BAA responds to CAA policy issues consultation paper with proposals to lighten the burden of regulation

30 March 2006, BAA’s response to the Civil Aviation Authority (CAA) Policy Issues Consultation Paper is published today by the CAA, along with other industry responses.

This is the first stage in a five-yearly process examining the future regulatory environment for BAA’s London airports. It will be completed in early 2008. Much of BAA’s response is therefore devoted to ensuring that the CAA is aware from the outset of BAA’s views on the correct criteria and analysis for undertaking the review. BAA supports the CAA’s intention to pursue an evolutionary approach to regulation in this period.

The principle elements of BAA’s response, which can be viewed in full on our website www.baa.com/investor and on the CAA website www.caaerg.co.uk, are:

• Support for the Government’s White Paper, with its detailed plans for much-needed airport capacity in the South East of England. BAA encourages the CAA to take the White Paper framework as the basis for its review.

• Support for early investment in airport capacity and for investment to achieve the continuing transformation of Heathrow Airport. BAA believes the CAA’s duty to encourage investment is best met by creating incentives for early delivery of capacity, to enhance competition between airlines and provide travellers with more choice, better service and lower air fares.

• Moving on from the debate between system and standalone regulation of BAA’s London airports to focus upon the key issue of identifying which regulatory framework best facilitates the timely investment envisaged in the White Paper. In this context BAA suggests that the CAA considers introducing a dual till approach for Stansted, as a means of incentivising investment in a second runway.

• Supporting the CAA’s evolutionary approach to change in developing price regulation. This is necessary to achieve the consistency vital to investor confidence, and should be coupled with a determination to lighten the burden of regulation wherever possible, in the interests of incentivising innovation and efficiency at BAA’s regulated airports.

• Removal of regulation where markets are now competitive. BAA is asking the CAA to consider removing those activities from the regulatory domain that are already subject to significant competition, namely advertising, long-term car parking and bureaux de change.

Mike Clasper, BAA Chief Executive Officer, said:
“While these are the early days of the review process, BAA believes the priority should be to lighten the regulatory burden wherever possible and ensure sufficient and timely investment in airport capacity. This approach promises the best outcome for airlines and passengers in terms of competitive service and for BAA shareholders in terms of value.”

Conference call details
To support the publication of BAA’s formal response, we will be hosting an educational update for investors and analysts. It will be hosted by Mike Clasper (Chief Executive Officer), Mike Toms (Director of Regulatory Affairs) and Margaret Ewing (Chief Financial Officer) at 0800 on 30 March 2006.

Time: 0800 (British summer time)
Numbers: UK Freephone: 0800 073 8942
US Toll Free: 1866 776 2899
Standard International: +44 (0)1452 542 566

For those unavailable at the time of the call a replay facility will be available from midday (British summer time) on 30 March 2006 for 7 days. The details for this facility are:

Encore Replay Access Number: 7301297#
UK Free Phone Number: 0800 953 1533
US Toll Free Number: 1866 247 4222
Standard International Number: +44 (0)1452 55 00 00

If you intend to join the call, please dial in at least five minutes prior to the start time to allow the operator to register all participants in good time.

Notes to Editors:

BAA’s London airports
Under an Act of Parliament, our regulators the CAA and the Competition Commission reset price caps at our three London airports every five years (known as a quinquennium). The review covers two major aspects of our business:
• Annual increases in revenue from airport charges per passenger restricted to not more than the rate of inflation (Retail Price Index (RPI)) plus or minus x percentage points.
• Our conduct in relation to customers, business partners and suppliers is assessed at the same time. The regulator is required to ensure that the company continues to act in accordance with the public interest.

For further information on the price-regulation of BAA’s London airports visit www.baa.com/regulation

Certain statements made in this announcement are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results and performance to differ materially from any expected future results or performance, express or implied, by the forward looking statements. Factors that may cause forward looking statements to differ materially from actual results include, among other things, regulatory and economic factors. BAA assumes no responsibility to update any of the forward looking statements contained herein.

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