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Tuesday 11 May, 2004

Civil Aviation Auth.

Airport Regulation Paper

Civil Aviation Authority
11 May 2004

News Release

11 May 2004


The Civil Aviation Authority (CAA) today issued a consultation paper which seeks
views from airports and their users on how to build and improve on the processes
established in the last airports' price review, and on the extent to which the
aviation industry itself can play a greater part in the regulatory process.

The paper, 'Airport regulation: looking to the future - learning from the past',
sets out:

•    the CAA's views on how regulation of the four designated airports
     (Heathrow, Gatwick, Stansted and Manchester) should evolve in the future;

•    the contributions the CAA can make to improving the regulatory
     process, drawing on experience from the last airports' price reviews;

•    the CAA's expectations about how greater engagement - and negotiation
     - between airlines and airports can enhance outcomes and contribute to more
     effective regulation.

The paper sets out the CAA's evaluation of its processes during the last
airports' reviews.  It draws on discussions with airlines and airports and
welcomes further comments from them and others on its findings. The paper
suggests a number of process improvements to reduce the regulatory load on
industry; to improve the CAA's own analysis, in particular of business issues;
and to enhance transparency through plainer speaking and drafting.

However, the CAA is only one party to the regulatory process.  Airports and
users also have important roles to play in ensuring that CAA regulation remains
proportionate and cost-effective by engaging as commercial parties on issues
where they are best placed to make decisions.  The CAA suggests changes to the
regulatory process to bring this about.  These build on the consultation
requirements set out in previous CAA decisions.

The CAA is required to continue to set price caps for the four designated
airports but  proposes that there should be prior engagement between the
airlines and airports (rather than separately with the regulator) on the key
dimensions of service, capital expenditure and operating expenditure with a
view, where possible, to reaching agreements to feed into the regulatory
process.  The aim is to ensure that the knowledge, operational experience and
commercial focus of the airlines are brought to bear more directly on those
issues where they can add the greatest value.

The CAA believes that the changes it proposes to the regulatory arrangements
recognise the particular circumstances of the aviation industry, which involves
much closer interaction between commercial parties than in many other regulated
industries.  Airlines should therefore be better placed than the regulator to
deal with many issues arising with airports provided the regulator ensures a
proper framework for discussion, appropriate transparency of information and
sets standards of communication and evidence for both sides.

There should be benefits to all parties from ensuring that the costs (direct and
indirect) of CAA economic regulation remain low; the focus of the airports
during the regulatory reviews remains (as at other times) on their customers;
and airlines are given greater opportunities to influence the infrastructure and
services so crucial to their businesses.  Passengers should benefit from a
well-functioning aviation sector.

The BAA review will require new price caps to be in place by April 2008, and the
CAA is considering whether the introduction of a new price cap for Manchester
Airport should be deferred by a year to April 2009.

CAA Chairman, Sir Roy McNulty, said: 'Only last week a House of Lords report
highlighted the value of consultation and review in ensuring that regulation is
both cost-effective and necessary.  That report's endorsement of regulation that
is a means to an end, and not an end in itself, is reflected in this CAA
consultation.  Our aim is to build and improve on processes established in the
last airports' reviews.  We look forward to the responses from airports,
airlines and passenger representatives, and believe this is an ideal opportunity
for us to work together to achieve better regulation.'

Dr Harry Bush, Group Director, Economic Regulation, said: 'Effective regulation
does not have to be about more regulation.  The CAA believes that there should
be more scope for commercial negotiation between airports and airlines.  The
first port of call for the airports should be their customers, rather than the
regulator; while airlines need to bring their commercial and practical
experience better to bear on the issues they jointly face with the airports.
The regulator's role remains crucial - but that does not have to mean the
regulator making all the decisions.'

The full document is available on the CAA Website in the '
Economic' section.

For further information contact the CAA press office on: 0207 453 6030.

Notes to Editors

1) The closing date for comments on the consultation document is Friday 13
August 2004.

2) The CAA will be holding a seminar at which it will discuss the matters raised
in the document.  The seminar will be held on Thursday 27 May 2004 at CAA House.

3) The CAA is responsible for economic regulation of BAA's London and Manchester
Airport, in accordance with its statutory duties.  The CAA published in February
and March 2003 the results of its Quinquennial Reviews of BAA's London airports
and of Manchester Airport up to March 2008.  The 2004/05 price caps are £7.08 at
Heathrow, £4.44 at Gatwick, £5.03 at Stansted and £6.36 at Manchester.     For
Heathrow the maximum increase per annum is set at RPI plus 6.5 per cent; for
Gatwick and Stansted at RPI; and for Manchester at RPI - 5 per cent.

4) Charges at designated airports (currently Heathrow, Stansted, Gatwick and
Manchester) are set by the CAA as the independent economic regulator.  The CAA's
decisions are made under its Airports Act duties, which require the CAA:

(a)  to further the reasonable interests of users of airports within the United

(b) to promote the efficient, economic and profitable operation of such

(c)   to encourage investment in new facilities at airports in time to satisfy
anticipated demands by the users of such airports; and

(d)   to impose the minimum restrictions that are consistent with the
performance by the CAA of its functions under those sections.

5) The CAA is proposing to follow the timetable below for its next BAA price

•    Spring 2004 - CAA consults on framework for review

•    Autumn 2004 - CAA decides on framework for review

•    Winter 2004/05 - Summer 2006 -airports and airlines engagement on
     capital expenditure, operating expenditure and business planning for 

•    Spring 2006 - CAA consults on non-business planning issues

•    Summer 2006 - business plans submitted

•    Autumn 2006 - CAA consults on business planning issues

•    Winter 2006/07 - CAA makes references to Competition Commission

•    Summer 2007 - Competition Commission reports to the CAA

•    Autumn 2007 - CAA consults on price caps

•    Winter 2007/8 - CAA decides on price caps.

The CAA is considering deferring the review of Manchester Airport so that it
would be treated according to the same timetable, but with each stage in the
process taking place one year later.

                      This information is provided by RNS
            The company news service from the London Stock Exchange

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