- The Washington Times - Sunday, August 20, 2006

LONDON — The phone rang at 7:30 a.m. Michael Bishop, executive chairman of BMI British Midland, was at home in the Midlands to take the call. It was bad news: The government had foiled a terrorist plot to blow up airliners bound for the United States in a series of bombings that could have been deadlier than the September 11 attacks. Britain had raised its terror alert to the highest level and instructed airlines not to allow carry-on luggage aboard planes.

For Mr. Bishop, 64, the elder statesman of Britain’s airline industry, it was clear this would be a major event. Before 9:30 a.m., he took another call, this one from Douglas Alexander, the British transportation secretary. Mr. Alexander’s message was that the airlines should take a “business as usual” approach as far as possible, to avoid large-scale disruption for the thousands of passengers flying off on summer vacations.

But it was going to be anything but business as usual at London Heathrow, the world’s biggest international airport, on Aug. 10. BMI is second only to British Airways with 12 percent of all takeoff and landing slots at Heathrow. In an interview, Mr. Bishop revealed his frustration at how events were handled.

“As far as the airports were concerned, there was a tremendous divergence in the reaction and the efficiency of actually implementing the new instructions and the new hand baggage regulations,” he said.

At Manchester Airport, for example, delays were relatively light. Mr. Bishop pointed out that when the baggage security staff came on duty at 7 a.m., they were prepared with the new requirements to start processing passengers immediately. At Heathrow, meanwhile, the British Airports Authority (BAA), the airports operator recently acquired by Spain’s Ferrovial, “didn’t open their check-in until 8:50 a.m.”

Heathrow problems

Mr. Bishop said Heathrow is “an exceptional place, five times the size of the average airport in the UK,” but events should have been handled better.

“Once we have actually dealt with the immediate requirements of different levels of security for passengers, our view is that it’s a can-do situation. You’ve got to move yourself into gear to deal exceptionally with the circumstances you are faced with,” he said.

To help deal with the extra security measures, BMI brought in trained people from other parts of the business. Had it not been for the two-hour delay in starting the check-in, BMI would have operated normally on that Thursday.

Mr. Bishop said the press focused on the long queues while ignoring the fact that some of the 87 airlines that operate out of Heathrow managed to get their planes in the air.

BMI, he said, operated 94 percent of its flights at the airport over the six days from Aug. 10 until full operations resumed Tuesday. British Airways canceled more than 1,000.

“Because of the nature of the media, nobody wants to hear the good side,” Mr. Bishop said. “It has done a tremendous amount of damage to all the airlines at Heathrow; it has also given a bad reputation to UK Plc because, again, it is perceived as a difficult place to operate into London. Heathrow is getting the same reputation as the old British Railways sandwich.”

Costly disruptions

Aside from the reputational damage, the incident also cost the industry financially. Some estimates put the total bill for the disruption at $565 million.

On Friday, Michael O’Leary, the chief executive of budget airline Ryanair, gave the government a seven-day “ultimatum” to restore airport security measures to normal levels or risk being sued for compensation. Mr. O’Leary said that if security was restored to normal International Air Transport Association levels within the next seven days the airline would “not make any claim for compensation.”

Mr. Bishop said compensation is not a priority for BMI, but he is eager to find out what went wrong at Heathrow.

“I am not criticizing BAA as such, except to say that we want, as a customer of BAA, to work out with them in a constructive way, not in a confrontational way, why things went so wrong at Heathrow on Friday. That is why I am not joining in this chorus for compensation. I hear what they say, they want to take a lot of money for this and Ryanair has got a great deal to say about this subject,” he said.

BMI will not know for another two to three weeks what the disruption cost the airline, but Mr. Bishop said his main concern is how it will affect bookings.

“All the indications are that there is an effect coming as there was after September 11, and that if, for instance, we don’t get back to proper normality, say by Christmas, then the cost at all airlines is going to be very substantial indeed,” he said.

Just four months ago, Mr. Bishop announced that BMI had ended four years of operating losses.

He said: “We expect a relatively flat year in passenger numbers, but I said in April that I hoped we would have further improvement in our results, and so far, until this happened, that was materializing.”

Challenges ahead

Mr. Bishop is an industry veteran of 43 years, having started as a baggage handler during his school vacations at Manchester Airport. His career has been characterized by battles: One more crisis will not clip his wings.

He said that all these events “change the perspective of the industry in some way or another,” and noted that the first time aircraft were used for political purposes was during the Dawson’s Field hijackings in 1970. “Everything you are dealing with now started then,” he said.

Mr. Bishop is older than many other chief executives or executive chairmen of public companies, but retirement does not beckon. Nor does he show any signs of letting go of BMI. In May, he tightened his hold on the airline by buying out the minority shareholders in BBW Partnership Ltd., which owns the controlling stake of 50 percent plus one share in BMI. The balance is held by Lufthansa, the German carrier, which controls 30 percent minus one share, and SAS, which has 20 percent.

Many interpreted the move as a tidying exercise before Mr. Bishop used a “put” option to force Lufthansa to buy out his shareholding in BMI. The option is exercisable until 2009 and would require Lufthansa to buy his shareholding on the same terms as it bought into BMI in 1999. That would value Mr. Bishop’s stake at almost $431 million.

“Yes, I am committed to the business, but it is public knowledge that I have certain options. But they still have some considerable time to run” is all Mr. Bishop would say on the subject.

BMI’s slot portfolio at Heathrow has made it an attractive target in any restructuring of the ownership of Britain’s airline industry. Richard Branson, the chairman and majority owner of Virgin Atlantic, has failed in merger talks but has retained a strong interest in a deal with the group.

What Mr. Bishop wants is an agreement to open the skies to full competition. Some of his dogfights with the British and U.S. governments over the decades were successful. He won the right to compete with British Airways on domestic routes in 1982, then gained access to European destinations in 1986. What continues to elude him is the day when BMI can become a full-fledged trans-Atlantic airline under a true “open skies” agreement between Europe and the United States.

He is philosophical about the amount of time it is taking, noting that it took five years to achieve competition in domestic services and another five to open up Europe.

It is still the airline industry that drives him. When he started full time in 1963, it was still highly regulated. Mr. Bishop said with a laugh: “It is getting easier and better all the time, and I would like to enjoy the good times as well as the more difficult ones because the first 20 years were pretty rough.”

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