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Tier One UK Airports (Economic Regulation)

Volume 497: debated on Tuesday 13 October 2009

My right hon. and noble Friend the Secretary of State for Transport, Lord Adonis, has made the following ministerial statement:

In March this year, the Government published their consultation on reforming the economic regulation of airports. This contained a package of proposals to strengthen the financial resilience of major airports, support investment and ensure the continuation of operations in the event of financial difficulties for airport operators.

These are challenging and uncertain times for the aviation sector. Following representations, I am bringing forward announcements on the financial elements of the review to help provide as much certainty as possible for both the industry and its investors. We will be responding to the other elements of the consultation later this year.

To this end, I can announce that the Government will introduce, as soon as parliamentary time will allow:

A new duty on the Civil Aviation Authority (CAA) to ensure that airports can finance their licensed activities. This will sit as a supplementary duty to a primary duty to promote the interests of existing and future passengers.

A package of licence conditions to introduce financial ring-fencing. Following careful analysis of the evidence, the Government have concluded that the costs of introducing certain elements of the ring fence would exceed the benefits. There will therefore be derogations for those elements of the ring fence that would cut across existing financing arrangements.

A licence condition requiring airport operators to maintain a minimum creditworthiness.

Adequate protection for consumers is our priority, so I can also announce that we will consult further before the end of year on the following additional measures which will further improve the resilience of major airports:

The possible introduction of a licence condition requiring airport operators to produce and maintain a continuity of service plan, setting out how the airport could continue to serve passengers through an insolvency procedure, thus further reducing the risk of airport closure.

A mechanism for the regulator (CAA) to “switch on” and “switch off” ring-fencing provisions. The regulator might decide to switch on ring-fencing if circumstances were to change and where the benefits outweigh the costs, for example because an operator had moved from a secured to an unsecured financing structure.

These measures replace the introduction of a Special Administration regime proposed in the consultation document which I have decided not to proceed with. The March consultation was clear that these proposals would only be taken forward if it could be shown that the costs of introducing such a scheme were not excessive.

Following careful analysis of the consultation evidence, the Government have concluded that the implementation costs of introducing Special Administration would outweigh the benefits, and could significantly restrict airport operators’ ability to commit to ongoing investment in the airport infrastructure, adversely affecting passengers. Given this and the relatively low risk of airport closure upon insolvency, we have concluded that the measures better serve the interests of passengers.

This announcement today supports the sustained investment by airport operators and protects the interest of passengers. We will publish our response to the remaining elements of the March consultation later this year including a summary of consultation responses and a full impact assessment. At the same time we will begin our consultation on the possible additional measures that I have outlined.