BA to sell catering operation

British Airways' in-flight catering business at Heathrow Airport was put up for sale yesterday, a move which could lead to a bidding scramble among the world's leading airline catering companies.

The news was seen as one of the most important opportunities to expand in the rapidly consolidating in-flight catering market, which is thought to be worth as much as pounds 1bn annually in the UK. It is also the latest step in British Airways' drive to find pounds 1bn of efficiency savings by 2000 through the closure, sale or outsourcing of operations.

British Airways made the decision to sell the business, called Heathrow Catering Production, after an internal study concluded it would find itself facing stiff competition from larger specialist players. Bob Ayling, chief executive, said: "Significant productivity improvements our people have made are not enough for us to remain competitive against the new, global super-caterers."

The business owns two huge kitchens at Heathrow which prepare 25,000 meals a day each. One of the kitchens employs 1,200 British Airways staff involved in the preparation of long-haul meals, while the kitchen for short-haul flights is run by contractors. British Airways declined to put a figure on the operation's sales, though industry sources suggested they could be pounds 70m a year. The likely price tag was also not disclosed, although observers said it could reach up to pounds 100m.

The airline said talks would begin immediately with outside catering companies and yesterday the UK's largest in-flight catering business, Alpha Airports Group, seemed likely to launch a bid. Alpha is already responsible for most of British Airways' catering at other UK airports, including Gatwick, with sales last year of pounds 211m. The group said it had about 50 per cent of the UK in-flight catering market.

Stuart Siddall, Alpha's finance director, said: "We'll certainly talk to BA. It's got lots of commercial logic. There'll be several caterers interested in this sale and we will be one of the companies taking a close look."

Other potential buyers include LSG Sky Chefs, the world's largest in- flight caterer resulting from a merger ofLufthansa's catering arm. Demand for in-flight meals at Heathrow is set to expandthrough passenger growth and if the government approves a fifth terminal at the airport.

British Airways insisted the sale would not lead to job losses at Heathrow, though specialist caterers did not rule out the possibility. Alpha said the potential for cost cutting could be balanced by the potential to supply other airlines and growth in the market. Mr Siddall said: "You'd expect we'd be able to integrate the business in an efficient way. But cost cutting isn't everything. Quality and reliability are also crucial."

Mr Ayling has fiercely denied claims he is intent on turning British Airways into a "virtual airline" where most operations are run by outside contractors. Last month 3,000 ground-based staff at Heathrow agreed to accept a two-year pay freeze in order to prevent the division from being sold or closed.