BAA slated for neglecting airport development away from T5

The Competition Commission heavily criticised BAA's development programme today in a report that increases the likelihood that some of its airports will be sold off.

The interim report, which is part of the Competition Commission's continuing inquiry into BAA's effectiveness and airport capacity, expressed concern over the operator's approach to planning airport development, which the report said “may, in part at least, be related to ownership of several neighbouring airports”.

The report, which said there was no competition between BAA's London airports and its airports in lowland Scotland, makes an enforced sell-off more likely.

The report criticised BAA for its sequential approach to development, saying the organisation seemed “prepared to limit development at one airport to concentrate on development elsewhere”, for example the £4.3bn Terminal 5 project.

Christopher Clarke, chairman of the BAA airports inquiry, said that delays in the planning system could not be used as an excuse for the lack of new development.

He said: “The planning system itself is an inherent constraint on at least the timing of airport development, but airport operators are not unique in having to comply and function within it. There are other long-term infrastructure businesses, such as those engaged in utilities and energy projects and property development, which operate successfully within similar constraints.”

The Competition Commission expressed concern that BAA, which was bought by Spanish company Ferrovial for £10.1bn in June 2006, has a financial structure with a dependence on a single group parent balance sheet. The commission said that this “could constrain the ability of the airports adequately to invest or maintain service standards”.

It also said that the government's 2003 white paper setting out the future programme of airport development could have had the unintended consequence of blocking the development of schemes that did not receive explicit government consent in the paper.

Clarke said: “Currently there is a shortage of capacity, notably runway capacity, to meet current and expected future demand. Even if the proposed expansion at both Stansted and Heathrow goes ahead within the expected timescales, this shortage will remain until at least 2015 and probably longer as a new runway at Heathrow could not be built until 2020.”

The Competition Commission expects to publish the provisional findings of its inquiry in August, and if competition problems are identified it intends to set out its remedies at the same time, possibly requiring the sale of one or more of BAA's airports.

Meanwhile, BAA said yesterday that it is shuffling its executive committee structure in order to focus on improving its Heathrow operations.

The company's corporate and Heathrow executives will be merged from two separate teams into one. The managing director of Heathrow will join the company's new executive committee, as will a newly created MD position responsible for BAA's six other UK airports, including Gatwick and Stansted.

The aim of the changes is to focus the executive more directly on daily operations at Heathrow, and comes after the chaos surrounding the failure of baggage-handling systems at the airport's new Terminal 5.