BA suffers record first-half loss of £292m

By Pilita Clark, Aerospace Correspondent

British Airways has reported the worst first half results in its history as it struggles with one of the most damaging aviation recessions on record.

The UK flag carrier suffered a pre-tax loss of £292m in the six months to the end of September, the first time it has ever gone into the red in a period that includes the normally buoyant summer months. It made a pre-tax profit of £52m over the same time last year.

Even after the terrorist attacks on the US eight years ago when BA was in the throes of the last aviation crisis, the airline still managed to make a small pre-tax profit of £45m during the same period in 2001-2002.

“Aviation remains in recession,” said BA chief executive, Willie Walsh, adding all airlines were facing pressure.

The International Air Transport Assocation, the main airline trade body, recently predicted the industry would lose a total of $11bn this year.

“Further cost reduction is essential,” Mr Walsh said. But the difficulties airlines have long had containing labour costs has been on sharp display at BA over the last month as it tries to ward off industrial action before the busy Christmas period after announcing work scheduling changes for its cabin crew.

The workers’ main union, Unite, says it will ballot its members on industrial action after failing to get an injunction in the High Court on Thursday to block the changes from starting on November 16.

BA has been warning for some time that it fears its full-year losses this year could be even worse than the £401m pre-tax loss it made last year, which would be the first time it has ever suffered two consecutive annual losses. Some analysts have said the losses would continue into a third year.

Ahead of Friday’s second quarter results, a number of analysts had forecast even worse figures and shares in the airline were up more than 5 per cent in early trading at 195.7p.

The airline reported passenger traffic and cargo shipments continued to be weak, although there were signs that the dramatic falls seen after the collapse of the Lehman Brothers bank last year had begun to stabilise.

BA said £100m of its losses were attributable to “pension costs”, and there was also a £48m restructuring charge relating to severance payments.

In July BA announced it was raising about £680m in extra cash facilities - £350m through a convertible bond issue and $540m (£330m) from taking back control of a guaranteed line of bank credit that had previously been given to its deficit-ridden pension funds

British Airways and Iberia move closer to landing merger deal

British Airways is closing in on its long-awaited merger with Iberia, the Spanish flag carrier. An annoucement could be made as early as Friday, according to Sky News, although sources last night cautioned that any deal could still fall through.
British Airways said last night that “talks were continuing”. Iberia refused to comment.
Under the terms of the potential deal, Willie Walsh, British Airways’ chief executive, is widely expected to become chief executive of the enlarged group and Iberia’s chariman, Antonio Vazquez Romero, would become chairman. It would be listed in London and Madrid and both the BA and Iberia brands would be retained. It is thought the headquarters could be in Spain rather than England.
A deal would cap 16 months of fraught negotiations in which the two sides have encountered many problems.
The airlines started merger talks in July 2008 in response to a severe reduction in passenger numbers.
Among the problems facing the two carriers is BA’s pension fund deficit, which is thought to be about £3 billion. The carriers have also struggled to agree to a corporate structure and how much each set of shareholders will own in the new company.
The deal could be announced when Iberia reports its results on Friday. Analysts expect the Spanish airline to report a nine-month operating loss of €320 million (£289 million) after aggressive cost cutting failed to offset falling air travel demand.
BA reported record losses last week and predicted revenue would slump by £1 billion this year but said business was stabilising and hinted at a decision on the proposed merger with Iberia “in the very near future”.
Separately, British Midland (bmi) may struggle to raise the £95 million in funding it needs to keep flying because potential buyers have become thin on the ground for its Heathrow landing slots. A number of the world’s leading airlines have expressed little or no interest in bmi’s firesale, even though slots at the world’s busiest international airport have traded for tens of millions of dollars apiece in the past.
The Derby-based airline said this week that it needed to raise £190 million in additional funding by the end of October next year to survive.
Lufthansa, the German flag carrier, which took control of bmi this year, has pledged £95 million in loans. The remainder is to come from the sale or lease of landing slots.
Bmi, which employs 4,800 people, said that it was in “significantly advanced talks with several airlines” to sell slots. However, this has come as a surprise to many of the obvious buyers. British Airways, Virgin Atlantic, Emirates and several other Gulf carriers are not thought to be in talks with bmi over its slots. The American carriers are also understood to have little interest because they are trying to conserve cash. Analysts speculated that bmi may get interest from an Asian carrier, such as Air China, but only if the slots are sold at a bargain price.
In the airline’s most recent accounts, its directors warned that uncertainty over the slot sale cast doubt on the company’s ability to continue as a going concern next year.