18th November 2003
City Gents Warn BAA Investors of Stansted Financial Risks
Four City Gents wearing suits and headgear from the last century – including pinstripes and bowler hats, morning dress and top hats – descended on the Square Mile today to brief City institutional investors and financiers on the dismal financial record of BAA’s Stansted Airport and of the risks associated with any further major investment at Stansted.
Their attire included Edwardian morning dress with top hat (c1900), Edwardian aristocratic City wear including top hat (c1900), classic City Gent with bowler hat and rolled umbrella (c1960) and City Gent with Crombie Coat and bowler hat (also c1960).
The City Gents were all members of the Stop Stansted Expansion campaign which is fighting to keep plans for a further runway at the airport out of the Air Transport White Paper, due for publication next month. They were joined for the occasion by the campaign’s economics advisor Brian Ross.
The objective was to distribute a briefing note to brokers, analysts, investment bankers and fund managers arriving for work, explaining that adding a second runway at Stansted would destroy shareholder value and could threaten the long term future of BAA itself. BAA admits that the investment – estimated at around £4 billion – would not be commercially viable on a standalone basis.
BAA’s largest institutional investors and the City’s most influential investment banks and analysts were blitzed with leaflets setting out the financial case against pouring further major investment into Stansted.
The action was also designed to question the wisdom of BAA’s management for even considering expansion at Stansted when they have had their fingers so badly burned as a result of past over-optimism and when they openly acknowledge that Stansted expansion is not viable unless subsidised from its operations at Heathrow or Gatwick. There is the risk that the BAA management stance on this issue will open up the wider issue of BAA’s monopoly position and increase the pressure for a full Competition Commission inquiry that could lead to a break-up of the company.
While BAA is pressing the government to intervene to support its idea of cross-subsidisation, the CAA (which acts as the regulator for the BAA London airports monopoly) has made clear that it is opposed to the principle of cross-subsidisation on the grounds that this would result in a distortion of the market. This would open the door for a challenge under UK and EU competition law.
Heathrow-based airlines including BA, Virgin and bmi have already made clear their readiness to mount a legal challenge to head off the unfair advantage their low-cost competitors at Stansted would derive from cross subsidisation paid for by those operating out of Heathrow who would be forced to pay increased airport charges.
Britain’s second largest airport operator, TBI which runs Luton Airport, has also entered the fray, warning of legal action on competition grounds on the cross-subsidisation issue and in relation to BAA’s monopoly position.
This event was the latest salvo in a dynamic campaign led by the Stansted campaigners against BAA’s expansion ambitions for Stansted. It is expected to send further ripples across the financial community which is already nervous about BAA’s mounting borrowing requirements and level of gearing – exacerbated by the construction of Terminal 5 at Heathrow – forcing BAA to make two ‘calming’ presentations this year to reassure investors.
* A major report on “The Economics of Stansted Airport” was published in late October by leading regulatory economist Professor David Starkie casting serious doubt on the feasibility of adding extra runways at Stansted airport. Copies are available from: www.stopstanstedexpansion.com/documents/Stansted_Economics_Report.pdf.
* Copies of the briefing distributed in the City are available from: www.stopstanstedexpansion.com/documents/City_Gent_Leaflet.doc or by calling 01279 870558.