The Anglo File: BAA Leads Bidding War to Operate New York's Airports - TheStreet

LONDON --

BAA

(BAAPY)

, which operates the U.K.'s leading airports, has been short-listed in the bidding for a crucial contract that could pave the way for it to operate

John F. Kennedy International

and

LaGuardia International

airports in New York, airline industry observers in New York have told

TheStreet.co.uk

.

This decision is a welcome boost for BAA, which in September suffered a nearly 30% fall in its share price following a surprise profit warning. Apparently, BAA underestimated how much scrapping the duty-free status on items such as alcohol within Europe would impact its earnings. However, third-quarter results released earlier this month showed an improvement in the company's profitability.

On Friday, BAA shares were trading up 5.2% at 418.5 pence.

"From a valuation perspective, BAA looks extremely attractive," Marcus Curley, analyst at

Merrill Lynch

, wrote in a recent research report. "However, there still remains some scope for volatility surrounding BAA's medium-term profitability." Curley has an accumulate rating on BAA. Merrill has performed no investment banking for the company within the past three years.

The

New York City Council

, which owns the two airports, is seeking external support as part of its plan to privatize them. Mayor

Rudolph Giuliani

has made the revitalization of the airports a priority. The

Port Authority of New York and New Jersey

currently manage them under a lease that expires in 2015.

However, Giuliani has said the lease will not be renewed and hinted that he is prepared to persuade the Port Authority to give up the lease before it expires. He is seeking a private operator to act as a consultant to New York's

Economic Development Corporation

, which would handle the privatization and revitalization process. The successful bidding company would then assume responsibility for the management, operation and development of the airports.

Giuliani is concerned about the low esteem in which the two New York airports are held. JFK and LaGuardia recently placed 31st and 35th, respectively, in a passenger survey of the nation's 36 largest airports. Since well over 50 million people use the airports each year, Giuliani is keen to improve their images.

Other short-listed candidates for the lucrative contract are

Hochtief

, the German construction company which operates Dusseldorf's airport;

Amsterdam Airport Schipol

, which also manages

Brisbane International

airport in Australia; and a consortium that includes the Zurich airport operators.

However, New York industry observers view BAA as the frontrunner in the bidding. In his public pronouncements on the campaign to improve the airports for New York, Giuliani has constantly stressed privatization as the means to achieve a more efficient operation.

"Recent privatizations -- including privatization of Indianapolis International airport, as well as of

Heathrow

and

Gatwick

in London -- have demonstrated that private operators can do a much better job than bureaucratic government authorities when it comes to running airports," Giuliani said.

All three airports cited by the mayor are operated by BAA. The company already has an interest at JFK through its

Duty Free International

business that serves the airport.

In the U.S., aside from Indianapolis, BAA also manages

Harrisburg International

airport in Pennsylvania and was this month awarded a contract by Pittsburgh's airport, where the company has already developed the retail facilities, to develop strategic plans to maximize the airport's potential. In New Jersey, BAA has the retail management at

Newark International

airport. The company also operates airports in Naples, Italy, and Melbourne.