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Tuesday 05 June, 2001

Civil Aviation Auth.

Airport Quinquennial Review.

Civil Aviation Authority
5 June 2001

News Release

05 June 2001


A position paper covering issues surrounding the setting of airport charge
controls to apply from April 2003 at Heathrow, Gatwick, Stansted and
Manchester Airports was published today by the Civil Aviation Authority.

Entitled Cost of Capital, it describes the CAA's initial thinking on the
issue. The cost of capital reflects the opportunity cost - the cost of passing
up one investment in favour of another - of funds for investment in airports.
If airport investments were expected to earn a return below their cost of
capital, investors would have superior options for their funds. It is a key
regulatory parameter. The document is available on the CAA website:

The discussion paper follows the publication of ten other documents since last
July. They are:

  * July 2000: Issues for the Airport Reviews - Consultation Paper
  * October 2000: The CAA Approach to Economic Regulation and Work Programme
    for the Airport Reviews
  * December 2000: The Use of Benchmarking in the Airport Reviews, Quality
    of Service Issues, and The Single Till and Dual Till Approach to the Price
    Regulation of Airports
  * January 2001: Economic Regulation and Capital Expenditure
  * February 2001: Direct Contracting Between Airports and Users: A Default
    Price Cap; Competitive Provision of Infrastructure and Facilities Within
    Airports; Economic Regulation and Incremental Costs
  * March 2001: Pricing Structures and Economic Regulation
  * May 2001: Practicalities of Implementing a Dual Till.

The CAA plans to refer the four airports to the Competition Commission in
January 2002 in order to set new conditions relating to airport charges for
the five years from April 2003.

Notes to Editors:

The CAA is required by the Airports Act 1986 to set limits on user charges at
designated airports every five years. The designated airports are Heathrow,
Gatwick, Stansted and Manchester. As part of the process the CAA is also
required to refer the airports to the Competition Commission.

The CAA last referred BAA's London Airports (Heathrow, Gatwick and Stansted)
to the Commission in December 1995 and in October 1996 set a price cap from 1
April 1997 to 31 March 2002. Manchester was referred a year later, in December
1996, and a price cap was set for the five years from 1 April 1998 to 31 March

In May 1999 the CAA extended the price cap for BAA's London Airports one year
to 31 March 2003 to allow it to take into account the Government's final
decision on BAA's planning application for Terminal 5 at Heathrow on the
assumption this would be published in late 2001. This means that the CAA will
review all four airports and refer them to the Commission at the same time.
New price caps will be set for the five years for each of the four airports
from 1 April 2003 to 31 March 2008.

The present charging formulae for Heathrow and Gatwick taken together is RPI-3
per cent and for Stansted, RPI+1. For Manchester it is currently RPI-5 per


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