BAA and CAA criticise Government's airport regulation plans

08.06.09

Government plans to change the financial regulation of the UK's larger airports will create extra uncertainties for investors and increase the costs of investments, UK airport operator BAA said today. The Civil Aviation authority (CAA) also criticised the plans as unnecessary.

BAA said its lenders had criticised plans to introduce a ‘special insolvency regime’ for large airports to ensure they stay open even if their owner / operator goes bust. Introducing such a regime would prevent lenders from exerting their rights to appoint an administrator and sell off assets to recover their money.

The DfT's proposals have been inspired by nervousness within Whitehall over the highly leveraged finances of BAA, which has £13.1bn debts. But BAA said in a statement: ‘Creditors have indicated that certain of the reforms would ... adversely affect their existing rights and materially shift the balance of risk and reward from the basis upon which they invested.'

The airports operator said it agreed with the Government's objective of keeping airports open and it had worked with the Association of British Insurers (ABI) to devise an alternative scheme in case an operator encountered financial difficulties. Depending on the final terms of the new regime, BAA said that it may need to gain consent from its creditors. Gaining that consent could prove costly, BAA said, adding it would look to recover costs from moving to a new system.

While welcoming some aspects of the proposals, the CAA, the industry regulator, sided with both BAA and its creditors in opposing a ‘special administration regime’ for the Heathrow, Gatwick and Stansted airports owner. The CAA said such a regime is unnecessary.

Citing the example of Eurotunnel, the CAA said that even if BAA was to fail, its lenders would ensure that the airports remain open. It said: ‘The experience of Eurotunnel illustrates that the owners and creditors of a heavily indebted, capital-intensive business will maintain service continuity despite significant financial distress.'

Adding that closure of an airport has ‘significantly’ fewer consequences to the public than disruption to water or electricity supplies, the CAA said that the proposed regime would expose ‘airport owners and creditors to additional risk’, increasing financing costs. As such, the CAA argues, it would ‘have the perverse impact that airport users are exposed to higher costs’.

The comments were in response to a Government consultation to update the airport sector's economic regulation, a process launched in March and which closed last Friday.

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