USAir, the loss-making regional airline whose pre-tax losses in 1994 are expected to top 1993's dollars 349.4m after reporting a first-quarter loss of dollars 196.7m, faces intense competition on its busiest routes in the North Eastern and mid-Atlantic states.
Sir Colin Marshall, BA chairman, said that if the talks between USAir management and unions were not satisfactorily concluded within the timescale USAir needed - which he thought was 90 days - a provision was likely.
But he said that even if the 'disaster scenario' of Chapter 11 bankruptcy overtook USAir, which paid pounds 18m in preference dividends to BA last year, he knew of no reason why BA should not continue to enjoy benefits from its link-up with the airline. These are estimated to be worth pounds 70m to BA in its current financial year.
A satisfactory cost-cutting agreement, boosted by a dollars 500m gain from a plan to improve aircraft utilisation at USAir, would allow BA to put in another dollars 450m to take its stake up to 40 per cent.
BA's warning on USAir came as it announced a 62.7 per cent increase in pre-tax profits to pounds 301m for the year to 31 March. The results, which compare with a loss of dollars 4bn by the world airline industry in 1993, were struck after a pounds 10m loss from the terrorist attacks on Heathrow airport in March.
The figures include a further quarter profit of pounds 55m against a loss of pounds 25m, reflecting strong growth in premium, passenger and cargo traffic. A final dividend of 7.92p makes a total of 11.10p, an increase of 9.3 per cent. BA shares closed 1.5p up at 379p.
Losses from TAT European Airlines in France and Deutsche BA offset BA's profits from its stake in Qantas, the Australian airline, and dividend income from USAir which meant losses from associated companies fell from pounds 11m to pounds 6m.
BA made a pounds 20m provision against advances to TAT to cover part of its losses. A restructuring plan by BA and TAT management will cut costs by 30 per cent this year and lead to a 'marked improvement', Robert Ayling, group managing director, said.
Mr Ayling said that, having reduced costs by the equivalent of pounds 580m a year in the past three years, a further pounds 150m of cost savings had been planned for the current financial year. This will include a 200 reduction in its 2,500-strong management payroll. Last year productivity rose by 8.2 per cent and unit costs rose by 1 per cent.
He said pounds 100m had been spent in the past 18 months on promoting BA's premium-priced services. The spending was reflected in a recovery in premium traffic which, having fallen by 4 per cent in the final quarter of 1993/4, rose by 14 per cent in the three months to March.
Passenger numbers increased by 8.9 per cent to 30.5m and BA's market share at Heathrow and Gatwick increased by 3 percentage points to 46 per cent. But excess capacity in the marketplace meant that revenues from each seat fell by 2.4 per cent in local currency although they rose by 3.1 per cent in sterling.
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