BAA Chief Nelson Quits After Heathrow Airport Woes
By Tracy Alloway and Brian McGee
Feb. 27 (Bloomberg) -- BAA Ltd. Chief Executive Officer Stephen Nelson will quit after delays at London's Heathrow airport led the world's airlines to complain of ``embarrassingly low levels of service'' and as U.K. regulators threaten to break up the company's holdings.
Colin Matthews, 51, a former British Airways Plc executive who served as CEO of water utility Severn Trent Plc, will succeed Nelson as head of the U.K.'s biggest airport operator effective April 1. Nelson, 44, is resigning after almost two years in the post, BAA owner Grupo Ferrovial SA said today in a statement.
BAA, purchased by the Spanish construction company for $20 billion in 2006, is struggling to refinance at least 4.1 billion pounds ($8.1 billion) in debt as the U.K.'s antitrust regulator investigates its ownership of London airports including Stansted and Gatwick. Heathrow, Europe's busiest airport, has been censured by government officials, passengers and airlines for long lines, high charges and aging facilities.
``It was probably inevitable given you had a man under such enormous pressure resigned to an almost impossible task and without the freedom to negotiate a way forward,'' said Howard Wheeldon, an analyst at BGC Partners in London. ``It's the task of debt refinancing. It's the ability to see your way forward to do what you need to do, particularly in Terminals 1 to 3.''
Nelson's resignation comes a month before Heathrow opens the 4.3 billion-pound Terminal 5, which will boost passenger capacity by 30 million passengers. Heathrow is running at 99 percent of its government-sanctioned flight limit and handling 68 million people annually in buildings designed for 45 million.
Share Performance
Ferrovial rose 81 cents, or 1.8 percent, to 45.79 euros in Madrid trading. The builder's stock gained the most in more than six years yesterday after the company said debt fell 7.8 percent to 30.2 billion euros ($45 billion) last year. Ferrovial has declined 38 percent in the past 12 months.
BAA's service levels are ``embarrassingly low,'' according to the International Air Transport Association, which represents more than 240 airlines. Kitty Ussher, economic secretary to the U.K. treasurer, has said Heathrow may be jeopardizing London's status as a financial center.
BAA has said government proposals for its fees could threaten a planned refinancing, while airlines including Ryanair Holdings Plc and EasyJet Plc have complained that the proposed fees are too high. The Civil Aviation Authority is investigating the complaints. At the same time, the Competition Commission's probe may result in a forced breakup of the company.
For Airport and Country
``No one underestimates the size of that challenge, or the difficulties we face on a daily basis in delivering it, but, equally, I am fully aware of how significant transforming our airports is for the future of this country,'' Matthews said in the statement.
Matthews is a former director of technical operations for British Airways, Europe's third-largest airline and the biggest user of Heathrow. He was CEO of Severn Trent from February 2005 to October 2007. An engineer, he worked for General Electric Co. before leading aircraft maintenance at British Airways.
The airport operator plans to spend 9.3 billion pounds to improve its U.K. airfields over the next 10 years. Projects include a replacement for Heathrow's Terminal 2 and renovations of Terminal 3. BAA appointed Nigel Rudd as chairman in August to help improve service at the airport and oversee the projects.
BAA has said Heathrow difficulties stem from a lack of capacity and over-regulation by the CAA and Competition Commission. A public inquiry into Terminal 5 took four years to complete, and a government consultation on proposals for a third runway at Heathrow, to be built by 2020 at the earliest, closes today.
Service Priority
``BAA is now entering a new era, in which we have to not only complete the transformation of our airports that T5 has begun, but also meet the new demands for quality service and environmental responsibility,'' Rudd said in the statement. ``BAA will be to the fore in arguing for a new regulatory framework which recognizes those priorities.''
British Airways and Virgin Atlantic Airways Ltd., the two biggest holders of takeoff and landing slots at Heathrow, welcomed the appointment. Virgin said it would watch Matthews to ``ensure that his background doesn't lead to further favoritism of BA.''
London-based British Airways will be the sole occupant of Terminal 5 when it opens March 27.
`Considerable Challenges'
Nelson said BAA ``faced considerable challenges'' on his watch. ``I am immensely proud both of the way the company responded to those challenges, and refocused its efforts to put the passenger first,'' he said in the statement.
