BAA faces rise in cost of tunnelling collapse

RUSSELL HOTTEN

BAA, the UK airports operator, may face heavier costs over last year's collapse of a rail tunnel at Heathrow after ruling out legal action against Balfour Beatty. But Sir John Egan, BAA's chief executive, refused to say how much the delays in the construction of the Heathrow Express tunnel link would mean to the company.

Insurance payouts will not cover the extra costs and there had been suggestions that BAA might seek to recover money through the courts.

Asked if he would go to court over the matter, Sir John said there was "no conflict" between BAA and Balfour Beatty, the construction company building the rail link. "We are working together. It is a partnership," he said.

He said BAA might not know for another two to three years what additional costs it faced, while talks with the insurance companies are held.

Although building work on the tunnel has now resumed, the opening of the link has been delayed by about six months to mid-1998. He stressed that, even with the delay, the Heathrow Express was a "good profitable project".

There was "a good healthy gap" between the break-even cost of the Express and the return on the project BAA was expecting. The rail link, initially costed at pounds 300m, will take travellers between the airport and Paddington station in west London.

BAA, which yesterday reported a 10.9 per cent rise in half-year profits to pounds 294m, on revenues up 5.8 per cent to pounds 698m, expects the Eurostar train service to take away more passengers next year.

Although passenger defections to Eurostar so far had been smaller than expected - about 1.5 per cent against forecasts of 2-3 per cent - the amount of lost business will rise next year.

Russell Walls, finance director, said Eurotunnel was removing 125,000 passengers a month from BAA's airports. He estimated that BAA passenger growth for the first half of 5.8 per cent would rise to around 7 per cent without competition from Eurotunnel. The lost business was hitting the London-Paris route, with London-Brussels services hardly affected, Mr Walls said.

BAA, which is looking to expand overseas, said it would only enter into international deals if they produced better returns than the UK operations. Friday sees the launch of Australia Pacific Airports Corporation, a venture between BAA and investors in Australia, where the UK company is hoping to buy airports being privatised.

Investment Column, page 22