BAA's new chief executive Colin Matthews told to focus on Heathrow

Sir Nigel Rudd has told Colin Matthews, his new hand-picked chief executive of BAA, that his top priority at the embattled airport group should be to overhaul operations at Heathrow, infamous for crumbling infrastructure, delayed flights and lost bags.

Mr Matthews was named the new head of BAA yesterday after Stephen Nelson, who has led the company since July 2006, announced that he would resign at the end of next month. His departure will bring an end to a reign that has been racked by terrorist threats, fraught relations with the airport regulator, and public outrage at the state of the world's busiest airport.

BAA, which also operates Gatwick and Stansted airports, is facing a catalogue of challenges over the coming months, but it is understood that Sir Nigel has given orders that sorting out Heathrow is the top priority. Heathrow and Gatwick were recently found to have the most delays of all major European airports, while British Airways, which uses Heathrow as its hub, was found to lose more bags than any other airline.

Protesters scaled the walls of the Houses of Parliament yesterday – the last day of public consultation on the building of a third runway at Heathrow – to protest against its construction. Mr Mat-thews, who led a break-up of Hays before restructuring the water group Severn Trent, will take up what is one of the most challenging jobs in industry on 1 April. He will return from holiday in South Africa and begin informally working next week with Mr Nelson, who will stay on to oversee the opening of Terminal 5 at Heathrow.

Sir Nigel said yesterday that the inauguration of the new terminal next month, with a capacity to handle about 30 million passengers per year, would usher in a "new era" for air travel in Britain. It would provide some relief to the airport that was designed to handle 50 million passengers per year but today handles more than 68 million.

Sir Nigel was brought in as chairman by Ferrovial, BAA's Spanish owner, in September to help right the company hindered by a series of departures that left it with a predominantly Spanish executive team unfamiliar with the ways of Whitehall. He informed Mr Nelson, who has a background in retail, in December that he wanted to make a change. He presented Mr Matthews as his first option to Rafael del Pino, the head of Ferrovial who appointed Mr Nelson in July 2006 after his predecessor Mike Clas-per quit in the wake of the takeover.

Some had questioned whether Mr Nelson, who worked at J Sainsbury and Diageo before becoming retail director at BAA, had the pedigree necessary to run a sprawling regulated business that often clashed with Government regulators.

Mr Matthews is seen to have strong operational credentials, having also worked as technical director at British Airways. He will need to sort through a raft of issues. Principle among them is whether BAA will be able to refinance the £9bn debt mountain that Ferrovial loaded on the company to finance its takeover. The global credit crisis has already delayed the mammoth refinancing by six months. Further delays mean its interest bill will continue to rise.

The situation has led to speculation that BAA could be forced to sell an airport to balance its books. An inquiry by the Competition Commission could lead to the same conclusion. The Civil Aviation Authority will also hand down its final decision next month over BAA's allowed return on capital from its airports.

Queue of ex-managers grows

And the beat goes on. The sudden departure of Stephen Nelson from BAA is the latest in a stream of executive exits from the company since Ferrovial took it over in the summer of 2006. Indeed, if you put them single file, the queue of managers who have left BAA in the past 18 months is as long as any at a Heathrow security checkpoint.

When Ferrovial agreed to pay £10.3bn for London's monopoly airport operator, the Spanish construction group obviously thought there was more value to be extracted from it. In that context, a good clearing of the decks would have been normal. Instead, Ferrovial boss Rafael del Pino chose to stick with most of the team that was in place.

Rather than a wholesale change of the guard from the outset, the reality has been a steady trickle that has acted as a drain on morale. First to go was chief executive Mike Clasper. Then security chief Tony Ward gave his notice in July 2006; finance director Margaret Ewing bowed out three months later. Chairman Marcus Agius resigned in December 2006, followed seven months later by Tony Douglas, chief executive of Heathrow. Duncan Bonfield and Mark Mann, BAA's top PR men, quit in August, followed by chief operating officer Stephen Baxter. In Sir Nigel Rudd, the company has a strong chairman willing to act decisively to bring in new blood, something Mr del Pino declined to do two summers ago. He has been paying the price for that choice ever since.

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