The Privatisation of BRITISH AIRWAYS

1
The Privatisation of BRITISH AIRWAYS

• Group 7
• Laura Carballo
• Thomas Charlier
• Jeff Clay
• Sherif El-Helw
• Sten Henrik Karlsson
• Dana Koren

2
Background

• In 1981, Thatcher appointed Lord King Chairman of
  BA in order to prepare BA for a potential
  privatisation in 3 years he turned BA around
  from severe financial distress into  the worlds
  most profitable airline 
• By 1984, BA was ready for Privatisation but the
  airline industry regulatory framework going
  forward needed to be agreed before the sale
• In this context the govt commissioned the Civil
  Aviation Authority (CAA) to review the airline
  industry. The CAA proposed the following
• To transfer some BA routes to the competition for
  free
• To open-up Heathrow to other airlines at the
  expense of BA
• To give CAA authority to continue to reallocate
  routes in the future
• Today September 1984 a few days before Nicolas
  Ridleys 13th September deadline regarding the
  CAA report

3
Your Honorable Mr Ridley

• We Fully Support the Govts Goals
• To move away from government intervention towards
  a free market
• To increase competition in the airline industry
• To reduce BAs dependence on government funds
• To maximize proceeds to the government from the
  sale!

• BUT
• We do not believe that the CAA recommendations
  achieve these

4
Our Rationale

• The market is already competitive
• Domestically competition exists from 20 other UK
  carriers as well as from ground transportaion
• Internationally there is significant competition
  from non-UK giants
• The airline business is an international/global
  businessthe larger European/Global markets are
  therefore more relevant in defining the market
  place
• It is critical for BA to remain a competitive
  global player!
• The US has set a successful precedence
• An open market for trading landing slots was
  established
• Lending rights were not reallocated to new
  players
• The above led to many entrants and a competitive
  market with practically non existing economies of
  scale

5
Our Rationale

• Maximize proceeds from the sale
• The CAA report will lead to a 7 sales reduction
  in BA sales ( 80 of BAs current operating
  profit)
• Giving future reallocation power to CAA will
  bring uncertainty to the airline industry ? and
  potentially scare off investors
• Consequently, the value of the company will be
  significantly affected
• Avoid major political risk
• The CAA report will be percieved as the betrayal
  of BA employees who have worked so hard to turn
  the company around
• Management may leave and employees will be
  demoralized
• All of the above, could cause the conservative
  party significant political risk
• Support one of the UKs national prides (God Save
  the Queen!)

6
Our Suggestions

• Leave the landing slots in the hands of their
  owners
• Open the landing slot market for trade
• Sell new capacity at both Heathrow and Gatwick
  airport to new entrants (e.g. slots at new
  Heathrow terminal)