Sir Michael Bishop: Quiet man of BMI has full-throttle air rage

When he's angry, the industry listens. And being forced to pay for British Airways' benefit makes him very angry indeed. Clayton Hirst gets an earful

The airline industry has got its fair share of big mouths. The slightest grievance will usually result in Ryanair's Michael O'Leary or Sir Richard Branson of Virgin Atlantic giving their two-penn'orth to whoever will listen. The problem is that the more these people cry wolf the less seriously people take their gripes. So don't turn the page when you read the latest charge sheet of "unholy alliances", "serious discrimination", "complacency" and "a fundamental injustice" in the industry. These words don't come from one of the industry's hotheads; they belong to Sir Michael Bishop, the quiet man of aviation.

The airline industry has got its fair share of big mouths. The slightest grievance will usually result in Ryanair's Michael O'Leary or Sir Richard Branson of Virgin Atlantic giving their two-penn'orth to whoever will listen. The problem is that the more these people cry wolf the less seriously people take their gripes. So don't turn the page when you read the latest charge sheet of "unholy alliances", "serious discrimination", "complacency" and "a fundamental injustice" in the industry. These words don't come from one of the industry's hotheads; they belong to Sir Michael Bishop, the quiet man of aviation.

The chairman and majority shareholder in BMI is angry. But he has his own inimitable way of raising the issues he believes are important to his airline and to the industry. He speaks softly, with no desk thumping or hand gesturing. And when this grandee of the British aviation speaks, people take notice. Sir Michael, 62, a believer in the free-market economy, who was one of Margaret Thatcher's favourite businessmen, has broken his silence over an issue he believes distorts competition.

He is aggrieved that BMI is being forced to pay for the £4bn construction of the fifth terminal at BAA's Heathrow airport even though it has no plans to use it. In fact, the biggest beneficiary of the new development will be British Airways.

"There is an unholy alliance between the Government, BAA and British Airways. People competing in the market are genuinely disadvantaged," Sir Michael says. "We are fundamentally opposed to the way BAA conducts its business. We think it is quite wrong that we should pay in advance for T5. We are seriously in dispute because we don't think BAA has a handle on T5's costs. It's going to be like the Scottish Parliament building. And we are also angry because BA will have the advantage of a completely new terminal for which we are paying."

Sir Michael admits that he is in an "acrimonious debate" with BAA. "We are five furlongs through a seven-furlong debate. We are getting near the point where we may well consider legal action."

This would see BMI challenging the Civil Aviation Authority's decision to allow BAA to raise landing charges. Sir Michael will argue that BAA's stranglehold on the construction of new airport facilities in the south-east of England should be broken: "Any new development could be put out to tender. There would be a queue of people at the door: Amec, Peel Holdings, Manchester Airport Group - I am sure they will be willing to prove they could do the job much cheaper than BAA."

The increase in BAA's landing charges comes at a bad time for BMI. The airlines are still recovering from the war on Iraq, the effects of the Sars virus, the economic downturn and the threat of terrorism. In March, BMI, which is the second biggest operator at Heathrow, announced a £9.8m loss - its third in as many years.

Sir Michael says that if it hadn't been for the outbreak of Sars, BMI would have made a profit. He is confident that, barring another unforeseen world event, BMI will make a profit this year. "For the first time in two years we are seeing tangible growth in our full-service business from Heathrow." Total passenger numbers will jump from 9.4 million last year to over 11 million this year, he predicts.

But plenty of people are prepared to speculate that BMI will be part of a larger airline by the time it reports its next set of figures. BMI broke off talks last year with Virgin Atlantic, which was desperate to get its hands on more slots at Heathrow. There has also been speculation that the German carrier Lufthansa, which owns 30 per cent of BMI, is interested in taking control.

Sir Michael admits industry consolidation is inevitable. He envisages that in three to four years, when Europe and America will have reached further agreement on Open Skies, the industry will go through a series of mergers. The end result will be two or three airline trading companies, based around the existing alliances, such as OneWorld. Carriers such as BA will become local brands of the larger companies.

In the meantime, Sir Michael says, he is in no hurry to do a deal with another airline, arguing that BMI's equity is rising: "Let me say one thing to get the balance right. There is an interesting change taking place in aviation. The aircraft makers are taking different views on the way the industry is going to develop in the future. Airbus believes that the hub airport is going to remain and aircraft will get larger. Boeing thinks that specialist aircraft are going to bypass the hubs and offer an improved service on a point-to-point basis. Virgin is one of the airlines that has gone for the hub idea. The key thing is that the aeroplanes have to be filled so the balance of power lies with the guy who can feed them. To be blunt: the advantage is in our court."

These upbeat comments come at the end of another turbulent few days for the airline industry. In the past week, BA's share price has been hammered over fears of rising fuel costs, and easyJet has warned of unsuitable pricing. But Sir Michael, who also owns the low-cost carrier BMIbaby, denies that anything is seriously wrong with the no-frills sector. Instead, he argues, the recent problems besetting easyJet and Ryanair are self-inflicted.

"Without wanting to sound too fatherly - this was bound to happen. The companies got over-enthusiastic about signing new orders for aeroplanes. They have fallen into the trap of expanding too quickly. I put this down to youthful exuberance. They have both taken advantage of the liberalised UK market. Now the market is mature, they have a problem. All their new aeroplanes are committed to countries [in particular, Germany and France] where the aviation instincts are not so liberal. I think that for two years you can write off any real progress."

BMIbaby was created in January 2002 and has become BMI's fastest-growing unit. It now accounts for nearly 30 per cent of BMI's business. With a new base established at Gatwick, it is expected to carry 3.5 million passengers this year, achieving the sort of growth that Sir Michael's rivals will struggle to match. But you won't see the chairman of BMI bragging about this. He believes that simply staying in the business is his biggest achievement to date. "There is a long string of people who have not succeeded. To have survived for so long is the exception rather than the rule, so I am happy to fight another day."

BIOGRAPHY

Born: 1942 in Bowdon, Cheshire.

Education: Mill Hill School, London.

Career

1963: Ran the baggage-handling business at Manchester Airport.

1969: General manager, British Midland Airways.

1972: Managing director, British Midland Airways.

1978 to present: Chairman and owner of a controlling stake in the business, later renamed BMI.

1987-2001: Deputy chairman, Airtours (now MyTravel).

1991-93: Deputy chairman, Channel 4.

1993-97: Chairman, Channel 4.

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