Massive profits slump for BA

by ROBERT LEA, Evening Standard

British Airways profits have collapsed by nearly 98 per cent to £5 million for the first half of the year, on the way to what the company's financial advisers expect to be record annual losses of £775 million.

British Airways boss Rod Eddington admitted the airline is losing £2 million a day but said he will go into the City to try to demonstrate it is not going bust, adding: "We hope to put that issue to bed today."

Shareholders are not getting a half-year dividend and the company is warning that the full-year pay out will probably be axed as well.

Mr Eddington said BA has "liquid assets" of £3.4 billion including £1.1 billion of cash and a £800 million credit facility, though the other £1.5 billion is made up of assets the airline would have to sell, such as its headquarters at Heathrow and its longstanding stake in Australian airline Qantas.

BA has a massive £6.5 billion debt pile linked to investment in new wide-body jet airliners, while Mr Eddington admitted it was suffering from over-reliance on US and Middle Eastern markets.

But BA also gave its first clear signal it is ready to move into the takeover market. Favourites for a deal are Dutch airline KLM.

For the six months to the end of September - including less than three weeks of the disruption caused by the US terrorist attacks - the flagship carrier today said its profits had dived to £5 million from £200 million in the same period last year.

The fall in first-half profits - traditionally strong for the airline - indicates how far BA's business was suffering before the terrorist attacks, hit by the US slowdown and the impact of foot-and-mouth on American visits here.

But things are set to get worse. BA admits its key premium business travel market fell 36 per cent in October while the number of passengers crossing the Atlantic fell 30 per cent, and figures are unlikely to improve this month.

BA's stockbroker Merrill Lynch reckons the worst downturn in a decade since the Gulf War will see BA posting losses of £775 million for the year to next March.

BA chairman Lord Marshall tried to put a gloss on the results but indicated merger deals are on the way.

"The outlook for the second half is difficult to predict, although we anticipate a significant operating loss for the year. We are ready to take advantage of consolidation opportunities as they arise and are confident we will be well placed in the restructured airline industry as it emerges."

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