Ferrovial wants to refinance BAA's debt to allow the airport operator to deliver 4 billion pounds of investment in time for the London Olympics in 2012. BAA is relying on the sale of bonds backed by its airports to cut the financial cost of its acquisition debt and keep an investment-grade credit rating.
BAA's 4.1 billion pounds of bonds may be downgraded ``several steps'' by Standard & Poor's if the company fails to complete its planned refinancing during the first half of this year, the ratings business said Nov. 21. S&P rates the bonds at BBB+, the third-lowest investment grade.
BAA generated 1.81 billion euros in sales from Heathrow last year, almost half of total revenue at the airport operator, Ferrovial said yesterday. BAA had a negative impact of 216.8 million euros on Ferrovial's net income, the company said.
148.3 Million Passengers
The company's seven U.K. airports handled 148.3 million passengers in the past financial year, about 63 percent of flights to and from Britain. Its London airports serve about 90 percent of passengers in southeast England.
Ryanair has said flights from London's Stansted airport are regularly delayed because of understaffing by BAA at security checkpoints. British Airways blamed overcrowding and delays for deterring travelers when it cut a full-year sales target in August.
Ferrovial has no imminent debt payments due and faces ``more of a marathon than a sprint'' on refinancing, Chief Financial Officer Nicolas Villen said yesterday.
The airport operator is seeking a 1 billion-pound loan to refinance debt, a banker bidding to arrange the deal said Feb. 25. The loan will be secured by U.K. airports outside London including Edinburgh and Southampton, said the banker, who declined to be identified because the transaction isn't complete.
Credit-default swaps based on BAA debt were little changed today at 490 basis points, according to Deutsche Bank AG. They have risen from 200 basis points at the start of the year, meaning investors think the company's debt has gotten more risky. The swaps are contracts that protect bondholders against default.
``No one was really happy when Ferrovial took over BAA, and now it seems Ferrovial is actually a danger to BAA,'' analyst Wheeldon said. ``What is going on with BAA and Ferrovial will affect us all and potentially affect the U.K.'s economic growth. It must be sorted.''
By Tracy Alloway and Brian McGee
Feb. 27 (Bloomberg) -- BAA Ltd. Chief Executive Officer Stephen Nelson will quit after delays at London's Heathrow airport led the world's airlines to complain of ``embarrassingly low levels of service'' and as U.K. regulators threaten to break up the company's holdings.
Colin Matthews, 51, a former British Airways Plc executive who served as CEO of water utility Severn Trent Plc, will succeed Nelson as head of the U.K.'s biggest airport operator effective April 1. Nelson, 44, is resigning after almost two years in the post, BAA owner Grupo Ferrovial SA said today in a statement.
BAA, purchased by the Spanish construction company for $20 billion in 2006, is struggling to refinance at least 4.1 billion pounds ($8.1 billion) in debt as the U.K.'s antitrust regulator investigates its ownership of London airports including Stansted and Gatwick. Heathrow, Europe's busiest airport, has been censured by government officials, passengers and airlines for long lines, high charges and aging facilities.
``It was probably inevitable given you had a man under such enormous pressure resigned to an almost impossible task and without the freedom to negotiate a way forward,'' said Howard Wheeldon, an analyst at BGC Partners in London. ``It's the task of debt refinancing. It's the ability to see your way forward to do what you need to do, particularly in Terminals 1 to 3.''
Nelson's resignation comes a month before Heathrow opens the 4.3 billion-pound Terminal 5, which will boost passenger capacity by 30 million passengers. Heathrow is running at 99 percent of its government-sanctioned flight limit and handling 68 million people annually in buildings designed for 45 million.
Share Performance
Ferrovial rose 81 cents, or 1.8 percent, to 45.79 euros in Madrid trading. The builder's stock gained the most in more than six years yesterday after the company said debt fell 7.8 percent to 30.2 billion euros ($45 billion) last year. Ferrovial has declined 38 percent in the past 12 months.
BAA's service levels are ``embarrassingly low,'' according to the International Air Transport Association, which represents more than 240 airlines. Kitty Ussher, economic secretary to the U.K. treasurer, has said Heathrow may be jeopardizing London's status as a financial center.
