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AIRPORT SNARL IN LONDON PUTS SCRUTINY ON OWNER

By HEATHER TIMMONS

By special arrangement with Observer News

Copyright Observer News  

August 13, 2006 

LONDON 

With airlines here canceling about a third of their flights on Sunday, asking for troops to be posted in airport terminals and saying that they could not process passengers quickly enough because of stringent security requirements imposed last week, many critical fingers were pointed at BAA, the private company that runs the country’s main airports.

As hundreds of travelers stood in the rain for hours at Heathrow Airport outside London, waiting for information about whether they could fly, airline executives complained that the new procedures seemed to be bringing the air travel system to near collapse, and they placed the blame squarely on BAA.

The company, which owns seven British airports as well as ones in Budapest, Hungary, and Naples, Italy, had been a public company traded in London until June, when it was purchased by a Spanish conglomerate, Grupo Ferrovial, whose roots are in the construction business.

On Sunday, British Airways’ chief executive, Willie Walsh, declared: ‘‘BAA is unable to provide a robust security search process and baggage operation at London Heathrow. We are being forced to cancel flights and operate some others from Heathrow without all the passengers on board.’’

The situation raised new questions about the rapidly changing ownership of the world’s airports. Once universally controlled by local governments, airports are now going into private ownership at a rapid clip, and are becoming hotly pursued as assets for large companies and private equity funds, which raise large amounts of risk capital from wealthy investors and institutions to buy and sell companies.

The trend has been most pronounced in Europe and Asia, but it is starting to affect the United States, where the government in Chicago has been considering taking Midway Airport private, though no final decision has been made. BAA has managed the Indianapolis airport since 1995, though it is owned by a local government corporation.

BAA balks at the notion that it is not able to handle the new increased security measures because it is a private company. ‘‘Ownership is irrelevant,’’ a spokesman, Duncan Bonfield, said. ‘‘Security is always the No. 1 issue for any company in the aviation industry. You just can’t afford to get it wrong.’’

The company is being asked to search four times as many passengers as usual, Bonfield said, which is a ‘‘phenomenal and onerous’’ amount of work. He said that BAA was the first airline operator to introduce screening of checked baggage, even though it was a private company.

On Sunday, BAA set up a large white tent at the airport terminals at Heathrow, and passengers were asked to wait under the tents until their flights were announced. BAA workers served tea and coffee and handed out plastic raincoats. Many passengers sat on their luggage or passed the time reading, and most seemed resigned rather than angry about the situation.

"We were well aware of the delay because we called ahead to the airline,’’ said Alan Main, 48, an information technology manager from Inverness, Scotland, who was trying to fly home. He stood under the BAA tent in one of the free blue raincoats. ‘‘We’ve heard some people complaining, but really, what planet were they on? Did they not see the television? The organization here has been fine, but we wouldn’t want to do this every week.’’

Wimpee Kumaria, 29, an assistant manager from New Delhi who was checking in at Heathrow, said that her flight had been delayed but that her concern was for her personal property. ‘‘I don’t care if the company is Spanish or British, as long as my laptop survives,’’ she said.

BAA is being criticized for other reasons besides delays and baggage mishaps. One of the 24 people arrested last week was Amin Asmin Tariq, a BAA employee and Heathrow security guard. BAA had no comment on his arrest. Employees of the company in sensitive jobs like security are screened by the British Department of Transport.

The problems at BAA are not likely to help the proponents of airport privatization. ‘‘The airport’s baggage system cannot process all of the passengers’ bags,’’ Walsh of British Airways contended, ‘‘and where passengers have been able to check their bags in, the lengthy queues in the airport security search area means that passengers are unable to get to the departure gate in time for their flight.’’

BAA was purchased for $19 billion by the Spanish company, which will soon handle security at the airports it controls — including Heathrow, Gatwick, Stansted, Glasgow, Edinburgh, Aberdeen and Southampton. BAA narrowly missed being taken over by the private equity unit of the investment bank Goldman Sachs, a group that commonly streamlines businesses and cuts costs to maximize profits.

BAA was taken public on the stock market in 1987 as part of an effort led by Margaret Thatcher, then the prime minister, to privatize assets held by the British government. The company’s stock value grew slightly in recent years, but before the takeover battle it still traded below highs reached in 2002.

Which provides better airport security, a local government or a for-profit company, ‘‘is a question that needs to be asked,’’ said David Bentley, regional director of the Center for Asia Pacific Aviation.

The answer is not a simple one. By some measures, airport security in the United States has not improved since the federal government took over security measures in the aftermath of the September 2001 attacks.

Governments have been turning airports over to private ownership since the 1990s, but the idea has recently gained in popularity. Airport privatization is a boon for many of the parties involved. Investment banks reap fees for advising on takeover deals, while governments get cash that can be used for other programs. Investors in publicly traded airports include some of the largest fund companies in the world. Airports are also attracting a growing number of international companies, which are buying infrastructure like roads and ports.

When all is running smoothly, airports make an attractive investment for these companies and funds; they generate a relatively predictable stream of revenue, thanks to easily estimated passenger traffic. The addition of better restaurants, coffee bars and shops has been lifting profits still further.

The idea is gathering steam in other regions. Fraport, which runs airports from Frankfurt, Germany, to Lima, Peru, estimated in March that there were 350 airport privatizations in progress at the time. Governments in Russia, France and Japan, among others, are planning to take some of their largest airports private.

The Bush administration’s proposal to privatize some air traffic control jobs was met with strong opposition. U.S. airports contract out much of their operation to private companies, but security is handled by the Transportation Security Administration, a Homeland Security Department agency.

Some specialists on airports are pushing for change. ‘‘Four years of experience have taught that the U.S. government cannot do the job any better than the private sector,’’ wrote Robert W. Poole Jr. and James Jay Carafano, researchers who favor privatization, in a recent report for the Heritage Foundation, the conservative policy institute. ‘‘This should come as no surprise,’’ they said. ‘‘Virtually every other country that has used government screeners has reached the same conclusion.’’