David Prosser's Outlook: BAA manages to avoid a bumpy landing</B>

Hoping for a visit from Lady Luck; One more account closed at Egg

Wednesday 12 March 2008 01:00 GMT

Sir Nigel Rudd had a difficult job yesterday – in private, BAA's chairman must have been cock-a-hoop at the airport pricing settlement from the Civil Authority Aviation. In public, he had to maintain the demeanour of a man who believed he had been hard done by, if only to save the CAA some embarrassment.

The one figure to which Sir Nigel could cling in his efforts to hide his delight at the CAA settlement was the 6.2 per cent assumed for the cost of BAA's capital, which has not been increased since last year's preliminary assessment. Even this figure, however, is significantly higher than the airlines believe is justified.

As for those landing charges, BAA could not in its wildest dreams have expected the CAA to be so generous. In the space of just four months – since November's preliminary CAA assessment – the regulator has decided the maximum charges at Heathrow should be 7 per cent higher. The upwards adjustment on November's ruling at Gatwick is a whacking 11 per cent.

What has changed so much since that assessment? The CAA cites "new information, including responses to its consultation", but the only real detail it gives is on security costs, where the regulator now says it underestimated the additional pressures that BAA faces.

That's difficult to understand. There is no doubt that the security measures now required at Britain's airports are far more expensive than they used to be. But the picture has not changed markedly since November – we face no greater threat now than we did four months ago.

With the regulator providing such scant detail on the "new information" it has received, the CAA leaves itself open to the accusation that it has caved in to a sustained campaign from BAA for a more generous deal. The company dropped none-too-subtle hints about its intentions following November's CAA announcement, warning about rowing back on planned investments in Britain's crumbling airports.

The settlement will also be seen in the context of the world and his wife knowing full-well that BAA's owner, Ferrovial of Spain, is desperate to refinance the £9bn debt it took on when buying the airports operator two years ago.

To put the accusation to the CAA in the bluntest way possible, the regulator seems to be expecting BAA's customers – and, ultimately, passengers – to pick up the bill for Ferrovial's purchase of the company on tick. No wonder that the airlines are now considering a judicial review of the CAA's decision.

Ferrovial itself owes Sir Nigel a decent bonus. His tactics, employed at the end of the seemingly never-ending wrangling over this regulatory review, have been faultless. After two years of consultation, BAA swamped the CAA with a blitz of new data following November's announcement and, much to the airlines' fury, the scale of the paper mountain seems to have won the day.

This may not be BAA's last victory either. It is not alone in questioning the regulatory regime governing Britain's airports, set down more than 20 years ago. Why, for example, must it charge all airlines the same landing fees? At Heathrow, British Airways has taken possession of one of the world's most modern facilities in Terminal Five, while other airlines are stuck with the crumbling buildings elsewhere on the site. At Stansted, easyJet wants a much lower level of service than other carriers. Yet at each airport all users pay the same charges.

Still, one cloud remains on the horizon. The Competition Commission is investigating whether a break-up of BAA is necessary, with a ruling due later this year. Yesterday's CAA verdict, which contradicted the Commission's views on pricing, could hasten a break-up if it has angered the competition watchdog as much as it has enraged the airlines.

Hoping for a visit from Lady Luck

How Alistair Darling must wish for the sort of change in fortunes bestowed upon BAA yesterday. On the very day in October when the Competition Commission was unveiling its tough report on airport charging, Treasury officials were letting it be known that the Chancellor would cut his economic growth forecasts in the pre-Budget report a couple of days later. Five months on, just as BAA celebrates, Mr Darling may have to unveil even lower predictions in today's Budget proper.

The global economic outlook has darkened considerably since Mr Darling's autumn statement. The US, many now believe, has moved into full-blown recession, while both the Bank of England and the European Central Bank are struggling to cut interest rates in the face of rising inflation. Even China, which has been stepping in for the Americans as an engine of growth within the global economy, may be heading for a slowdown as the country tries to limit its own mounting inflation.

The Chancellor will, of course, make all these points as he explains why borrowing is increasing and growth is slowing. He'll also point out that Northern Rock is a one-off special event that shouldn't really be considered in the same light as other borrowing, as the debt accruing to the public sector following the bank's nationalisation smashes the Government's golden rule.

All this is true, of course, but it won't prevent Mr Darling copping a bashing from the opposition. Nor will the Chancellor be able to provide a convincing rebuttal to the criticism that his Government has not in the past put enough by for rainy days such as these. That failure is certainly not his fault, but he can hardly blame his predecessor at number 11 for such imprudence.

Where does such a tricky economic environment leave the rest of Mr Darling's Budget? Well, it requires him to be even more politically adept than Gordon Brown used to be. There'll be plenty of trumpeting of measures previously announced – particularly the lower rates of income tax and corporation tax announced last year by Mr Brown but which do not take effect until next month. And there'll be plenty of tax cuts, too (the Chancellor will naturally make less noise about the rises to pay for them).

We'll know exactly what form this tinkering will take later on today. What will take longer to discern, however, is whether this Budget marks the beginning of better times for Mr Darling, or the hastening of his demise.

Politicians, like the rest of us, need some luck from time to time. So far, this Chancellor hasn't had much of it. There are replacements waiting in the wings – notably Ed Balls, Mr Brown's protégé, and John Hutton, the Trade and Industry minister who has been carefully positioning himself as a friend of business. It may not be much longer before they get the chance.

One more account closed at Egg

So, farewell then Ian Kerr, the Citibank executive in charge of Egg. Mr Kerr's departure – he is resigning with immediate effect – is apparently nothing to do with Egg's rather unpopular decision to unilaterally close the accounts of more than 160,000 customers. Mr Kerr may not have a job to go to but that, Citibank says, should not be taken to mean he is paying the price for the backlash the company has suffered.

Egg's attempts to portray its move as responsible lending – it claimed to be closing the accounts of customers judged to be more risky – were undermined by scores of examples of borrowers being targeted despite having very respectable credit histories. Unkinder souls suggested the decision was more to do with a desire to get unprofitable customers off Citibank's books.

Now Mr Kerr will be off Citibank's books, too. Like the 161,000 victims of the accounts cull, he moved to the bank when Citibank bought Egg last May. He may now be in a better position to understand how those customers feel.

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