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However, he said: "There is scope for a degree of competition between them [the three London airports] despite capacity constraints. But separate ownership would itself create a greater incentive to expand capacity at the three airports."

Ryainair, the no-frills carrier, welcomed the findings, saying it supported the Competition Commission's view that BAA's monopoly had adversely affected competition.

A spokesman said: "The BAA airport monopoly has failed."

He added: "The Competition Commission has correctly identified this failure and we again call on the UK Government to break up this failed airport monopoly and allow competition to put the interests of British consumers/users first."

Ryanair also said that the Civil Aviation Authority's regulation of BAA was "inadequate".

Poor planning of the baggage handling system at Terminal 5 led within days of its opening to the loss of thousands of pieces of baggage, often for a week or more.

Two senior BA executives have lost their jobs over the fiasco.

Mr Clarke said today that the Competition Commission was just as "concerned" about BAA's inability to multitask much-needed expansion programmes at other airports at the same time as working on T5.

The report said that the inability to multitask "may, in part at least, be related to ownership of several neighbouring airports ...While it has successfully undertaken a significant number of smaller projects simultaneously, it seems largely to have limited itself to one major project at a time, for example Terminal 5."

Mr Clarke pointed the finger of blame for BAA's operational capabilities towards its owners, an investment consortium led by Grupo Ferrovial, the Spanish construction giant, which is struggling to maintain BAA's £10 billion of debt after buying the company in 2006.

Mr Clarke said that the Competition Commission "also expresses concern that BAA has a financial structure with a dependence of a single group parent balance sheet that could constrain the ability of the airports adequately to invest or maintain service standards".

BAA is attempting to refinance its debt but acknowledged this month that it would miss a key June deadline to restructure its borrowings.

Credit ratings agencies have given warning that unless the debt is refinanced they will move BAA to junk status, potentially allowing £5 billion of bondholders to recall their loans.

Mr Clarke also raised concerns that there were no special arrangements in place to protect any of BAA's airports should its owners run into deeper financial difficulties, resulting even in the need for the owners to file for insolvency.

"BAA is not subject to a licence and there are no provisions to ring-fence the assets of any airport for a special administration regime in the event that BAA were to get into financial difficulties," he added.

BAA was bought two years ago for £16.3 billion including debt by Airport Development and Investment, a consortium 61 per cent owned by Ferrovial with other shareholders including GIC Investments, the investment arm of the Singapore Government.

If BAA is moved to junk status by all the credit agencies, it will have to pay more for its debt and more to insure the debt.

The company had said that it was negotiating with the credit agencies and is believed to be asking for an extension to the June refinancing deadline.

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