BAA flying solo

If nothing else, Colin Matthews works quickly. Just three weeks after he was parachuted in to overhaul the beleaguered airport operator BAA, the group's new chief executive gave his first executive order. The shake-up from on high will consolidate the management of the overall group and the cadre of executives responsible for Heathrow, which hitherto operated separately, into one team, underlining Mr Matthews' view that if he can get things rights at the world's busiest airport, the rest of the group's myriad problems will be eminently more solvable.

In the wake of the disastrous opening of Heathrow's Terminal Five last month, taking "direct, hands-on leadership" of the airport seems sensible. "Before I joined BAA, I believed that the key priority for passengers and the company was to make Heathrow work effectively as the UK's only global hub airport," he said yesterday. "Recent events at T5 have reinforced that view." He also announced the creation of a new post for a managing director of the group's six other airports – Gatwick, Stansted, Southampton, Edinburgh, Glasgow and Aberdeen.

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It's a laudable start. But BAA has much bigger problems. Mr Matthews' move came on the eve of the Competition Commission publishing its "emerging thinking" on BAA. The watchdog is expected to announce today in its initial findings that BAA is a monopoly that is bad for passengers. Thus, it is expected to say, it should be broken up. This would probably take the form of asset sales, with Gatwick likely to be top of the list, possibly Stansted, or the disposal of one of its Scottish airports.

Any of the above would pose a very real threat to the group's financial health, though a forced sale of Gatwick, valued at at least £2bn, would be the worst.

A cynic might say that pushing out an announcement the day before the watchdog reveals what most expect will be an excoriating verdict on BAA's business is a calculated move to be seen to be doing something. The company is certainly braced for the worst. Almost since the moment the Spanish construction group Ferrovial bought BAA in the summer of 2006, it has been working tirelessly on a first-of-its-kind deal to restructure the £9bn it assumed to do the deal. The plan, designed to give it relief from massive interest payments, is already heavily delayed because of the credit crunch and the regulatory cloud hanging over the group.

After the announcement of the latest delay to the refinancing – to the third quarter of this year – Standard & Poor's, the credit rating agency, last week downgraded the bonds of BAA and ADIL, the investment vehicle set up by Ferrovial to buy the company, to BBB-, just one grade above "junk". In its report last week, the agency warned that if the commission forces an asset sale, it would probably cut it again.

Relegating the rating to "junk" could wreck the refinancing deal altogether or force its bankers at Royal Bank of Scotland and Citi-group to restructure the offering, which proposes to use BAA's regulated airports as collateral for new bonds. "Our concern is that [an airport disposal] could derail BAA's strategy and timeline, as it is impossible to predict market willingness to go ahead with a refinancing before BAA's future is certain," S&P said. "We will closely scrutinise progress on the refinancing and, if there is any risk of further delay to its execution, we will likely lower the bond ratings further."

It is not an academic point. Last year, the gross interest payments for BAA and ADIL were £964m – more than the £956m it generated in earnings from all of its airports together. Getting the refinancing done is crucial as it would provide immediate relief from those onerous rates. The company will have several months to respond to the commission's initial findings before it issues its final, binding recommendations towards the end of this year.

Airlines, meanwhile, are rebelling. They are fed up with what they say is a service that remains chronically poor while the landing charges they must pay for taking off and landing at BAA's airports rise substantially – in some instances radically – every year. Ryanair and easyJet said last week they would withhold part of the landing charges at Gatwick and Stansted until a legal action protesting against major rises was resolved.

BAA falls back on two arguments: one, that its airports are in need in vast investments, and two, that an operationally strong company overseeing them all is the best placed to see that through.

However, the company is finding itself in an increasingly small minority. The Transport Select Committee recommended BAA's break-up last month, saying that competition among London's airports in particular would much more effectively spur the investment required.

However, BAA's biggest problem as it tries to beat back against its many critics is much more simple. For all of its protestations about ramping up investment in infrastructure and hiring extra security staff to bring security queues down, the fact is that it is making more money now than it ever has before.

Last year, Heathrow profits surged by £40m, up 10 per cent on the year before, to £438m, while spending on the airport fell by more than £100m. The company said this was due to work drawing to a close at Terminal 5.

The passenger experience, meanwhile, has at best stayed depressingly the same or, as critics would say, has in most cases significantly worsened. The entry of "Heathrow hassle" into the national lexicon is not without reason.

Yes, taking the top job at BAA may be akin to being dropped into a bubbling cauldron of antipathy, but Mr Matthews has his eyes open. And what he sees is clear: fix Heathrow, and the rest will follow.

Speaking about the Heathrow management changes yesterday, he said: "We need to be more focused on our operations and this change will allow that to happen, as well as giving our other airports the freedom to develop faster." He added: "Only as we make Heathrow work more effectively will we earn the right to be heard on the wider issues that affect our business – the need for investment and the need to modernise the regulatory framework."