoided the situation where the authorities faced competing planning proposals.

The hard line taken by BAA means it is now facing regulatory battles on two fronts. The company has already rejected proposals by its economic regulator, the Civil Aviation Authority, to reduce the return on capital BAA is allowed to earn, arguing this would jeopar-dise future investment at Heathrow in particular.

Mr Nelson said: "There is a great opportunity over the coming years to deliver dramatic improvements for passengers using our airports, but this requires a regulatory system that encourages investment. I do not believe the current regulatory model in the South- east fits this purpose."

The CAA's proposals would cut BAA's rate of return from 7.75 per cent to 6.2 per cent. This would allow it to increase landing charges by between 4 per cent and 8 per cent a year in real terms from 2008-13, compared with BAA's request for a 12.5 per cent annual increase.

But big airline users such as British Airways have called on the regulator to be even tougher and freeze landing charges in real terms for the five-year period.

BMI, the second biggest operator at Heathrow, called on the OFT to end BAA's monopoly. "This is the only course of action that will remedy the current anti-competitive situation," its chief executive Nigel Turner said.



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