Page last updated at 12:25 GMT, Saturday, 16 August 2008 13:25 UK

BAA flies into more controversy

Ferrovial needs to pay off the debt it took on to buy BAA

BAA, the UK's largest airports operator, expects the Competition Commission to order its break-up.

What is at stake for BAA and the airline industry generally?

More than 1,700 aeroplanes fly from BAA's UK airports every day.

That is roughly one every 30 seconds.

BAA owns and is involved in the day-to-day running of seven UK airports, including Heathrow and Gatwick.

Its work includes looking after security, property management, retail facilities, fire services and cargo.

Overseas expansion

The company has run UK airports since the 1960s - overseeing rapid growth from a time when only the wealthy took holidays to the era of low-cost flying.

Facing a barrage of criticism from passengers, airlines and businesses, the operator's chairman, Sir Nigel Rudd, has told the BBC that he expects the Competition Commission to order it to sell some of its airports.

BAA has been at heart of the UK travel industry since its creation under the 1965 Airports Authority Bill.

BAA, Heathrow
BAA owns seven UK airports, including Heathrow

It first assumed ownership of Heathrow, Gatwick, Stansted and Prestwick, later taking on Edinburgh, Aberdeen and Glasgow. In the years that followed, it sold Prestwick airport and bought the airport in Southampton.

In 1987, it was floated on the stock market, at an original price per share of 2.45.

From then on, it cast its eyes outside the UK, securing its first non-UK contract in 1994, with a 10-year deal to manage Indianapolis Airport in the US and in 1997, BAA was part of a consortium that won a long-term lease for Melbourne Airport.

BAA now has stakes in four airports in Italy and the US, having recently sold its share in six Australian airports.

Takeover battle

Its dominant position in the UK market and the popularity of global air travel made BAA an attractive takeover target.

On 8 February, 2006, Rafael del Pino, chairman of Grupo Ferrovial, called Marcus Agius, chairman of BAA, and told him of the Spanish company's interest in the airport operator.

Thus began a keenly fought takeover battle.

Monopolies do not help consumers ever. It was almost as if BAA had won the lottery without doing anything
Paul Charles, Virgin Atlantic

BAA's board rejected Ferrovial's first offer of 810p per share and the second offer of 900p.

A consortium led by US investment bank Goldman Sachs tabled an offer of 940p per share.

On 6 June, BAA agreed to Grupo Ferrovial's offer of 950p per share, which valued the firm at more than 10bn and, as of 26 June, Ferrovial owned 83% of it.

BAA's debt increased hugely under the Ferrovial takeover.

Fee row

Critics say this has limited its capacity for investment in the airports it runs.

Ferrovial has also found it difficult to refinance its debt, as funding conditions tightened in the aftermath of the credit crunch.

BAA has also been hit by higher security and maintenance costs, which it blamed for making a loss during the first three months of the year.

Many airlines - BAA's customers - also feel they get poor service for the fees they pay.

Earlier this year, the Civil Aviation Authority - which regulates the fees BAA charges airlines - ruled that charges can rise by 23.5% at Heathrow and by 21% at Gatwick in the year 2008/09.

Airlines said the regulator had caved into BAA pressure and allowed itself to be influenced by the high level of BAA's debt.

Ryanair has refused to pay the increased landing fees and BAA has taken the airline to court.

T5 problems

The troubled launch of Terminal 5, when hundreds of passengers were stranded and thousands of bags lost, also tarnished the operator's reputation.

What the operator wants is a third runway at Heathrow to create more flights, more passengers and more revenue.

With or without a third runway, BAA will continue to face pressure, not least from the airlines who want to see an overhaul of the market structure.

"We will fully support the break-up. Frankly, it is about time," said Paul Charles, director of communications at Virgin Atlantic.

"Monopolies do not help consumers ever. It was almost as if BAA had won the lottery without doing anything."

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