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News - 25 February 2006
Could be a costly business

Don’t borrow too much to buy a few airports

The Civil Aviation Authority (CAA) has warned potential bidders for BAA (and BAA itself) not to borrow to the hilt ahead of a possible takeover battle for the operator of Gatwick and Heathrow airports.

The CAA statement was issued in anticipation of a possible cash offer for BAA from Spanish construction group Ferrovial (see earlier story in knowledgebase). The CAA is concerned that highly leveraged bids by Ferrovial which, if successful, could leave BAA with an excessive debt burden. The CAA expressed equal concern about any expensive defence moves by BAA which would require excessive borrowing to ward off the Spanish group.

BAA has ambitious plans to modernise the UK’s ageing airport infrastructure, in particular in the highly congested south-east of England, including £7.1bn in the next seven years just on its three London airports. A highly leveraged takeover could undermine BAA’s ability to maintain its current high level of capital expenditure.

The CAA warned that it would set caps on airport charges to meet its statutory duties, which include the encouragement of investment in new facilities, and “not in order to accommodate any particular financing arrangements adopted”.

The CAA said that it was “particularly important” that airport operators should recognise the significant investment required to upgrade airports and provide more capacity. If servicing debt incurred in a takeover or defence reduces serious investment, the CAA will not look favourably upon the future operator of the south-east’s airports when it comes to negotiating landing fees and airport charges.

Meanwhile Ferrovial is rumoured to be on the brink of a partnership with Australian investment bank Macquarie to help to finance a £15bn hostile bid for BAA. The Australian firm already operates joint ventures with Ferrovial at Bristol and Sydney airports.

BAA is understood to have agreed financial backing from a Canadian fund management company and the stage looks set for something of a battle.

Read related items on:
British Airports Authority
Civil Aviation Authority

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