BAA Response to Conclusion of Competition Review.

Business Editors

LONDON--(BUSINESS WIRE)--Nov. 9, 2000

Commenting on the statement issued by the Government this morning, concluding that the Competition Review has been completed, Mike Hodgkinson, chief executive BAA plc said:

"BAA welcomes the announcement which represents a vote of confidence in our stewardship of London's airports. It removes an unnecessary uncertainty and allows us to get on with the job of investing to provide the quality airports Britain needs."

For information please find below the press release issued by the Department of Environment, Transport and Regions.

BAA TO KEEP LONDON AIRPORTS -- PASSENGERS TO BENEFIT SAYS PRESCOTT

Deputy Prime Minister John Prescott has decided that BAA should keep its three London airports (Heathrow, Gatwick and Stansted) following a review of airport competition. BAA, however, will continue to be subject to economic regulation.

The review also concluded that airlines should be allowed to trade airport take off and landing slots, and that newly created ones should be auctioned.

Publishing the results of the review, announced by the Chancellor in his March 1999 Budget, John Prescott said:

"The airport competition review was set up to protect the long term interests of the traveling public. I believe the conclusions reached by the review will do just that.

"New regulation for BAA will ensure it invests properly to help meet demand for air travel where this is appropriate, and improve the quality of services it offers. The review concluded that, due to the shortage of capacity in the southeast, the scope for competition between airports is limited. Industry and passengers would benefit more from modified regulation than from BAA being required to divest itself of one or more London airports.

"My officials will be working with the Civil Aviation Authority to develop a new regulatory regime for BAA as part of the five-yearly review of price capping at BAA's London and Manchester airports."

The Government and the CAA will develop modifications to the current regime to enhance incentives for timely investment and improved quality of service."

Mr. Prescott continued:

"We shall be telling the European Commission that Member States should be allowed, where they see fit, to implement schemes for auctioning newly created slots and for creating an open and transparent market for trading in slots between airlines. The duration of grandfather rights should also be reviewed.

"The establishment at the busiest airports of such a market will mean increased competition between airlines and better use of the available capacity. This can only benefit passengers. At present, the inability to obtain slots is inhibiting the development of new services, whether on new routes or in competition on existing ones."

NOTES TO EDITORS

Economic regulation

1. Under the Airports Act 1986, the Secretary of State may designate airports as ones where user charges will be capped. At present, Heathrow, Gatwick, Stansted and Manchester are subject to this control.

2. The cap is set by the CAA, after an investigation by the Competition Commission, for a five year period. The current cap at the BAA London airports is due for revision as of April 1, 2003. The CAA is preparing terms of reference for the Competition Commission. As part of this, it is consulting the industry on a series of papers about relevant issues. These include the fundamental question of whether the current regime gives the right signals and incentives to the operator. The Government will be making its views known to the CAA.

Slots

1. In order to operate at UK airports, airlines must be allocated take off and landing slots. Holding a slot means that airspace, runway space, aircraft parking space and terminal capacity for the passengers are all available. Slots must be managed for reasons of safety and efficient throughput.

2. At most UK airports, demand for slots is generally less than airport capacity, although there are pinch points at some times of the day. Slots at these airports are allocated by the airport scheduling committee, sometimes assisted by a co-ordinator. These allocations are not legally binding, but because airlines can usually be accommodated at or close to their preferred times, this is not as a rule a problem.

3. Slot allocation at congested airports is governed by EC Regulation 95/93. Where demand for slots exceeds supply, and there is no prospect in the short term of capacity enhancement to readdress the imbalance, Member States can designate an airport as fully co-ordinated, and appoint an independent co-ordinator. The task of the co-ordinator -- whose decisions are binding, but are liable to challenge in court -- is to allocate slots on a neutral, transparent and non-discriminatory basis.

4. The European Commission is currently reviewing 95/93, and has asked Member States for their views on what changes might be implemented. The UK is writing to the Commission setting out its case for the establishment of an open market in slots.

5. The fully co-ordinated airports in the UK are currently Heathrow, Gatwick, Manchester and Stansted. Co-ordination is undertaken at all of these by Airports Co-ordination Ltd (ACL).

6. The criteria for allocating slots derive from the EC Regulation, International Air Transport Association (IATA) guidelines and, at some airports, local rules agreed by a committee of the airlines that operate there.

Slot ownership

7. There is no conclusive case law in this area. As mentioned above, airlines have certain scheduling privileges with the slots that they hold, but the Government does not believe that this extends to any form of property right. Airports provide much of the infrastructure needed to operate a slot, and often claim that they therefore own the slot. They are not the only body involved, however, and the Government takes the view that slots should be viewed as a community good.

BAA ordinary shares trade on the London Stock Exchange; prices may be accessed on Bloomberg under the symbol BAA LN, on the Reuter Equities 2000 Service under BAA.L and on Quotron under BAANU.EU. BAA ADRs, each equal to one ordinary share, appear on the pink sheets under BAAPY. Additional information is available on BAA's home page: http://www.baa.co.uk.