BAA: Over two decades of indecision


altToday’s announcement by BAA that it is appealing to the Competition Appeal Tribunal (CAT) over the Competition Commission’s (CC)  report prolongs the ongoing indecision on UK airports policy.

Ignoring the natural justice element of the appeal – as to whether one of the CC’s members had a conflict of interest - by far the more important ground is whether it is unreasonable to expect BAA to sell three of its airports within two years in current depressed markets.

Since its privatisation in 1986, BAA had been adamant that one dominant airports owner was best for UK plc, despite the fact that much of its investment went into new retail outlets.

This mantra endured for almost 20 years until BAA was taken over by a highly geared private equity consortium led by the Spanish-based Ferrovial. Arguably, this risky financial deal should have been blocked. 

In fact, the worm began to turn before the recession kicked in, when various shambolic incidents at Heathrow - for which British Airways shares some blame – drove the competition agenda. 
Following the recent CC report, a rapid U turn was executed. Although BAA was to retain Heathrow, Gatwick had to be sold off; despite today’s appeal to the CAT, this disposal seems set to continue. Further sales of Stansted and either Glasgow or Edinburgh are also required by the CC.

With bids for Gatwick coming in at c15% below the near £1.6 billion Regulatory Asset Value of Gatwick, the Ferrovial consortium will be sitting on a heavy loss. Neither will this valuation help other regulated businesses. 

Such massive policy shifts over a short period are not the best way to run an industry dependent on long-term investment, a factor that is crucial to Stansted’s future - whether based on BAA’s projected investment costs or those promoted by the far more parsimonious Ryanair.