BAA may be ordered to sell one or more of its seven UK airports after the competition regulator said the operator may not best be serving the interests of airlines or passengers.

Britain's Competition Commission said on Tuesday it would publish possible remedies in August, but said a preliminary study had found that under a single owner there was no competition among some of the airports.

BAA, part of Spain's Ferrovial since 2006, has owned the three main airports serving London - Heathrow, Gatwick and Stansted - as well as Scotland's Edinburgh and Glasgow airports since it floated over 20 years ago.

The Commission is investigating whether problems faced by airline travellers through Britain, as highlighted by the botched opening of Heathrow's Terminal 5, are caused or exacerbated by BAA's monopoly.

It is also addressing whether the monopoly is the best way to expand capacity at the country's packed airports, and also the effectiveness of the current regulatory system under the Civil Aviation Authority (CAA).

"There is no competition between BAA's three London airports, and only very limited competition from non-BAA airports (London City and Luton)," the inquiry's chairman, Christopher Clarke, said in the interim report.

"Similarly, there is no competition between their two airports in lowland Scotland," he added.

He said that the CAA, which sets the price caps on what BAA can charge airlines, had little power to intervene in how airports were operated or developed.

Also, there was no protection for the airports if BAA ran into financial difficulties. Its parent, Ferrovial, is trying to refinance its debt in tough markets.

Separately, British Transport Secretary Ruth Kelly announced a review of the economic regulation of the airports.

"This recognises the points made by the Competition Commission...about the potential shortcomings of the current regulatory system," she said in a statement.

BAA said it recognised the Commission's concerns, and was doing everything to address them, but said its ownership of the airports was in the interests of passengers.


CAPACITY CONSTRAINTS

Major airlines unanimously welcomed the report, but were divided on how it should proceed.

Virgin Atlantic, Ryanair and bmi all called for its findings to lead to a BAA break-up, but British Airways and easyJet said a shake-up of the regulatory regime was the key.

"We need a fundamental overhaul of UK airport regulation...Transferring ownership from one highly indebted monopolist to another will benefit no one apart from the City deal-makers," easyJet CEO Andy Harrison said.

Commission Chairman Clarke told reporters that areas of concern included BAA's approach to airport expansion, and suggested it was not capable of getting the most out of Britain's planning system.

He acknowledged BAA's view that a shortage of capacity at London's airports was limiting competition, but said a different owner may be able to solve the problem.

"BAA sees the planning system as something that prevents it from doing things, but it is not clear it is being as innovative or proactive as others have been," Clarke said.