Civil Aviation Auth.

BAA London Airports Report

Civil Aviation Authority
31 March 2000


The Civil Aviation Authority today published a report on the BAA London airports
- Heathrow, Gatwick and Stansted - which describes and comments on developments
since the CAA's last report in July 1998.

Entitled BAA London Airports: A Regulatory Report*, it deals with the same
issues raised at the last statutory review of the airports by the then
Monopolies and Mergers Commission and the CAA in 1996 and on which the CAA said
it would be reporting subsequently.

These are: the airports' actual capital expenditure in 1997/98-1998/99 and their
proposed expenditure over the next ten years; the progress made on introducing
Service Level Agreements (SLAs) at the three airports; the amount of income
earned at the airports in 1997/98 and 1998/99 from airport charges through the
application of a price cap of RPI-3 rather than RPI-8; how rents for certain
properties at Heathrow have moved against an agreed formula; and income from
rents at the three airports in 1997/98 and 1998/99 compared with the forecasts
presented at the last review.

The main finding of today's report are:

-   BAA's capital expenditure in the first two years of the current price
    control period was 4 - 8 per cent lower than anticipated at the last review 
   (12 - 17 per cent higher in 1997/98 but 23 - 28 per cent lower in 1998/99);

-   On the basis of BAA's latest capital programme, expenditure over the
    five year period to 2001/02 is expected to be 15 - 17 per cent lower than
    forecast at the last review;

-   The differences in expenditure can be explained largely by delays in
    the planning decision on Terminal 5 at Heathrow;

-   The ten-year investment programme (1997/98-2006/07) is now projected to
    be 7 per cent higher than at the last review;

-   SLAs have led to some improvement in service quality although airlines
    using the airports and passenger representatives thought that there
    could be improvements in the specification, measurement and range of
    facilities covered;
-   There is scope for improvement in consultation between the airports
    and  their customers on service quality;
-   The CAA can see a case for a thorough consideration of financial
    incentives within SLAs. It will be returning to this subject as an          
   important part of its consideration of service standards more generally in   
  preparation for the next full review;

-   The cumulative advancement of revenue over the two years at Heathrow
    and Gatwick, being the difference between an RPI-3 and an RPI-8 price
    cap, was £53.04 million;
-   At Heathrow, there was no guide price property whose change in rents
    from 1 April 1999 was outside the agreed range;
-   Overall rental income at the three airports was 6.5 per cent above the
    forecasts in 1997/98 and 13 per cent higher in 1998/99.

As part of its work programme leading up to the next periodic review of the
airports, the CAA intends to publish a further report in Spring 2001 on the
performance of the airports.

For further information contact Chris Mason on: 020 7453 6026. 

* Copies of the  full report are available on the CAA's website (

Note to editors:

The BAA London airports (Heathrow, Gatwick and Stansted) and Manchester Airport
are subject to review every five years for the setting of a price cap formula
regulating the charges imposed on airlines. Currently, this is made after
reference to the Competition Commission (formerly the Monopolies and Mergers
Commission, MMC) which advises on the level of charges for the next  five years.
The price cap takes the standard form for UK regulation of RPI-X
per cent, where charges are allowed to rise by no more than an amount below
the rate of inflation.

At the time of the announcement of the new price cap formula, in 1996, the
CAA said it intended to publish an annual regulatory review of BAA's
activities at the three airports.

In May 1999, the CAA announced its decision to extend into a sixth year the
price formulae for the BAA's three London airports because of the possible
timing of the Government's final decision on BAA's planning application to
build Terminal Five at Heathrow.