1. BAA Limited (BAA) owns and operates seven of the
UK's airports at Heathrow, Gatwick, Stansted, Southampton, Glasgow,
Edinburgh and Aberdeen. Its dominant market position has for some
time led to calls for it to be broken up, both by the airlines
and this Committee. In March 2007, the Office of Fair Trading
instructed the Competition Commission to investigate whether BAA's
market position was limiting competition in the UK aviation sector.
2. In October 2007, we announced our own inquiry
into the future of BAA. We explained our reasons for holding an
BAA airports are a vital part of the country's transport
infrastructure, serving nearly 150 million passengers each year
between them. The company is facing a number of unique challenges
in addition to those faced by the aviation sector as a whole.
We want to find out how the company, the government and other
stakeholders will respond to the current situation.
3. We particularly wanted to consider:
- the regulatory framework;
- the quality of service provided;
- the size and quality of investment;
- any consequences following from the acquisition
of BAA by Ferrovial;
- the implications of further runway and terminal
- how more competition could be introduced into
4. In response to our call for evidence, we received
written memoranda from 30 organisations and individuals. As well
as BAA, we invited the regulators, unions, airlines and the Department
for Transport to give oral evidence. A full list of witnesses
is provided on page 41.
5. Our inquiry has taken place over a period in which
BAA has rarely been out of the headlines. The publication by the
Civil Aviation Authority's (CAA) of its final price control proposals
on 20 November came the day before representatives from the regulator
gave evidence to the Committee. The Financial Times reported
the claim made by airlines that the rise in fees represented a
"reward for failure".
Meanwhile, The Guardian reported that the reduction in
the return on capital investment from 7.75% to 6.2% at Heathrow
and 6.5% at Gatwick that BAA's owners Ferrovial would receive
meant that under the CAA's proposals the refinancing was "thrown
into doubt". This
has been disputed by BAA.
6. In November, the Secretary of State for Transport
(Rt Hon Ruth Kelly MP) announced a public consultation on the
construction of a third runway and sixth terminal at Heathrow
airport. The consultation
document, Adding capacity at Heathrow airport, invites
members of the public to comment on the Government's proposals.
7. In December, members of the Unite union threatened
strike action over the proposed closure of the final salary pension
scheme to new employees. This brought adverse publicity over the
Christmas and New Year period, with media predictions of delays
and the possible closure of BAA's seven UK airports. In January,
the strikes were averted after discussions between BAA and the
union. Also in December
unusually poor weather on a significant number of days led to
cancellations and delays and brought even more adverse publicity.
8. On 27 February, BAA announced that Colin Matthewsformerly
Chief Executive of Severn Trent plc and Director of Technical
Operations at British Airwayswould replace Stephen Nelson
as Chief Executive from April. In a press release BAA's Chairman,
Sir Nigel Rudd, said that BAA was entering a new era in which
"new demands for quality service and environmental responsibility"
needed to be met. He explained that Mr Matthews had "the
right background and experience to take BAA into that new era".