Financial Times

BAA ordered to sell three airports

By Kevin Done, Aerospace Correspondent

Published: March 19 2009 09:05 | Last updated: March 19 2009 22:33

The competition watchdog on Thursday ordered BAA to sell three of its seven UK airports, ending its monopoly ownership of the leading airports in London and in Scotland.

In the toughest corporate divestiture ever demanded by the Competition Commission, BAA, a majority owned subsidiary of Spain’s Ferrovial, will be required to sell Gatwick, Stansted and one of either Glasgow or Edinburgh airports within two years. It will keep control of Heathrow, its most prized asset.

Analysts estimate the combined value of the three airport sales could total between £3.5bn and £4bn. Bids are expected to come from foreign airports, infrastructure funds, pension funds and from sovereign wealth funds.

The watchdog warned BAA that if the disposals were not completed by the specified dates, it reserved the right to appoint an independent divestiture trustee to carry out the sales.

BAA, the world’s biggest airports operator, hit back at the unprecedented move, saying the watchdog’s analysis was “flawed” and the remedies “may be impractical in current economic conditions”. It has two months to appeal against the orders to the Competition Appeal Tribunal.

Colin Matthews, BAA chief executive, said “we would rather not appeal, but we may well have to”. An appeal would be not so much against the principle of having to sell but against the practicality of the commission’s order. “Selling one airport is one thing, selling three in current [financial] market conditions is another.”

Chairman who switched sides:

Christopher Clarke, the urbane chairman of the BAA inquiry, reluctantly describes himself as “a poacher turned gamekeeper”, writes
Kevin Done.

The 63-year-old, Cambridge-educated economist spent 25 years from 1973 to 1998 as an investment banker, including as a main board director of Samuel Montagu from 1982 to 1996 and subsequently as a director of HSBC investment banking, until he retired in 1998.

He has advised on countless takeovers where companies sought ruthlessly to expand, eliminate rivals and reduce competition. But for much of the past 10 years he has been fighting from the other side of the fence, to protect and encourage competition. He was appointed a deputy chairman of the Competition Commission – one of three – in 2004, having become a member in 2001.

He chaired the latest five-yearly reviews by the commission of airport charges at Stansted last year and at Heathrow and Gatwick in 2007. He has also chaired the market investigations into personal current account banking services in Northern Ireland in 2007 and store card credit services in 2006.

The two-year BAA inquiry, however, is by far the highest profile investigation he has taken on, ending in the unprecedented move to order the divestiture by BAA of assets estimated to be worth £3.5bn to £4bn.

The long-awaited verdict was delivered in typically measured, mellifluous tones, belying the dire message being delivered to BAA.

Mr Clarke admits that, as a passenger himself, he now looks very differently at airports, carefully calculating the time taken through immigration on each trip.

The commission said in its final report on the two-year investigation, published on Thursday, that BAA should sell the airports in sequence, starting with Gatwick, where the sale process is at an advanced stage, followed by Stansted and ending with one of the Scottish airports. Analysts believe BAA will choose to sell Glasgow.

The commission said it had found “competition problems with adverse effects for both passengers and airlines” at all seven of BAA’s UK airports – Southampton and Aberdeen are the other two. A “key problem” was BAA’s common ownership, which precluded any competition between them.

Christopher Clarke, chairman of the inquiry, said the commission recognised the sell-offs would have “a significant impact on BAA’s business”. But he said the sale of the airports would “kick-start a process of competitive rivalry from a standing start where today there is no competition at all”.

The commission said it would appoint a monitoring trustee to oversee the sales. Suitable purchasers would have to be approved by the watchdog. They should be independent of BAA and have “the intention, appropriate expertise and financial resources to operate and develop the airports as effective competitors”.

The commission made one concession to BAA by dropping its earlier suggestion that it should sell Edinburgh, and left the company itself to choose which of the Scottish airports to sell.

It said Heathrow would continue to have “substantial market power” even after the group no longer owned either Gatwick or Stansted, and it recommended that the Civil Aviation Authority, the airports economic regulator, take action to improve consultation between BAA and the airlines.

It is still far from clear what the break-up will mean for achieving the government’s big goal of an expansion of capacity and the building of new runways in the highly congested south-east of England.

With a general election due in little more than a year, there is no consensus between the two leading parties about the wisdom of building new runways.

The Labour government has approved BAA’s plans to build a third runway at Heathrow, the country’s only hub airport, but the Conservatives have expressed outright opposition to the project and to stop it if they are elected.

In the short term, the competition ruling will hinder preparations to build a second runway at Stansted. The opening of a public inquiry into BAA’s planning application was delayed recently by ministers because of the uncertainty surrounding the airport’s ownership.

Mr Clarke said on Thursday it would be “sensible and reasonable” for the new owners rather than BAA to lead the planning application.

Jim Callaghan, director of legal and regulatory affairs at Ryanair, Stansted’s biggest airline, welcomed the commission’s report.

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