BAA has said government proposals for its fees could threaten a planned refinancing, while airlines including Ryanair Holdings Plc and EasyJet Plc have complained that the proposed fees are too high. The Civil Aviation Authority is investigating the complaints. At the same time, the Competition Commission's probe may result in a forced breakup of the company.
For Airport and Country
``No one underestimates the size of that challenge, or the difficulties we face on a daily basis in delivering it, but, equally, I am fully aware of how significant transforming our airports is for the future of this country,'' Matthews said in the statement.
Matthews is a former director of technical operations for British Airways, Europe's third-largest airline and the biggest user of Heathrow. He was CEO of Severn Trent from February 2005 to October 2007. An engineer, he worked for General Electric Co. before leading aircraft maintenance at British Airways.
The airport operator plans to spend 9.3 billion pounds to improve its U.K. airfields over the next 10 years. Projects include a replacement for Heathrow's Terminal 2 and renovations of Terminal 3. BAA appointed Nigel Rudd as chairman in August to help improve service at the airport and oversee the projects.
BAA has said Heathrow difficulties stem from a lack of capacity and over-regulation by the CAA and Competition Commission. A public inquiry into Terminal 5 took four years to complete, and a government consultation on proposals for a third runway at Heathrow, to be built by 2020 at the earliest, closes today.
Service Priority
``BAA is now entering a new era, in which we have to not only complete the transformation of our airports that T5 has begun, but also meet the new demands for quality service and environmental responsibility,'' Rudd said in the statement. ``BAA will be to the fore in arguing for a new regulatory framework which recognizes those priorities.''
British Airways and Virgin Atlantic Airways Ltd., the two biggest holders of takeoff and landing slots at Heathrow, welcomed the appointment. Virgin said it would watch Matthews to ``ensure that his background doesn't lead to further favoritism of BA.''
London-based British Airways will be the sole occupant of Terminal 5 when it opens March 27.
`Considerable Challenges'
Nelson said BAA ``faced considerable challenges'' on his watch. ``I am immensely proud both of the way the company responded to those challenges, and refocused its efforts to put the passenger first,'' he said in the statement.
Ferrovial wants to refinance BAA's debt to allow the airport operator to deliver 4 billion pounds of investment in time for the London Olympics in 2012. BAA is relying on the sale of bonds backed by its airports to cut the financial cost of its acquisition debt and keep an investment-grade credit rating.
BAA's 4.1 billion pounds of bonds may be downgraded ``several steps'' by Standard & Poor's if the company fails to complete its planned refinancing during the first half of this year, the ratings business said Nov. 21. S&P rates the bonds at BBB+, the third-lowest investment grade.
BAA generated 1.81 billion euros in sales from Heathrow last year, almost half of total revenue at the airport operator, Ferrovial said yesterday. BAA had a negative impact of 216.8 million euros on Ferrovial's net income, the company said.
148.3 Million Passengers
The company's seven U.K. airports handled 148.3 million passengers in the past financial year, about 63 percent of flights to and from Britain. Its London airports serve about 90 percent of passengers in southeast England.
Ryanair has said flights from London's Stansted airport are regularly delayed because of understaffing by BAA at security checkpoints. British Airways blamed overcrowding and delays for deterring travelers when it cut a full-year sales target in August.
Ferrovial has no imminent debt payments due and faces ``more of a marathon than a sprint'' on refinancing, Chief Financial Officer Nicolas Villen said yesterday.
The airport operator is seeking a 1 billion-pound loan to refinance debt, a banker bidding to arrange the deal said Feb. 25. The loan will be secured by U.K. airports outside London including Edinburgh and Southampton, said the banker, who declined to be identified because the transaction isn't complete.
Credit-default swaps based on BAA debt were little changed today at 490 basis points, according to Deutsche Bank AG. They have risen from 200 basis points at the start of the year, meaning investors think the company's debt has gotten more risky. The swaps are contracts that protect bondholders against default.
``No one was really happy when Ferrovial took over BAA, and now it seems Ferrovial is actually a danger to BAA,'' analyst Wheeldon said. ``What is going on with BAA and Ferrovial will affect us all and potentially affect the U.K.'s economic growth. It must be sorted.''
