Civil Aviation Authority “not minded to intervene" in World Duty Free sale

Tina Milton

The Civil Aviation Authority (CAA) has revealed its position on BAA’s possible sale of WDF, stating it is “not minded to intervene” in such a transaction and proposed some of the sale criteria

The Civil Aviation Authority (CAA) has stated that it is “not minded to intervene" in the possible sale of World Duty Free (WDF). However, the CAA proposed that BAA should incorporate the following terms in its report on price controls for London Heathrow and Gatwick airports for the five years from April 1 2008 to March 31 2013 should the sale take place:

– "The contract length should be no more than 12 years;
–  The average concession fee as a percentage of gross sales should be no lower than 31% [broadly in line with the recent performance of WDF);
–  Any incentive mechanism under which reduced concession fees are paid on sales above a given threshold, higher than projected sales should be structured only to operate if WDF outperformed current forecasts. The reduced fee would only apply to these incremental sales, and the incentive mechanism would only be linked to improved sales per passenger (and therefore not triggered by passenger growth), thereby protecting the currently forecast WDF revenue contributions to the single till at each airport."

The CAA said that its only “regulatory focus” with respect to WDF was to ensure that the “terms of trade” within airports was not distorted to lead to loss of value to airport users and that the sale of WDF did not lead to a transfer of value from the regulated asset base.

The report explained: “The proposed means of achieving this is to monitor BAA’s projections for WDF revenues at Heathrow and Gatwick, with any drop in yields per passenger being taken as prima facie evidence of a shift in the ‘terms of trade’ which should trigger further examination.”

For further analysis see DFNI December 15.