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BAA could be made bankrupt if forced sell-off becomes fire sale

BAA, the airports operator, could be pushed into bankruptcy or even be renationalised if its enforced disposal of Gatwick and Stansted becomes a fire sale.

The small print in BAA’s debt financing contracts stipulates that no asset can be sold for less than 85 per cent of its regulated value. With the price of all assets collapsing and potential buyers struggling to raise financing, there is a concern that bids for BAA’s airports will be much lower than the company had hoped.

This could breach BAA’s banking covenants and allow lenders to call in their debts, potentially pushing BAA into bankruptcy.

The Competition Commission said last week that BAA must sell Gatwick, Stansted and either Glasgow or Edinburgh within the next two years. Gatwick is already for sale and BAA is confident that it will fetch at least £1.6 billion, which is the airport’s regulated value.

However, the three remaining bidders for the airport are understood to be looking at considerably lower offers. If BAA were forced to accept an offer below £1.36 billion, which is 85 per cent of the regulated value, its banking covenants would be breached and lenders could force BAA to repay some of its £12 billion debts.

If this scenario were to occur, the Government might have to step in and renationalise BAA to prevent the company’s remaining airports, including Heathrow, from going into administration.

This is considered the “nuclear option” and several bankers have told The Times that they expect the commission to give BAA more time to sell its airports to prevent any covenant breach.

BAA and the commission are to meet this week to discuss how the disposal of assets should be handled and whether the company will appeal against the ruling.

BAA said: “We expect the airports to sell for at least their regulated value so our covenants will not be an issue.”

The regulated asset base (RAB) price of Stansted is £1.3 billion while both Edinburgh and Glasgow are valued by BAA at about £800 million, but potential bidders for the airports have said that they expect them to sell for considerably less.

A number of bankers have said that they expect the Scottish airport that is sold to fetch between £350 million and £500 million, which would be significantly below the £680 million that is needed to meet BAA’s covenants.

Stansted has been valued by potential bidders at £1 billion, £100 million below the covenant threshold.

Stansted is likely to be particularly hard to sell because bidders are wary of doing business with Michael O’Leary, chief executive of Ryanair. The low-cost carrier accounts for 60 per cent of flights from the airport. Mr O’Leary is notoriously combative in negotiations with airports over their charges.

The Civil Aviation Authority will reveal today that the economic downturn has been good for airline reliability, if not their profits. A decline in traffic at UK airports led to greater punctuality between October and December. On-time performance, defined as early to 15 minutes late, at Britain’s ten biggest airports rose by eight percentage points to 77 per cent, against the same period in 2007. Heathrow’s on-time performance rose 13 points to 73 per cent.

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