BAA is flying by the seat of its pants By Mark Kleinman Last Updated: 12:09am GMT 02/03/2008
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Is BAA about to become the next Northern Rock of this Labour Government? The sparkling £4.2bn construct that is Heathrow's Terminal 5 is made of steel, not Granite, so as it prepares to open next month, it hardly seems plausible that the heart of Britain's transport infrastructure is about to be imperilled.
Macquarie readies take-off for BAA airports But as the Spanish owner of Britain's most vital arteries edges closer to the financial precipice, there are very real reasons why the Department for Transport should be paying them special attention. "The world's busiest airport" used to be a badge of honour for Heathrow. Now, it is a reflection of all that is anachronistic and decaying about the place. Last week's removal of Stephen Nelson as chief executive of BAA is likely to prove a necessary step in what has become an urgent overhaul. His successor, Colin Matthews, possesses different, and largely more relevant, experience in dealing with the regulatory obstacles that lie in BAA's flight-path.
advertisementFirst up, the Civil Aviation Authority pricing review, due in two weeks, which is likely to scupper Ferrovial's hopes for a generous settlement.
Even if the CAA leans towards a verdict which is more satisfactory to the Spanish, the bald fact remains that BAA needs about £1bn a year in capital spending during the next five years to deliver an airport that Britain can be genuinely proud of.
Sir Nigel Rudd, the previous occupant of meaty roles at Williams, Pilkington and Boots, did not take on the chairmanship of BAA to be associated with a large and embarrassing corporate failure. Rudd was away this weekend and not available to talk about the week's events but friends of his tell me of his confidence that the refinancing can be secured in good time.
"He didn't take on the job only for BAA to go to the wall," one friend told me last night.
Be that as it may, refinancing £9bn of debt in these markets is a big ask. Some creativity - and some luck - will need to be Rudd's flying companions in the months ahead.
Utilities or utilitarianism
Gas and electricity bosses told 'give back profits' Officialdom is having a field day all over the place at the moment. As we reveal today, the bosses of Britain's utilities are being hauled into Downing Street to be told that they will be slapped with a windfall tax unless they agree to support a new fuel poverty scheme for Britain's poorest households.
The aims are laudable - rising fuel prices mean that many families are struggling to cope. At the same time, as I pointed out last week, the margins in the residential supply business are wafer-thin. The Government would do as well to listen this week as to talk.
ITV must make the grade
Michael Grade was laid up in bed with a temperature of 102 on Friday when I was due to see him to talk through last week's overhaul of his senior management team at ITV.
Out went Simon Shaps, the director of television, and in came Peter Fincham, the man who fell on his sword over the BBC's "Tiaragate" scandal last year. Grade's contract as executive chairman was extended for a year "at the unanimous request" of the ITV board.
The response of the share price? It promptly slumped to a record low. That seemed harsh, but this week, Grade will - flu permitting - present his second set of full-year results to the City. It's unclear which of them will look more sickly. That ITV seems to be locked in a state of managing decline is unfortunate for Grade, but not a situation for which he can shoulder much of the blame.
ITV's woes, though, contain broader significance. For Britain's consumer goods advertisers, and for the broader media ecology, an unhealthy ITV is bad news. They need Grade and the company to haul themselves from their sick-bed.
Just for starters
The big guns came to Europe last week - Steve Schwarzman, the co-founder and head of Blackstone, turned up in London after the week's big private-equity conference in Munich. If his industry needs to be engaged in a charm offensive, Schwarzman's the man to front it.
Over dinner on Thursday night, he was engaging, intelligent and surprisingly self-deprecating. It wasn't hard to see how he persuaded the Chinese government to take a stake in Blackstone ahead of last year's flotation in New York.
The evening's conversation was, unfortunately, off-the-record, since it provided a fascinating insight into the life and outlook of one of the world's most important businessmen. I do feel able, though, to pass on some of Schwarzman's sentiments about the future of the buyout industry that has swallowed up so many significant corporate names in recent years. As my colleague, Louise Armitstead describes, the titans of the private-equity industry are facing an acute problem: how to deploy the tsunami of capital they have accumulated during their fundraising binge of the past five years.
For Blackstone this represents less of an issue than for many of its peers: advisory boutique, hedge fund, real estate acquirer, distressed debt investor, Schwarzman's firm is the conglomerate of the private-equity world. As a result, he's bullish about the adaptability of his firm in difficult markets and sceptical about the potential for sovereign wealth funds to become the new lenders of choice for him and his competitors.
Schwarzman has become known beyond Wall Street almost as much for his extravagant birthday celebrations as the companies he owns. Last year's bash - complete with a performance by Rod Stewart - was followed this time around by a more sedate family affair at Manhattan's Four Seasons. In these markets, observing how Schwarzman spends his 62nd in 2009 might be the best guide to the mood of the global economy.
Banks backpedal
As enthusiasts of the Tour de France know, a peloton is the pack of cyclists who stick tightly together to reduce wind resistance during a race. Last week's collapse of Peloton, the London-based hedge fund, should shake the global hedge fund pack too. The fund's investments in the shattered mortgage markets might have made it the obvious first British victim, despite the fund's impressive track record.
But the real bullet was the lack of bank lending to which all funds are exposed.
Banks have so far kept the lending lines open for hedge funds - apart from anything else, the fast-trading managers generate crucial revenue for the banks. And the funds have needed it more than ever - many have been caught out by the extreme volatility of the past two months, as our story today on Focus Capital suggests. But now the banks have changed position.
As Peloton's Ron Beller last week told his investors: credit providers have cut financing "without regard to [funds'] creditworthiness or track record". Elsewhere, managers said their prime brokers, usually only too eager to fall over their favourite clients, are now playing hardball.
Some hedge funds were last week asked to stump up double the collateral to secure financing, particularly on heavily shorted stocks such as Bradford & Bingley. The new stringency reveals another pitfall of the credit crisis which even the cleverest market players will need all their wits to avoid.
mark.kleinman@telegraph.co.uk
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