Regulator calls for BAA break-up
By Kevin Done, Aerospace Correspondent
Published: December 17 2008 08:36 | Last updated: December 17 2008 14:45
BAA, the airports operator, should be broken up and forced to sell three of its seven UK airports, Gatwick, Stansted and Edinburgh, the competition watchdog said on Wednesday.
In the biggest shake-up of the UK airports sector since BAA was privatised 21 years ago, the Competition Commission said it also planned to introduce measures to ensure that investment and levels of service at Heathrow, and possibly at Gatwick and Stansted, met “more effectively the needs of airlines, passengers and other airport users.”
It also proposed measures to promote investment at Aberdeen airport linked to rebates on charges.
The drastic measures proposed by the watchdog are the most extreme feared by BAA and herald the end of the era in which BAA, a subsidiary of Spain’s Ferrovial since its highly leveraged takeover in 2006, has dominated the sector as the world’s biggest airports group.
The Commission will hold a short consultation on its proposals and will probably issue its final report in March.
It said it remained open to further views on the alternative of selling Glasgow airport rather than Edinburgh. It would appoint a monitoring trustee to oversee the sales process for all three airports.
Colin Matthews, BAA chief executive, said the group would continue to fight the proposals. The Commission had failed to “set out compelling evidence to support its view that selling Stansted as well as Gatwick will increase competition and we remain concerned that its proposed remedies may actually delay the introduction of new runway capacity,” he said.
In Scotland the Commission had not provided “any substantial evidence” to support its view that Edinburgh and Glasgow would compete under separate ownership, Mr Matthews said. “We believe there is no justification for specifying which of these airports should be sold,” he said.
BAA has already begun the sale of Gatwick, the second largest UK airport, and has called for first indicative bids by mid-January, but the process could be complicated by the watchdog’s insistence that BAA should sell three of its airports.
The disposals could scarcely have come at a worse time for BAA, in the midst of the credit crunch and the economic downturn and as passenger volumes at the airports are falling steeply. Passenger numbers dropped by more than 13 per cent year-on-year in November at both Gatwick and Stansted.
The Commission said it also intended to make recommendations to the government on a “more effective, and ultimately more flexible” system of airport regulation and also on aspects of government airports policy.
Ministers are already undertaking a review of the current system of airport economic regulation led by the Civil Aviation Authority, which has come under repeated attack by many of the largest airlines using UK airports.
Christopher Clarke, chairman of the BAA airports inquiry, said: “Having provisionally identified competition problems at each of BAA’s seven airports, we are proposing remedies which address them directly and comprehensively through a combination of divestment and other measures to improve investment and levels of service.”
He said the most effective way to introduce compe*tition in the south-east of England and in lowland Scotland was to require the three London airports and the two principal Scottish airports to be separately owned.
Gatwick, Stansted and Edinburgh airports should have “new independent owners with the operating capabilities and financial resources to develop each of them as effective competitors.”
He said that under the common ownership of BAA “there is no competition. Under separate ownership, the airport oper*ators, including BAA, will have a much greater incentive to be far more responsive to their customers, both airlines and passengers.”
Mr Clarke said the Commission recognised that current capacity constraints in south-east England would limit the pace of development of competition.
Even in the short term, however, it expected benefits from different approaches to airport management as well as greater initiative in longer-term planning and development of new investment, which would be “critical to sustained effective competition.”
The government is expected to announce next month whether it approves BAA’s plan to build a third runway at Heathrow airport despite widespread political and environmental opposition and amid signs of a growing split among ministers.
A planning inquiry was also due to begin next spring into BAA’s application to build a second runway at Stansted airport, but this process could be jeopardised by the demand for the airport to be sold, as the new owner will have to reconsider the capital spending plans.
The Commission said it would seek views on the timing of the sale of Stansted given the forthcoming planning inquiry.
The watchdog called on ministers not to constrain “unduly” the airport market in the south-east. They should “give consideration to the ambitions of the new owner of Gatwick” including the possibility of the development of a second runway after 2019.
The Commission also recommended radical changes in the airports regulation system, which currently applies to the three designated airports Heathrow, Gatwick and Stansted.
It said the government should adopt a licence-based regime of economic regulation for airport owners, similar to that in use for other regulated utilities, to give the regulator more ability to intervene flexibly on issues such as performance and adequate financing.
The licence should impose a set of duties on the operator of Heathrow.
The primary objective of regulation should include a duty to promote effective compe*tition between airports and to assess the interests of consumers, whilst having due regard to the view of airlines.
Price caps should only be imposed, if there was a risk of the airport operator being able to set charges at “an excessively high level.”
Legislation should also be amended to allow for terminals to be developed or redeveloped and operated separately from runway facilities.
