Sterling's Caribbean dream may face Carnival ire

National Grid; Terminal Five
Click to follow

It's almost too good to be true. The world's number two and three in cruises are merging to form the global number one, thereby delivering $100m of cost savings and synergy benefits annually. They claim to have been talking on and off for 10 years, so it can hardly be described as a marriage made in haste, or indeed a panic reaction to 11 September, which further pole axed an industry already suffering.

For Lord Sterling, who leaves the bridge in a couple of months after an epic voyage of nearly 20 years, it makes the perfect swansong. The corporate financiers have neatly got round the problem that has beset many previous transatlantic mergers – flowback of shares from one jurisdiction to another – by opting for a dual-listed structure, and if you think that 37 per cent of the global cruise market might give the the competition authorities something to think about, worry not.

Geographically, there's not a lot of overlap. The lawyers have advised that Europe's normally obstructive competition regulators won't have any say in the matter, while in the US, they believe cruises will be categorised for competition purposes as just part of the wider holiday market, where the combine's market share won't be significant.

All of which rather ignores the position of Carnival, the present number one, and by common agreement a generally better run and more successful company than either P & O Princess Cruises or Royal Caribbean. Carnival was saying nothing yesterday, but it's a fair bet that it won't take kindly to being knocked off its perch. Again the lawyers have advised that there's nothing Carnival can do about it, since for the number one to bid for either the number two or three really would be a cause for concern, especially in Europe, where a combination of Carnival and P & O would create a dominant share of the cruise market.

Well, they may be correct, and after the recent appaling run of misjudgements over what the regulators will and won't allow in mergers and acquisitions, it's certainly about time the lawyers got something right. Nonetheless, Carnival's determination to prevent these two ageing lovebirds from sailing off into the sunset together is not be underestimated, and where there's a will, there may well be a way.

National Grid

One day the tale of how National Grid turned into a Brazil nut will surely become a textbook case of management hubris. The £290m write-down announced of the group's Latin American telecoms investments is just part of the story. Some £110m had already gone down the Amazon since 1999, when the Grid first got the telecoms bug down Rio way. This write-off brings the total cost of the Grid's Latin adventure to an astonishing £400m. Many a chief executive has lost his job for less.

The strategy seemed persuasive enough to begin with. Why not repeat the Grid's fabulous success with Energis, its long-distance UK telecoms business, by building a series of similar networks across South America? Energis had proved a goldmine, netting the Grid £2bn as it sold down its stake. Even today its residual holding is still worth £500m.

The Grid thought it could do the same 8,000 miles away. Unfortunately, it ignored one important fact. It created Energis virtually for free after some bright spark decided it might be a good idea to loop fibre optic around the Grid's existing electricity transmission network.

In Brazil it had to start from scratch. Worse, it found the terrain was not quite like the rolling English countryside and everytime its engineers put up a bit more of the network, the parakeets came along and ate it. By the time the service came to be launched, the customers didn't prove much more reliable either. The value of the calls made on the network was so small that it was actually uneconomic to bill customers individually.

But the biggest mistake of all was to wait until after the network had been built to try and raise the vendor finance from telecom equipment makers to repay the initial investment. When the telecom market collapsed, Nortel and Alcatel disappeared over the horizon. If the Grid cannot find a buyer, it may be forced to bite its lip and close the business down entirely. The Grid is not the first UK company to lose its shirt in South America and it probably won't be the last. But its experience shows once again that dull old utilities are best advised to stick to their knitting.

Terminal Five

If you were setting out to build the world's most prestigious and busiest international airport, one thing is for sure; you would not locate it at Heathrow, once a tiny hamlet to the west of London. When the airport was founded in 1946, the only terminal you would have found there was a tent. Today, 64m passengers a year pass through its concrete shopping malls and its two runways service around 460,000 flights annually. In terms of economic activity, jobs and square acreage the place is as big as many self respecting cities.

So it is no wonder the planning process has taken a record breaking eight and a half years to approve proposals for a fifth terminal. Advocates of the expansion have presented it as a matter of vital national importance. There are plenty of pretenders to Heathrow's position as Europe's premier hub – Paris, Frankfurt and Amsterdam, being only the most obvious – and if the airport is to retain its crown, together with all the economic wealth it brings to Britain, then it must have its fifth terminal.

For those who live beneath the airport's flight path, the arguments are a good deal less clear cut. As with all planning consents, it comes down to a battle between the forces of economic progress and those of local self interest and environmental protection. In order to sugar the pill, Stephen Byers, the Transport Secretary, has promised to cap the number of flights annually at 480,000, which is not many more than the airport presently handles and has naturally given rise to the question of why in that case do we need a Terminal Five at all.

When British Airports Authority originally filed its application all those years ago, it said the facility was needed to deal with expected growth of 30 million passengers a year. Since then, virtually all that growth has been accommodated within the existing four terminals leaving BAA sheepishly to fall back on the argument that a fifth terminal is needed for the further purpose of improving the quality of service.

Opponents fear that it's all just a staging post for the eventual aim of a third runway at Heathrow, which would plainly enormously expand the number of flights in and out of the airport each day and would make the public inquiry over Terminal Five look like a stroll through the park by comparison. By capping flights at 480,000 a year, Mr Byers appeared yesterday to rule out any question of a third runway, but nobody expects him to be around much longer as Transport Secretary, so it's not clear what the promise is worth. In any case, the issue of a third runway is not going to go away and once Terminal Five is up and running, with all its associated transport infrastructure – scheduled for 2007 – the case in favour may be hard to resist. Heathrow is an absurd place to have an international airport, but there's not a lot that can be done about it now.