Privatising London's airports

Abstract

A number of other interests, such as British Airways, took a more ambivalent view, a view which might be said to characterise the response of the Select Committee.Their recommendations were for the separate sale of the Scottish airports as a group and a 'hybrid' solution for the south-east airports where the individual airports would operate initially as semi-autonomous subsidiaries beneath a Holding Board.This would have particular responsibility for investment planning.In the longer term the Holding Company would not be precluded from selling individual airports as separate companies, if and when this was seen as appropriate.(See House of Commons, 1984, para.33.)In this Report we have approached the BAA privatisation question on the basis that all options are open still.Until legislation is brought in we believe that it is advantageous to adopt such a view.In analysing the options we have used the bench-mark of economic efficiency and drawn the usual distinction between two types of efficiency productive efficiency and allocative efficiency.Productive efficiency addresses the question of whether an organisation produces a given level and quality of output at minimum cost.Minimum cost production is achieved when the best available technology is utilised and when the mix of inputs used in the production process is consistent with their relative prices.Analysis of productive efficiency is complex and demanding of data (see, for example, Ashworth and Forsyth, 1984).For these reasons, and for others which will become apparent, the general emphasis in this Report is upon allocative efficiency.

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