Copyright The Financial Times Limited 2008
By Kevin Done, Aerospace Correspondent
Published: December 17 2008 08:36 | Last updated: December 17 2008 14:45
BAA, the airports operator, should be broken up and forced to sell three of its seven UK airports, Gatwick, Stansted and Edinburgh, the competition watchdog said on Wednesday.
In the biggest shake-up of the UK airports sector since BAA was privatised 21 years ago, the Competition Commission said it also planned to introduce measures to ensure that investment and levels of service at Heathrow, and possibly at Gatwick and Stansted, met “more effectively the needs of airlines, passengers and other airport users.”
It also proposed measures to promote investment at Aberdeen airport linked to rebates on charges.
The drastic measures proposed by the watchdog are the most extreme feared by BAA and herald the end of the era in which BAA, a subsidiary of Spain’s Ferrovial since its highly leveraged takeover in 2006, has dominated the sector as the world’s biggest airports group.
The Commission will hold a short consultation on its proposals and will probably issue its final report in March.
It said it remained open to further views on the alternative of selling Glasgow airport rather than Edinburgh. It would appoint a monitoring trustee to oversee the sales process for all three airports.
Colin Matthews, BAA chief executive, said the group would continue to fight the proposals. The Commission had failed to “set out compelling evidence to support its view that selling Stansted as well as Gatwick will increase competition and we remain concerned that its proposed remedies may actually delay the introduction of new runway capacity,” he said.
In Scotland the Commission had not provided “any substantial evidence” to support its view that Edinburgh and Glasgow would compete under separate ownership, Mr Matthews said. “We believe there is no justification for specifying which of these airports should be sold,” he said.
BAA has already begun the sale of Gatwick, the second largest UK airport, and has called for first indicative bids by mid-January, but the process could be complicated by the watchdog’s insistence that BAA should sell three of its airports.
The disposals could scarcely have come at a worse time for BAA, in the midst of the credit crunch and the economic downturn and as passenger volumes at the airports are falling steeply. Passenger numbers dropped by more than 13 per cent year-on-year in November at both Gatwick and Stansted.
The Commission said it also intended to make recommendations to the government on a “more effective, and ultimately more flexible” system of airport regulation and also on aspects of government airports policy.
Ministers are already undertaking a review of the current system of airport economic regulation led by the Civil Aviation Authority, which has come under repeated attack by many of the largest airlines using UK airports.
Christopher Clarke, chairman of the BAA airports inquiry, said: “Having provisionally identified competition problems at each of BAA’s seven airports, we are proposing remedies which address them directly and comprehensively through a combination of divestment and other measures to improve investment and levels of service.”
He said the most effective way to introduce compe*tition in the south-east of England and in lowland Scotland was to require the three London airports and the two principal Scottish airports to be separately owned.
Gatwick, Stansted and Edinburgh airports should have “new independent owners with the operating capabilities and financial resources to develop each of them as effective competitors.”
He said that under the common ownership of BAA “there is no competition. Under separate ownership, the airport oper*ators, including BAA, will have a much greater incentive to be far more responsive to their customers, both airlines and passengers.”
Mr Clarke said the Commission recognised that current capacity constraints in south-east England would limit the pace of development of competition.
Even in the short term, however, it expected benefits from different approaches to airport management as well as greater initiative in longer-term planning and development of new investment, which would be “critical to sustained effective competition.”
The government is expected to announce next month whether it approves BAA’s plan to build a third runway at Heathrow airport despite widespread political and environmental opposition and amid signs of a growing split among ministers.
A planning inquiry was also due to begin next spring into BAA’s application to build a second runway at Stansted airport, but this process could be jeopardised by the demand for the airport to be sold, as the new owner will have to reconsider the capital spending plans.
The Commission said it would seek views on the timing of the sale of Stansted given the forthcoming planning inquiry.
The watchdog called on ministers not to constrain “unduly” the airport market in the south-east. They should “give consideration to the ambitions of the new owner of Gatwick” including the possibility of the development of a second runway after 2019.
The Commission also recommended radical changes in the airports regulation system, which currently applies to the three designated airports Heathrow, Gatwick and Stansted.
It said the government should adopt a licence-based regime of economic regulation for airport owners, similar to that in use for other regulated utilities, to give the regulator more ability to intervene flexibly on issues such as performance and adequate financing.
The licence should impose a set of duties on the operator of Heathrow.
The primary objective of regulation should include a duty to promote effective compe*tition between airports and to assess the interests of consumers, whilst having due regard to the view of airlines.
Price caps should only be imposed, if there was a risk of the airport operator being able to set charges at “an excessively high level.”
Legislation should also be amended to allow for terminals to be developed or redeveloped and operated separately from runway facilities.
Copyright The Financial Times Limited 2008
