BA tests wind on USAir stake

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The Independent Online
BRITISH AIRWAYS this weekend moved to quell fears about the future of USAir, in which it has a near 25 per cent shareholding, after auditors questioned the survival chances of the US airline operator.

A BA spokeswoman insisted that the auditors to USAir, KPMG Peat Marwick, were taking "an ultra-cautious approach" when they said on Friday that there was substantial doubt about the company's ability to survive unless it won concessions from its unions.

The auditors told shareholders in a filing to the Securities and Exchange Commission that the airline has had recurring losses from operations and has a net capital deficiency.

BA said USAir disagreed with the auditors' approach. It has so far decided against writing down its stake, which it purchased for $300m (£187m) in January 1993. The auditor's note, however, will clearly add to the pressure on BA to write down its USAir investment when it announces its annual results next month. "Clearly it can't be ruled out," a source close to the company said this weekend. "We're likely to take another look at the situation in the run-up to the results."

USAir spokesman Richard Weintraub, disagreeing with KPMG Peat Marwick's verdict, said that the airline finished the first quarter with $400m in cash. He expected the cash reserve to be even greater by the end of the year.

The BA spokeswoman said that USAir, which was in the middle of a huge cost-cutting operation, would not be filing for protection from its creditors under Chapter 11 bankruptcy.

She said the airline had a tentative agreement with its pilots to cut $500m a year from costs and that talks were taking place with other unions about a further $500m in savings. There was also, she added, a management action plan which hoped to make capacity cuts that would save $100m a year.

She said the investment would not be written down unless the British Airways board considered "there was a permanent diminution in its value". This could not be ruled out, she said.

Critics argue that the negotiations over cost savings have been going on endlessly. BA is due to report its year-end results at the beginning of May. USAir lost $649m last year.

Last month, Warren Buffet, the American investor, wrote down the value of his investment company's stake in the troubled airline by $268.5m to $89.5m and resigned from the board. The move was widely interpreted as suggesting that Mr Buffet could no longer see an early solution to USAir's problems.

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