Commitment to Terminal 5 reaffirmed but upgrades at Heathrow, Stansted and Gatwick could be shelved.
Airports client BAA may cut its planned developments by a half after an emergency review of its £600m-a-year construction programme.

The move is a response to the global slump in the airline industry after terrorist attacks on the World Trade Centre and the Pentagon.

Projects under review include upgrades of facilities at Heathrow, Stansted and Gatwick. BAA planned to spend £6bn on these airports over the next 10 years.

The rethink was ordered after a BAA executive meeting last week, and the company is due to make an announcement about its plans at the end of this week or the start of next.

A spokesperson said: "Because it's a period of uncertainty, BAA is reviewing its entire investment projects – ones under way, ones planned and ones likely to be planned. The whole issue of capital projects is under review."

Construction director Andrew Wolstenholme briefed BAA staff on Tuesday about the development. Meetings with framework consultants and contractors were due to have taken place yesterday.

Framework contractors and consultants said the review would hit BAA schemes for airlines such as British Airways and Virgin, which both announced job cuts last week. Projects hit could include airport lounges.

One contractor said he was expecting at least 50% of his firm's work for the next year to be cut.

He said: "It's a real blow – let's hope it's not too serious. We are hopeful that a lot of the upgrading of facilities that BAA plans will keep on programme."

Contractors and consultants were unsure whether the drop in work would lead to job cuts. One said: "It's too early to say. Most people have been overstretched recently so I don't think it will lead to wholesale reductions of staff."

BAA emphasised that it was still committed to going ahead with the £2bn Heathrow Terminal 5 scheme, which is expected to get the go-ahead later this year.

The client added that it was still going ahead with its second generation five-year framework deals with contractors and consultants.

BAA's move reflects concerns over the catastrophic downturn in the tourist industry in the wake of the terrorist attacks.

Paul Reimer, senior vice-president at consultant Hanscomb's New York office, confirmed that the effects were already being felt in the USA. He said: "There is already a ripple effect on the US economy in airport and hotel work."

EC Harris chairman Richard Clare said the sector was in a state of uncertainty at present. He said: "Discussions are being held right now in boardrooms about future projects."

Clare said the downturn in some sectors, such as airports, could lead to a rise in others, such as telecoms. He said large American banks which wanted to transfer some staff from the USA to the UK had already made enquiries about building flats for their employees.

Reimer said he believed the downturn would last for three to six months and could be followed by an economic rebound in America. He said: "The US economy is in reasonable shape for the long term."

Where BAA was due to spend its cash

Before the events of 11 September, BAA had been about to embark on a 10-year, £6bn expansion at its airports to meet expanding passenger demand. The company handles 125 million passengers a year, and numbers had been growing annually by 4-5%. To keep pace, investment was set to almost double from about £600m this year to more than £900m in 2005. The biggest investment – and the largest single construction project in the UK – is Heathrow’s £2bn Terminal 5, widely expected to get the go-ahead from the government later this year. This includes a £250m rail and Tube interchange. BAA was to spend a further £2bn upgrading facilities at Heathrow (including the refurbishment of all terminals, new piers at Terminal 3 and new link buildings), £900m expanding Stansted and £1bn at Gatwick. BAA relies on landing fees paid by airlines and retailing for its income. It had been hoping to increase landing fees to help fund new developments, but major airlines have already cancelled 10% of their services and passengers are avoiding air travel, casting doubt on their ability to provide the money for BAA’s expansion.

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