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AIRPORTS OWNER FACES BREAK-UP

FOR SALE? BAA could be forced to sell Gatwick Airport, which would fetch around £2 billion from an i

Sunday August 17,2008

By Tracey Boles, Deputy Business Editor

BAA, which operates seven UK airports, is poised for a £10billion-plus break-up after the Competition Commission publishes the findings of its eagerly awaited inquiry into the group’s monopoly this week.

The Commission is set to conclude the airport group’s monopolies in England and Scotland are not working to the benefit of passengers and are resulting in poor service and unfair charges to airlines.

The conclusions will most likely trigger the sale of Gatwick and a Scottish airport next year.

The call for a break-up will come as BAA is on the verge of completing the refinancing of £10billion-worth of debt.

Key bondholders recently backed this, which has been on the company’s books since it was bought by Spain’s Ferrovial in 2006.

Sources said a deal could be announced this week.

Alongside the findings of its 16-month inquiry this Wednesday or Thursday, the Commission will also set out potential remedies for BAA’s dominance of the UK’s airports.

They are likely to include the sale of a London airport and one of its Scottish trio of Glasgow, Edinburgh and Aberdeen.

There could also be a call for all three London airports to be in separate hands.

Another possible solution is the divestment of just one airport nationally.

Most experts believe BAA will eventually be forced to sell Gatwick or Stansted, plus a Scottish airport. BAA also owns Heathrow, its cash cow, and Southampton airport.

Gatwick could fetch around £2billion and is likely to attract the interest of leading infrastructure funds such as Australia’s Macquarie and other airport operators.

Ryanair chief executive Michael O’Leary has expressed an interest in buying Stansted, the Irish airline’s hub.

One senior aviation source said: “The question seems to be not whether the Commission will force a BAA break-up but on what terms, which airports and by when.”

On Saturday, BAA chairman Sir Nigel Rudd acknowledged a break-up was on the cards.

The suggested remedies will be subject to a consultation, with a final decision at the end of the year.

BAA has the right to appeal against this week’s findings. Insiders say it is concerned about some of the processes used during the inquiry.

The airport operator is also worried its break-up should not derail plans to expand capacity at Heathrow and Stansted with new runways.

It believes lack of capacity is the root cause of poor service at London’s airports rather than no competition.