Ferrovial says BAA investment depends on returns

By Joe Ortiz

MADRID, June 28 (Reuters) - Spanish infrastructure and construction company Grupo Ferrovial FER.MC said on Thursday its plan to invest over 9 billion pounds ($18.01 billion) in its BAA British airports unit could be jeopardised if its returns are cut.

"If we don't get a better settlement, then investment will suffer," Ferrovial Chairman Rafael del Pino told reporters at a briefing. "Not having the right incentives is what will frustrate us."

Britain's Civil Aviation Authority, BAA's regulator, is recommending a sharp cut in its pre-tax real rate of return on investment from 7.75 percent to 6.2 percent.

Asked what return Ferrovial would be happy with, del Pino said, "Well, 7.75 percent would be good."

Ferrovial has come under sustained attack in the British media for its management of BAA since it bought the privatised airports firm in 2006 for 10.1 billion pounds.

Passengers complain of problems getting through airport security as well as ageing buildings and facilities, especially at London's Heathrow.

Del Pino insisted that the security clampdown enforced after airlines using Heathrow Airport came under threat last August could not have been foreseen and that Ferrovial is dealing with years of low investment in British airports.

"We are dealing with years of under investment and suddenly we are getting all the flak," he said.

The Ferrovial chief said the company wants a long-term settlement on returns and added that the CAA's argument for its proposed cut is flawed.

Del Pino also said it was a "possibility" that BAA could pull development of the new Heathrow East terminal in London if the company does not get the right settlement.

"We are confident that a sensible settlement will be reached," BAA Chief Executive Stephen Nelson said.

BAA is also fighting on a second front since Britain's Competition Commission is investigating whether it should be broken up to foster competition.

Del Pino said that BAA has no plans to sell any of its airport assets and that it had received no approach for its London Stansted airport.

The company said its 12 billion euro ($16.1 billion) securitisation deal to refinance acquisition loans and other existing debt is on course to be completed by the end of this year at terms within the range it set when it bought BAA.

Del Pino said Ferrovial's diversification in recent years away from the construction sector, meant that it did not feel exposed to any downturn and pointed out that it had already sold its real estate arm last year.

"A downturn may come but we haven't seen it yet," Del Pino said. "We haven't seen any drop in real asset prices which have disconnected from stock prices."

((Reporting by Joe Ortiz; editing by Rory Channing; joe.ortiz@reuters.com; +34 91 585 8295))

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