Britain's airports regulator fired the clearest warning shot yet over the bows of Ferrovial, the Spanish company leading a hostile bid for BAA, by stressing that it would not be allowed to raise charges to airline customers to recoup the costs of a takeover.
The Civil Aviation Authority issued a lengthy document spelling out how it planned to protect users from higher prices or unjustified delays in airport investment should BAA be acquired by the Ferrovial consortium or chose to hand cash back to shareholders itself to fend off a bid.
The regulator warned two months ago that it would be concerned about any highly leveraged takeover undermining BAA's ability to finance its £9.5bn investment programme, most of which will be spent on its three south-east airports, Heathrow, Gatwick and Stansted. But yesterday's document is more specific in ruling out any increase in landing charges in the five years from 2008 to help pay for the higher financing costs that may result from BAA having bigger debts.
Commenting on the bid battle surrounding BAA, Harry Bush, the CAA's director of economic regulation, said: "The CAA has made it clear that it will not accommodate in price-control decisions the costs and risks arising from any financial transactions entered into as a result of that bidding process.
"These will be for owners and financiers of BAA - present or future - to bear. In this way, the CAA aims to protect airlines' and passengers' interests in reasonable prices, good quality and timely investment."
Ferrovial, which has joined forces with GIC of Singapore and CDP of Canada in an £8.8bn bid for BAA, is proposing to raise £6.6bn of debt to help finance the takeover. Together with BAA's own borrowings, this could increase its debt levels to £13bn by 2008, leaving the company with a debt-to-equity gearing of more than 300 per cent.
The CAA document says that while higher debt levels could lead to more efficient financing of BAA, it could also mean higher interest charges, reduced cash flow to fund investment and a deterioration in the company's credit rating, making it more difficult and expensive to raise new finance.
Ferrovial and is partners sought to minimise the significance of the regulator's intervention. The consortium said it had engaged in "an open and constructive dialogue" with the CAA and remained confident that it could it could "deliver a flexible, cost effective and robust financing structure" that would ensure the required level of investment was made in BAA consistent with the regulator's objectives.
British Airways, BAA's biggest customer at Heathrow, welcomed the regulator's pledge to protect airlines from being overcharged.
Willie Walsh, BA's chief executive, said that both BAA and the bidders seemed to be expecting a generous outcome from the review of charges. "We are pleased that the CAA has said they should not make such assumptions and that the costs and risks associated with the bids will not be paid for by the new charges regime."Reuse content