Review of Heathrow and Gatwick Price Controls from 1st April 2008
Addendum to BATA response to CAA consultation – January 2008
1. It has been suggested that the BATA submission to CAA of 22nd January 2008
may give a misleading impression of the UK airlines position on the Cost of
Capital assumption (see paragraph 2b of the submission). We would like to
clarify our position.
2. UK airlines have submitted further evidence on the most appropriate Cost of
Capital that should be assumed for BAA at Heathrow and Gatwick over the next
5 years. Despite some progress on the issue, airlines are convinced that there is a
very strong case for a lower Cost of Capital than that included in the latest CAA
3. In particular, the standard tax rate of 28% proposed in the calculation of the Cost
of Capital is, we believe, far higher than justified or appropriate. The figure is
more than twice the effective tax rate reported by BAA over recent years. This
actual tax rate has been in the order of 12% and we believe that continued tax
relief will ensure that the tax rate paid by BAA will continue to be far lower than
the standard rate for at least the next 5 years.
4. The tax rate assumption has a significant impact on the Cost of Capital which, in
turn, is a major factor in the eventual price cap. We feel it is very important that
an appropriate and realistic tax rate is used in the calculation of Cost of Capital
and we support the individual submissions by UK airlines on this issue.
BATA 25th January 2008