Profile: Ground control charts way for airport boss: Sir John Egan - BAA's chief executive talks to William Kay about his company's retailing success and plans for expansion

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The Independent Online
SIR JOHN EGAN was in the happy position last week of having to play down enthusiasm for shares in the company he runs, BAA, the former British Airports Authority.

The cause of excitement and concern was the revelation that BAA is now making more money from retailing than from its core business of running seven airports in this country, including Heathrow, Gatwick, Stansted, Glasgow and Edinburgh.

City analysts invariably get an attack of the vapours over such a trend. Greed at the possible extra profits wrestles with fear that the company may join the long list of businesses that have been felled by over-enthusiastic diversifications.

'Most people seem pretty frightened about us going abroad,' Sir John admitted as he gazed out at the jungle-like atrium in the middle of BAA's head office behind London's Victoria Station, 'But I want to stress that we are being very, very prudent indeed. We will do some consultancy for a couple of years before we invest big money.'

It has long been visible to the airborne classes that Sir John has been working hard to upgrade BAA's airport terminal shops since he took over as chief executive in 1990. Boutiques on concourses have sprouted like rice in a paddy field, making it quite a trek to get through the glitz to the planes.

But that, in today's commercial climate, is fair game. Indeed, BAA has been easily the most successful privatised company at squeezing profits from unregulated activities on otherwise idle space. Expansion had to be away from the core airport business - it already had 70 per cent of that market in the UK and the authorities would have frowned on more.

The stakes were raised last year, however, when BAA won the contract to manage a 105-outlet AirMall at Greater Pittsburgh International Airport in Pennsylvania.

Sir John admits that the company is talking to no fewer than 30 airports around the world, all interested in tapping into BAA's expertise. Alarmingly, the first example that was plucked from the files was Fumicino airport, Rome. (In business terms, Italy is usually regarded as a minefield.) China, too, has been mooted.

Not, perhaps, ideal nurseries for a fledgling operation.

'We are only interested in investing relatively small sums in foreign airports until we understand them well,' said Sir John. 'We are aware there can be big political problems associated with state-run airports. Rome is not necessarily the top of the list.'

But Sir John also wants to take BAA's skills off-airport. After retiring defeated from hotels (it leased its hotels to Forte and Hilton shortly before Sir John arrived at BAA), it has entered into a joint venture with the US-based McArthur Glen Realty to develop and operate what it calls 'designer label outlet malls' in the UK and continental Europe. These will let manufacturers sell direct to the public.

'Outlet malls might be the thing to replace our duty-free business, when it is abolished in 1998,' Sir John mused. 'And our property side is used to building shopping centres.'

City analysts are certainly convinced. 'BAA has proven expertise in managing retail developments,' said Peter Bergius, at Kleinwort Benson Securities. 'And I expect one or two more to be announced in the next 12 months. They have had a reasonably cautious attitude to life. Egan is the marketing man, but beneath him is a less ebullient management team.'

Indeed, Sir John's career has turned on his ability to put the pzazz into tired companies. When he took over as chief executive at BAA, the group was still struggling to shrug off its nationalised industry image and was facing a draconian review by the Civil Aviation Authority of the prices it could charge airlines for landing.

Commentators were convinced he had picked the wrong horse. But he saw hidden attractions.

'I thought that BAA was doing a better job than it was actually getting credit for when I joined,' he said. 'It was a challenge I thought I could do something about.' In other words, it was a bandwagon worth joining.

He had faced an even tougher task in 1980, when he was summoned by the no-nonsense Sir Michael Edwardes to see if he could breathe life in Jaguar, then part of the ailing British Leyland.

'Jaguar was all too complicated,' Sir John recalled. 'If I had known more about the company when I arrived, I would have known it could not have been done. But I had a lot of fun finding this out.'

He presided over its privatisation four years later and rode the pound's decline against the dollar to pump up Jaguar's profits, making it a fashionable car to be seen driving in Beverly Hills. 'I am a straightforward capitalist businessman,' he boasted on leaving Jaguar after it was taken over by Ford in 1990.

He was true to his word. He personally made pounds 2m from the deal, having persuaded Ford to pay what is widely agreed to have been an inflated pounds 1.6bn for Jaguar.

Sir John stands to do just as well from BAA. Aside from his pounds 400,000-a-year salary and bonuses, he also has options on 293,000 shares, mostly exercisable at 384p a share. At Friday's price of 920p, he is sitting on a paper profit of pounds 1.5m.

As at Jaguar, he started with the textbook tactic of asking the customers what they wanted. Their main airport gripe was that they were being ripped off everywhere from money-changers to cafes. So he instigated his highly successful 'Fair Price' campaign.

Apart from cashing in on the retail side, Egan has cut the workforce by 2,000, to 8,000, and applied international benchmark targets to productivity throughout the group.

All this activity has taken its toll on the stockily built 54-year- old. Although he swims, plays squash and jogs, his close-cropped, curly grey hair has turned snowy white in the past three years. 'I don't recognise this person staring out at me from my photos these days,' he grumbled. 'As far as I'm concerned, I'm still 18 or 19.'

At that age he was in fact studying petroleum engineering at Imperial College, London. Born in Lancashire two months after war broke out in 1939, Sir John was brought up in Coventry, where his father sold Rootes cars.

His degree earned him a place in the sun, overseeing Shell oil wells in the Middle East. But that palled, so he took a master's degree in business administration at London Business School while he worked out what to do next.

A speech on the value of business graduates impressed the treasurer of General Motors sufficiently to recruit him for AC Delco, GM's spare parts firm in the UK.

'But I wanted to see what could be done about helping the British motor industry,' he explained. 'So after three years I joined British Leyland.' He did well, becoming managing director of BL's Unipart spares business. But he quit in 1976, after Lord Ryder published a controversial report on BL's future. However, Sir Michael Edwardes encouraged him to return to the fold and sort out Jaguar.

He was approached by four or five companies when Ford bought Jaguar, including National Power and British Rail. 'I did not want to run a subsidiary of a large company,' he said, 'because that would have been a problem for me. I want the independence of action I have grown used to.'

That suggests Sir John is more hands-on about the foreign airport and off-airport retail plans than some believe. If they fail, he can move on unscathed to other projects. But if they prove the goldmines they promise to be, it will put the seal on his business reputation.

As it is, he is keen to maintain his record of avoiding the nastier pitfalls. Last year, he was letting it be known that he might be interested in taking over the management of British Rail's bigger stations, as part of the railway privatisation. But he has cannily cooled on the idea.

'The psychographics are not good,' he declared. 'The customer is not in a relaxed state of mind, and the dwell time is very low. Anyway, most of the London stations are Grade One listed and therefore difficult to convert.'

Leaving aside the psycho-jargon, Sir John makes no secret of his disdain for red tape. He has had plenty to wrestle with in his efforts to have a fifth terminal built at Heathrow, and a rail link from Heathrow to central London.

For the future, nothing is ruled out. To the suggestion that retailing is so different from running airports that it might eventually be worth demerging it, he replied: 'We will do whatever our shareholders decide is in their best interests.' There he goes, asking the customer again.

(Photograph omitted)