Bloodletting at BAA: the new regime that must take on a jumbo-sized challenge

Amid the chaos in London's airports, Sir Nigel Rudd has replaced his chief executive. Margareta Pagano looks at a high-stakes move

Sir Nigel Rudd flew out of Gatwick's North Terminal to his villa in Portugal on Thursday morning, leaving British airports on red alert and blood on the tarmac. Earlier in the week, the chairman of BAA took one of the toughest decisions of his life when he replaced chief executive Stephen Nelson with the much tougher Colin Matthews, to carry out a job that he considers the most difficult in Britain today.

Sir Nigel is one of the UK's most robust industrialists but firing the highly intelligent Nelson was not something he wanted to do. But Sir Nigel, brought in by BAA's Spanish owner, Ferrovial, last September to overhaul the business, realised that while Nelson was good, BAA probably needed someone even better to sort out the mass of problems facing London airports.

But it was only after talking to Sir John Parker, chairman of National Grid, that he decided to take action. Sir John sugges-ted that Matthews, a brilliant Cambridge-trained engineer, was the best man in the country to do the job. Sir Nigel and Matthews met, hit it off immediately and a deal was struck. There were no headhunters involved and, shortly before Christmas, Sir Nigel gave Nelson warning that he would be replacing him at some point.

Anyone who has watched Sir Nigel's career over the past 30 years, running some of the UK's biggest companies, knows he is not one who to shirk bold decisions. But he doesn't relish bloodletting, and certainly not in this case

There are those who say now that Nelson, who was a retailing and marketing man and a former director of Sainsbury's, was never going to be able to get to grips with the sheer force of the operational issues facing BAA, ranging from security to new runways. As one close source says: "BAA is run too much like the Civil Service. People are demoralised, the unions are in control and there has been little communication with staff, who are also suffering from being criticised. They don't like being the dog that is always being kicked.

"But BAA's culture needs a kick. People need to start thinking outside the box – to think the unthinkable. But that was impossible for Nelson to do. He had Ferrovial people sniping on the sidelines while the BAA guard were resistant to change."

In Matthews – who ran Lattice-Transco, the mains-network part of British Gas before it merged with National Grid – Sir Nigel has found an analytical heavyweight with experience of aviation, infrastructure and heavily regulated industries. He is also good with people.

Before Lattice, Matthews was on the British Airways board, and in both companies he was seen as a strong contender for the top job. He left Lattice after the takeover to sort out Hays, the logistics to recruitment business, and then Severn Trent, the Midlands water utility, which he went on to sell.

A devout Christian, he will need all the divine intervention he can get to sort out Heathrow in particular, and BAA more generally. Top of his list will be the security issues and the long passenger queues that industrialists say are putting people off travelling and giving the country a bad reputation. Then there is the question of whether the Government will permit the building of a third runway – a controversial proposal that saw Greenpeace protesters scale a plane at Heathrow last week.

When Matthews starts in April, he will face the latest review by the Civil Aviation Authority, which wants future financing to be in line with a number of targets, including cutting queue times. He will also have to contend with the early findings of the Competition Commission's inquiry into whether the BAA monopoly – it owns Heathrow, Gatwick and Stan-sted – should be broken up. Bankers say the commission may rule that BAA should sell at least one airport, possibly Gatwick. That could raise up to £5bn, which would also wipe out BAA's share of Ferrovial's £12bn debt.

Heathrow's Terminal 5 opens this month but is only the start of the modernisation of the whole airport, with Terminals 1 and 2 also in line for a makeover.

But the greatest problem confronting Matthews will be how to co-ordinate the sheer operational process of the airports, where there are so many people do such different things: 7,000 security workers run by BAA; the checking-in and baggage handling by the airlines themselves; and immigration, which is government controlled.

Security is the thorniest issue, though. Even Sir Nigel doesn't like the idea of 70-year-old ladies being asked to take their shoes off for scanning, but he acknowledges that high security is paramount. As one source comments: "Can you imagine if BAA cut the screening, to reduce the waiting time, and then there was an accident? There would be a roar of disapproval. We can't win but new technologies will help us."

As a behind-the-scenes fixer, Sir John Parker, who recruited Matthews for Lattice, believes BAA now has the right people in place to meet these challenges. He says: "Colin is brilliant, incredibly modest and without ego. He is a strategic thinker, knows how to deal with regulators and government.

"But he also understands what airlines and their passengers want too, and this is the fundamental issue at Heathrow, which needs modernising. Colin and Nigel will make a formidable team. If anyone can sort out BAA's problems for the passengers and its shareholders, then it is those two. Rudd has made a good choice."

Trained as an accountant, Sir Nigel built up one of the UK's biggest companies in Williams Holdings, the industrial conglomerate. He went on to run Boots, glass giant Pilkington and fire-safety products maker Kidde, sorting out their problems by bringing in new management and better controls, and then selling the business. But BAA, already owned by the Spanish, who have so far given him total support, is different and he has put his reputation on the line by going ahead with last week's cull and other management changes once the new chief is on board. If Matthews fails, Sir Nigel is old-fashioned enough to know he will walk too.