BAA spending takes off
Sunday 08 June 1997
Last year a record 98 million passengers passed through its airports, a rise of 4.6 per cent.
Stock market watchers expect the company to produce profits in a range between pounds 390m and pounds 408m. Last year, the company reported a 14 per cent rise in pre-tax profits to pounds 418m.
However, the company has already announced a pounds 53m charge to 1996-1997 profits, which accounts for the decline. BAA said it had decided to stop capitalising interest charges on the development of Heathrow Airport's new Terminal Five.
It said it was not appropriate until it had received planning permission and government approval for the project.
Terminal Five may also come in for questioning from analysts. BAA recently accepted that delays in the marathon inquiry, just entering its third year, will mean the new terminal is unlikely to be operational before 2005.
The impact will lead to further efforts to expand and maximise capacity at its other South-east airports, Gatwick and Stansted.
Despite delays to Terminal Five, the company is set to press ahead with capital investment. It is estimated that BAA will have spent more in infrastructure investment last year than it made in profits.
Over last year and the current year, it will spend over pounds 1bn in capital expenditure, and pounds 4.5bn over the next 10 years.
BAA's "Investing for Growth" message may pre-empt and deflect any expected criticism from the Deputy Prime Minister John Prescott, who piled in against Railtrack last week, accusing the company of obtaining taxpayers' money "under false pretences".
The investment slant will also be an indirect plea for lenient treatment under any windfall utility tax Labour passes in its 2 July Budget. BAA has stated consistently that it does not see itself as a utility. Chief executive Sir John Egan has commented: "No one has said we are under-regulated, sold at too low a price, or making excessive profits."
BAA believes it is not a monopoly, although most of its income is from regulated business. According to some calculations, BAA will have to pay pounds 100m of windfall tax if Labour is to raise pounds 3bn for its work-to-welfare scheme. The company has also come under attack, including from Richard Branson, for a monopoly-style business. Mr Branson wants to be given the opportunity to operate Terminal Five if the inquiry decides to give the project a green light.
Last year, an all-party House of Commons Select Committee on transport called for a five-year review to examine if BAA should remain in control of all three airports, or see Gatwick and Stansted operated separately. BAA says the argument is an old chestnut, with the subject heavily debated in 1987, and again in 1992 as part of its regulatory review.
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