Business View: Give us a break-up to clip the wings of 'sacred' BAA

Why should a monopoly be saved from the attentions of predators? A Labour council is better at capitalism than a public company
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The Independent Online

The politician was confused. "The Government's got to do something," he said. "You can't let Villarreal take over BAA."

I had to point out that he meant Ferrovial, the Spanish construction giant, not the plucky football team that knocked Manchester United out of the Champions League. I then launched into the diatribe I routinely trot out when the letters B, A and A are mentioned in my presence - highlighting the 25-minute trek with heavy suitcases and small children from Heathrow Terminal 2 to the car park, and decrying everything from the cost of the Heathrow Express to the irritating design of the carpets.

But that's not fair, say BAA's defenders. The company is investing heavily at Heathrow and has plans to expand Stansted. This is a national treasure, a strategic asset.

Baloney. BAA is a monopoly. And it is a monopoly that was privatised as a monopoly. And, unlike the other monopolies floated by the old Tory government, no mechanism has ever been put in place to bring competition into the market. BAA owns the three main airports in the south-east of England, as well as the three main airports in Scotland. This gives it a stranglehold on the UK aviation market - particularly over intercontinental travel.

Being a monopoly tends to stymie innovation. If you look to where the fresh ideas have been in British airports in recent years, you would see Luton (which thrived when owned by venture capitalists) and Manchester (which is owned by its local council, for heaven's sake). When a Labour council is better at capitalism than a public company, you have to wonder if something is wrong.

BAA survives as a monopoly because it has struck a Faustian pact with the Department for Transport. The DfT wants Stansted developed from being a nice little airport where you pick up your cheap flights to the Continent, into a proper hub where you get serious transatlantic traffic. To do this, you need a second runway. A second runway not only pisses off half of Essex and Suffolk but is wildly uneconomic unless BAA somehow cross-subsidises Stansted with revenues from Heathrow.

This is something that British Airways, the CBI, the trade unions and the European Commission don't really want to happen. But as there is no explicit state aid, BAA and the DfT can get away with it. The implicit state aid comes from not breaking up BAA and allowing more aggressive competition with its cash cow, Heathrow, which the company is starting to turn into an airport for the 21st century rather than the 1970s. A fifth terminal is under way and a revamped Terminal 2 will follow soon after. Meanwhile, the place is a glorified building site.

BAA wants to build another runway at Heathrow. The DfT would probably favour it, but it does not meet with Tony Blair's green agenda. When Gordon Brown is at Number 10, this may change, cementing Heathrow's position as the UK's, if not Europe's, pre-eminent airport.

Such a development would make it even less sensible to allow BAA to continue in its monopo- listic state. Ferrovial may not have the financial muscle to buy BAA, but it has powerful friends like Macquarie Bank. If its proposal is to break the group up then we need to redefine the national interest as competition - not covert collaboration.

What's left to sell?

Talking of privatisations, QinetiQ finally hit the market, floating at close to the top of the hoped-for valuation range and trading at a nice premium on its first day. With the extra £350m this adds to the Government's coffers, maybe the bad taste about how much money the managers and Carlyle Group have made will be put to bed.

The Defence Procurement minister, Lord Drayson, says QinetiQ is a "good model for future privatisations". What "future privatisations"? What's left in the Government's dusty cupboards to sell off? We should be told?