THE airports group BAA could run out of cash next year unless it can complete its delayed refinancing or sell assets, according to investment bank JP Morgan.

In a note on Ferrovial, BAA’s owner, published last month, analyst Robert Crimes said the airport company had a large capital expenditure programme at Heathrow and Gatwick, its two biggest airports, and a high interest bill. “Based on existing capex facilities [the loan available to pay for capital expenditure] we expect BAA could run out of cash in Q1-2 2009,” he wrote.

But Crimes also pointed out that the sale of two assets, a property portfolio and World Duty Free, the airports’ retail operation, should help ease the situation. “The disposals are important for BAA as they should moderately help alleviate BAA’s liquidity issues.”

The JP Morgan analysis is the latest pointer to the financial stress at BAA. The Sunday Times disclosed last month that BAA was to make a year-end test of whether it was in breach of the covenants on some its loans.

BAA, which owns Heathrow, Gatwick, Stansted and four other UK airports, including Glasgow and Edinburgh, was taken off the stock market in August 2006 by Ferrovial, the leading Spanish infrastructure group. It paid £10.3 billion.

Its ownership coincided with a difficult period in which new security rules led to overcrowding and delays. Business leaders and politicians have attacked its service standards, and the company now faces a Competition Commission inquiry into continued ownership of several UK airports, with many analysts predicting a break-up.

Ferrovial had planned to refinance the business soon after completing the purchases. But uncertainty over the prices it would be able to charge in future - the Civil Aviation Authority is completing a five-yearly review of charges – and the crisis in the credit markets made it difficult to proceed.

As well as refinancing the loans taken out to buy the company, BAA will have to find a new capital-expenditure financing package to pay for its ambitious spending plan. Along with the completion of Terminal Five at Heathrow, BAA plans to demolish and rebuild the airport’s Terminal 2, and also to refurbish and expand Gatwick. In the longer term, the company wants to build a controversial third runway at Heathrow.

Aviation-industry executives believe that BAA may eventually decide to sell Gatwick, or be forced into selling it by the Competition Commission. Analysts believe it could fetch more than £2 billion.

BAA yesterday declined to comment on the report. British Airways pilots could strike in late February or March in a dispute over a new “airline within an airline” that will start operations in the summer.

Open Skies, a BA subsidiary, will fly from continental capitals direct to America. BA has declined pilot demands that flight crews in the new venture be recognised as part of the main BA pilot body, with the same rights of seniority and the ability to transfer between the two.

The British Airline Pilots Association (Balpa) notified BA management of the strike ballot last week. The vote will be completed on February 20.

In a letter to pilots this weekend, Jim McAuslan, general secretary of Balpa, urges his members to fight the BA plan.

“Whatever analogy you use – give them an inch and they will take a mile, thin end of the wedge, Trojan horse – it stands up. This is a line in the sand,” McAuslan said.

“This is brutal but the company seems incapable of respecting professionalism – only power,” he added.

TERMINAL PROBLEM

BAA could be hit with an estimated £20m bill by the Crown Estate after it emerged the Queen’s property company owns a “ransom strip” under the airport owner’s flagship £4 billion Terminal Five development at London’s Heathrow, writes Jenny Davey.

BAA is now locked in talks with the Crown over a compensation package that could stretch to tens of millions of pounds, according to experts.

The Spanish-owned business insists that it knew the Crown owned the strip of land before it started construction of T5. But it pressed ahead with the work before a compensation figure had been agreed.

The Crown Estate hands over all its revenue to the Treasury each year in return for the Civil List, which pays for the upkeep of the royal family. Property experts said the Crown had a duty to press for the highest possible compensation for the land from BAA because taxpayers’ money was at stake.

The row centres on the Longford River, one of two river channels that have been diverted around the perimeter of the airport as part of the development.

In a statement, the Crown Estate and BAA confirmed they were in talks but refused to comment on how much compensation would be paid.

The Crown said: “The Crown Estate owns a strip of land under Heathrow Terminal Five. At the request of BAA and in the interests of allowing this major scheme of international importance to progress unhindered, the Crown Estate allowed the development of the terminal to begin, on the basis that suitable compensation would be agreed during its construction.”

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