After the chaotic scenes of the past few weeks, with probably more than a million travellers caught up at Heathrow alone, it is surely time to rebrand BAA. In the fashionable corporate way, those three initials no longer actually stand for anything, but everyone thinks they still signify the British Airports Authority. This unloved operator is, however, no longer either British or an authority. In fact, it is a private company controlled by a secretive family of Spanish builders.
A consortium led by Grupo Ferrovial, a Spanish construction giant still controlled by its 85-year-old founder, wheelchair-bound Rafael del Pino, launched a hostile bid in February for BAA and finally completed its £10 billion takeover in mid-August, when BAA’s shares were delisted from the London Stock Exchange.
My instinctive position on foreign takeovers is to regard them as a good thing, a manifestation of global capitalism at work. Without foreign buyers, the Footsie would be in the doldrums. Anyway, huge British companies like BP, Vodafone and HSBC are themselves built on overseas acquisitions.
But the sale of BAA self-evidently raises urgent questions. Is it right that a monopoly over our major airports should be sold to unaccountable foreigners? And where have the new Spanish owners been during the worst crisis ever to hit Britain’s airports?
These are, incidentally, questions which we should also be asking about the takeover of other utilities. London Electricity is owned by an arm of the French government. Yet the French have failed to open up their own energy market, with the consequence that energy prices here are much higher than they are in France. And the hosepipe ban by Thames Water is testament to the incompetence of its German owners, RWE. Utilities are strategic assets on which the rest of the economy depends.
In the case of BAA, the issue is not just that the del Pinos rarely visit Britain. They have also run up a staggering amount of debt. A back-of-the-envelope calculation suggests that the potential liabilities in all their companies — including money borrowed to buy BAA and spending commitments on other projects — could add up to as much as £29 billion, about the same as the national debt of a small African country. Imagine the juggling act required to keep that lot aloft.
As a result, most of BAA’s profits are now pledged to banks and bondholders. Rather than concentrating on operational matters such as safety and security, the del Pinos (the running of the company is in the hands of Señor del Pino’s children, Rafael, Fernando and Maria) must spend much of their time huddled with accountants or financial advisers. Indeed, when Rafael junior — the chairman of Ferrovial — visited Heathrow last month, one member of staff asked if he intended to take a close interest in the operations of BAA. I’m told he replied, ‘I have enough responsibilities, I do not want to add to them.’
The del Pino family are celebrated as outstanding businessmen in Spain. But the fact is that Ferrovial has only limited experience of running airports. After starting to buy into them five years ago, the del Pinos now also own facilities at Belfast and 50 per cent of Bristol, and a stake in Sydney airport. Judging by the recent chaos, they have yet to demonstrate they are fit and proper people to own such vital infrastructure.
Usually, a takeover brings new management and new ideas. The del Pinos promptly replaced Mike Clasper, the former boss of BAA who defended it against Ferrovial’s bid, with Stephen Nelson, a youthful-looking 43-year-old who is a former marketing director of Sainsbury’s. Clasper was highly regarded: he presided over the near-completion of Terminal 5, the largest construction project in Europe, currently on time and on budget. One BAA insider says, ‘He was absolutely outstanding, both in his strategic vision and his focus.’
Nelson, by contrast, joined the company only in November and has even less experience of running airports than the del Pinos. His real claim to fame is that he is the bright spark who introduced the Taste the Difference brand at Sainsbury’s. But what on earth, you might ask, has that got to do with running airports? Such a position requires great leadership skills and the ability to manage complex issues ranging from security to large engineering projects. Nelson’s talents seem to be more of the creative kind.
To those stuck in his terminals, it certainly looks as if Nelson is floundering. He has even made the mistake of boasting that BAA has ‘coped magnificently’. He has reportedly had a ‘blazing row’ with Willie Walsh, the man who runs British Airways. Walsh claimed that, at one point, only three of seven security channels were open at one Heathrow term-inal. British Airways believes BAA had inadequate emergency provisions in place. And BAA has also taken the step of going beyond the order of the Department for Transport and banning all cosmetics in hand baggage, unless they are purchased airside in its terminals. No wonder that the del Pinos have appointed a minder for Nelson, called Luis Sanchez, who is now deputy chairman of BAA.
Of course, the real reason Nelson got the job is that, these days, BAA is more of a retailer than an airport company. Last year the revenues from its shops exceeded those from landing charges for the first time.
As BAA was a monopoly when it was privatised in 1986, owning all the airports around London, its landing fees are set by the Civil Aviation Authority. The CAA has massaged those fees down over time so now they are among the cheapest in the world. Look where that has got us. Our airports are rapidly becoming a national embarrassment. Overcrowded to the point of being dangerous, they are also full to bursting point with shops: as BAA cannot charge airlines a market rate for landing, it has resorted to making most of its money from retailing in its terminals. But now revenues in the shops have stalled because passengers are allowed greatly reduced items of hand baggage and are restricted as to precisely what they can take on board.
So what should the government have done when BAA received an offer from the Spanish? Well, for one thing, ministers could have asked the Office of Fair Trading to refer the bid to the Competition Commission. But, instead, the then transport secretary Alistair Darling and trade secretary Alan Johnson dithered. Finally, the OFT decided to launch a preliminary inquiry into the sprawling subject of the entire airport industry.
Secondly, as Richard Northedge suggested here a couple of weeks ago, we should admit that the utility regulators themselves need reforming. Until now, they have concentrated on controlling prices. Regulators should also look at customer service and management. When Ferrovial turned up, Sir Roy McNulty, the quangocrat who chairs the CAA, should have asked whether it was a suitable owner for our airports, what expertise it had and whether it had the appropriate management in place. And he should have been more robust about allowing a bid financed by so much debt.
But he raised no serious objections. Now the airlines are turning on the del Pinos, demanding hundreds of millions in compensation for delays and cancelled flights — while Michael O’Leary, head of Ryanair, has accused ministers of behaving like ‘Laurel and bloody Hardy’. With a fall in revenue, chaos in the terminals, exhausted staff and a massively indebted owner, the whole BAA structure looks increasingly precarious.
If the OFT inquiry eventually leads to an order from the Competition Commission for BAA to be broken up, it could be extremely costly for Ferrovial, triggering hundreds of millions of pounds of penalties in BAA’s complex debt arrangements. We should reluctantly conclude that even a brilliant idea like global capitalism has its limits.