Navigating towards a WACC for air traffic control services

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Client British Airways (BA)
Dates 2009
Service(s)Regulation & Competition, Strategy & Finance

CEPA was retained by British Airways (BA) to undertake a study on the allowed WACC for National Air Traffic Services (NATS) en-Route aviation navigation services. The output of the study was a report submitted to the Civil Aviation Authority (CAA) as part of the price control review process.

The report covered regulatory precedents for:

  • the cost of debt;
  • the cost of equity;
  • appropriate gearing;
  • an approach to allowing for taxation costs; and
  • the appropriate regulatory asset base.

The report sought to justify that based on well established economic theory, cross-checked against actual market data, an increase in the allowed WACC was not required.

Particular features of the report included:

  • the impact of the financial crisis on the allowed WACC;
  • assessing the relative risk of NATS in the face of few obvious comparators; and
  • implications for the WACC of NATS being a relatively capital non-intensive regulated business.