U.K. panel: Break up airport firm
Posted on Thursday, August 21, 2008
URL: http://www.nwanews.com/adg/Business/234920/
BAA Ltd., the owner of Heathrow Airport, provides poor service and has failed to plan for extra capacity, the U. K. Competition Commission said Wednesday, recommending the company be stripped of London’s Gatwick and Stansted airports and either Glasgow or Edinburgh airport in Scotland.
BAA, a unit of Spanish builder Grupo Ferrovial SA whose seven U. K. airports attracted 150 million flyers last year, said the analysis was “flawed.”
BAA handles 91 percent of passengers in southeast England, where overcrowding and the chaotic opening of Terminal 5 at Heathrow led lawmakers and airlines to demand its breakup. Europe’s busiest airport had the continent’s worst delays in the first quarter, with 45 percent of departures held for 15 minutes or more.
The commission will give a final ruling later this year.
“This is a ruthless assessment that many will welcome,” said Howard Wheeldon, senior strategist at BGC Partners in London. “It may look like a disaster for BAA, but I think it’s something they can live with and ultimately it may prove to be to their benefit. Heathrow doesn’t really compete with Gatwick or Stansted. It’s a global player and this will focus minds on improving passenger services to win back customers from other international airports.”
Gatwick alone may fetch $ 6. 3 billion for Ferrovial, Spain’s No. 2 construction company, according to Exane BNP Paribas analyst Steven Fernandez. German builder Hochtief AG, Frankfurt airport owner Fraport AG and Manchester Airports Group have said they might bid.
Ferrovial is down 46 percent since the $ 19 billion purchase of BAA closed on Aug. 15, 2006. The deal was funded by debt loaded onto the airport operator, forcing it to focus on the world’s largest refinancing amid a global credit crunch. BAA completed the $ 24. 8 billion reorganization two days ago. The stock has lost 31 percent this year amid speculation about BAA’s future and after 600 flights were canceled when Terminal 5 opened in March.
“The commission proposes the divestiture of two of BAA’s London airports,” the regulatory body said in a statement Wednesday. “Guidelines mean that it is unlikely to require the divestiture of Heathrow unless the sale of Gatwick or Stansted is likely to be impractical or ineffective.”
Should BAA retain Heathrow, which attracted 68 million passengers last year, the airport may require tighter regulation to address remaining competition problems resulting from its role as southeast England’s only hub airport, the report stated.
BAA was founded as the British Airports Authority in 1965 and began running four U. K. terminals a year later. It sold shares to the public in 1987 as part of Prime Minister Margaret Thatcher’s disposal of state assets.
Wednesday’s recommendations come four months after the commission published initial findings that the world’s biggest airport operator’s domination of markets in southeast England and central Scotland limited competition and contributed to a shortage in capacity. Airlines, struggling with higher fuel costs and slowing economies, have also backed dismantling BAA, saying its dominance provides no incentive for improvements.
Ryanair Holdings Plc, Europe’s biggest discount carrier and the largest airline at Stansted, said Wednesday by e-mail that BAA was an “abusive monopoly” and that a breakup would bring better facilities and lower prices. Lowcost competitor EasyJet Plc, the No. 1 operator at Gatwick, also welcomed the report but said tough regulations will be needed to govern new owners.
“We will continue to point out to the commission the many areas where we believe its analysis is flawed and its remedies would be disproportionate and counterproductive,” BAA Chief Executive Officer Colin Matthews said in an e-mailed statement.
Matthews said that while BAA recognizes the need to improve standards of service, the main problem at its London airports is a lack of runway capacity. The CEO said that all of his attention is focused on improving operations at Heathrow.
“The BAA monopoly at U. K. airports has failed to give travelers and airlines the world-class facilities they deserved for so long,” Paul Charles, a spokesman for London-based Virgin Atlantic Airways Ltd., said in an e-mailed statement Wednesday. “It is encouraging that the Competition Commission wants to break up BAA.”
British Airways Plc, BAA’s biggest customer, has blamed overcrowding at Heathrow for discouraging passengers in recent years. Paris Charles de Gaulle and Amsterdam Schiphol airports, the home bases of Air France-KLM Group, and Frankfurt, the main hub for Deutsche Lufthansa AG, all grew faster in 2007.
BAA’s share of airport passengers in southeast England comes from Heathrow, Gatwick, Stansted and Southampton. It has 84 percent of the market in Scotland through terminals in Edinburgh, Glasgow and Aberdeen. Splitting BAA would offer a “very real prospect of competition,” with surveys showing passengers willing to use any of the available airports, the commission said April 22 in an “emerging thinking” document.
Opinions differ as to how much a forced sale will ease crowding at London airports. Heathrow operates at 99 percent of its government-allowed flight capacity, according to BAA.
“One of the criticisms that BAA has faced was that they didn’t provide enough capacity, but simply splitting the owners doesn’t necessarily mean three new runways in the Southeast,” Tim Coombs, joint managing director of Aviation Economics, a London-based consulting company, said before the commission’s report. “Splitting up the ownership isn’t going to solve the capacity issue.” Information in this article was contributed by Elliott Gotkine and Brian McGee of Bloomberg News.