Wednesday, October 28, 2009

BAA Airport Ownership Inquiry To Report

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Airport operator BAA will this week get the first indication of whether it will be forced to sell off some of its airports.

The Competition Commission (CC) is due to publish a document on Tuesday describing its "emerging thinking" in the long-running inquiry into the British Airport Authority's ownership of seven UK airports, which include London's Heathrow and Gatwick Airports.

According to various reports in the UK media, the CC is likely to indicate that it believes BAA's ownership of these airports is restrictive for competition in the industry.

The document is only an interim report, with the Commission expected to deliver a provisional report in August and a final decision expected towards the year's end. The CC itself has stressed that it will not go into any detail about the actions it may or may not take when the inquiry has ended.

However, UK newspapers report that aviation sources believe the CC's thinking is that BAA's ownership of the seven airports is damaging competition in the UK airport industry.

The Times, for example, reported that "senior aviation industry sources" have told the newspaper that the CC is likely to recommend that BAA be forced to sell off one or more airports. Sources say Gatwick is likely to be the favourite candidate for a sell-off should the Commission recommend the group be broken up.

BAA owns the three major London airports (Heathrow, Gatwick, Stansted), as well as the three main Scottish airports (Edinburgh, Glasgow, Aberdeen) and the growing regional hub at Southampton on the south coast.

BAA Competition Commission Investigation

The Competition Commission inquiry into BAA began 12 months ago. It began after the Office of Fair Trading (OFT) referred BAA to the Commission following its own inquiry. At the time, the OFT said it was asking the CC to investigate BAA because it believed that "BAA's high regional market shares in the south east of England and Lowland Scotland "restricts or distorts competition", resulting in lack of incentives for investment and "poor customer service".

Airlines operating into BAA airports have frequently criticised the group's ownership of the seven airports. Chief executives such as Ryanair's Michael O'Leary have said on several occasions that BAA holds a "monopoly" in the UK airport market.

An example of this came just last week, when O'Leary - whose airline is a major presence at Stansted - said the higher landing fees now being charged at the Essex airport were symptomatic of the effects of BAA owning several airports. He commented: "...the financial needs [of BAA] [are put] above the interests of airport users and's now time that the Competition Commission and the Government broke up this foreign-owned, failed, anti-consumer monopoly".

The shambolic opening of Terminal 5 at Heathrow and the delays this has caused for major international airlines restructuring where their flights operate from around Heathrow has also been used by airlines to attack BAA's ownership of several airports.

Last month, a leading committee of MPs in the Houses of Parliament also said they believed BAA's ownership was "bad for passengers and bad for the aviation industry", and that they thought it would be in the best interest that BAA was to be broken up.

The Competition Commission has refused to make comment on any of these protestations which have occurred whilst it's inquiry is taking place.

Airport Ownership Defended by BAA

Despite the Commission not making a final decision until later this year, some newspapers are reporting that investment banks "have held talks" with investors who may be interested in purchasing a BAA airport if the Commission recommends that the company sells one or more sites in its airport portfolio.

The Mail on Sunday said "interested parties" from the Middle East and Asia had staged preliminary talks with investment bankers with regard to a potential purchase should a break-up of BAA be recommended.
BAA, which has been owned by the Spanish construction and property firm Ferrovial since 2006, has defended its position of multiple ownership, saying it offers a "critical mass" which will be useful in the future development of airport capacity, especially in the south-east.

It refused to make a comment on the CC inquiry's interim report and the newspaper reports regarding foreign investors.

Source - Airport International's London Reporter

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