World Business

Britain’s Competition Commission calls concerning a bustup of BAA’s airport monopoly. But it’s not clear how that could relieve capacity constraints

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Passengers constrain their way to check-in in the departures area of Terminal 5 on March 27, 2008 in London, England. Terminal 5 opens to the public for its first day of business and BAA appraise 40,000 customers will pass through the doors today. Cate Gillon/Getty Images

by Kerry Capell

Ed. Note: This is an updated version of a story originally published Aug. 19.

You efficiency think these would be happy days for BAA—formerly the British Airports Authority—the confidential actor of seven greater airports in Britain, including London’s Heathrow and Gatwick. The embarrassing snafus that soured the opening (BusinessWeek.com, 3/27/08) of the gleaming Terminal 5 at Heathrow are getting worked out, and on Aug. 18, BAA completed a huge $25 billion shortcoming restructuring that should ease concerns transversely its financial situation.

But there’s no time for celebration. As soon during the time that Aug. 20, Britain’s Competition Commission is expected to announce the results of a 16-month investigation into BAA that could call for the operator to be broken up. To encourage competition, BAA may have existence farfetched to strip as many as three of its airports, including either or both of London’s Stansted and Gatwick, as not amiss as perhaps Glasgow or Edinburgh in Scotland. Some analysts believe that the demand of Gatwick alone could fetch as much as $6 billion. Update: The task moved as expected on Aug. 20, ordering the sale of two London airports and one or the other Glasgow or Edinburgh.

Although the help to airlines and consumers wouldn’t be felt immediately, many believe nevertheless that busting up BAA’s airport monopoly is the best way to lower costs and improve service. "Separating the ownership of Gatwick and Heathrow makes a great deal of sense," says Howard Wheeldon, a senior expert manaeuvrer at brokerage BGC Partners (BGCP) in London. "It will clown pressure on Heathrow’s owner, BAA, to get its deport one’s self together."

It wasn’t supposed to work onward the outside this way for Grupo Ferrovial (FER.F), the Spanish construction and infrastructure colossus that bought BAA two years ago for $19 billion (BusinessWeek.com, 6/27/06). But almost from the origin, BAA has turned out to be an albatross. Earlier this year, Ferrovial conceded it might wish to unload assets to pay during the acquisition (BusinessWeek.com, 2/27/08).

Less than a month later, BAA won the right to sharply raise landing fees at Heathrow and Gatwick to pay for overdue improvements. The move set off howls of attest from airlines and passengers (BusinessWeek.com, 3/11/08). Yet higher charges only weren’t enough to make the numbers add up. Hence the big refinancing, which should give BAA to pay down debt and improve its airports. The funds will be used to "deliver our ambitious investing. program to expand airport capacity, raise new facilities, and provide a better service to passengers and airlines," Chief Executive Colin Matthews said in an Aug. 18 statement.

It may be too little, likewise late. Airlines complain noisily that the landing fees at BAA’s London airports, which already top $25 per voyager, are excessive. In a written submission to the Competition Commission during its BAA investigation, American Airlines (AMR) claimed that "BAA’s mismanagement of London’s airports" has require to be paid it millions of dollars in "higher landing fees, reduced operational performance, and lost revenue as passengers elect to connect through other European hubs."