BA chief attacks open skies deal as jitters hit shares

British Airways was hit by a wave of negative stock market sentiment yesterday as fears over open skies, renewed threats of union militancy and an unexpected additional charge for the disposal of its regional operations sent the airline's shares into a tailspin.

As nervous dealers reacted to the barrage of unwelcome news, BA shares slipped 6 per cent, leading stocks across the airline sector lower. BA will attempt to rebuild confidence in its prospects at an investor day being held tomorrow at the company's headquarters near Heathrow.

The market took fright at the prospect of BA's dominant position at Heathrow being undermined by a draft EU-US open skies deal announced in Brussels on Friday, even though the chances of the agreement being endorsed later this month by the Council of Transport Ministers appear very slim.

Dealers were also unnerved by the disclosure that the sale of BA's regional carrier, BA Connect, will cost the company £20m more than planned and union anger over the airline's decision to sell off its associated ground handling operations.

BA has already begun lobbying the Government to block the proposed open skies deal with the US on the grounds that it is too one-sided in favour of American airlines. Yesterday, the BA chairman Martin Broughton redoubled the attack, describing the draft agreement as a "dead end" and warning that it would put back a real breakthrough to liberalise the airline market by many years.

Addressing an audience at Chatham House, Mr Broughton said: "Once the US have achieved their prime negotiating objectives of achieving an open skies deal, their motivation to liberalise further will evaporate." He pointed out that the proposed deal would give US airlines access to the entire EU internal market but still bar European airlines from the domestic US market, and described the concessions offered by the US negotiators in return as "miniscule" and "crumbs".

Instead of an open skies pact, Mr Broughton called for an open aviation area in which 100 per cent ownership and control of airlines would be allowed by any EU or US investor.

The sale of BA Connect to the rival regional airline Flybe will result in the closure of 15 routes, nine of which overlap, including Birmingham to Geneva, Lyon, Berlin and Madrid, and Manchester to Madrid, Berlin, Vienna, Lyon and Aberdeen. Some 15,000 passengers already booked on the affected routes will be switched to Flybe services, offered alternative BA flights or given refunds. BA will give Flybe £96m in cash to pay for the integration of the two airlines and put a further £33m into the BA Connect pension fund.

The completion of the deal was accompanied by news that BA has entered into exclusive talks to transfer its ground handling operations at Aberdeen, Edinburgh, Glasgow and Manchester airports to Aviance, a subsidiary of the bus and rail group Go-Ahead. The Transport and General Workers accused BA of acting in "bad faith" given that the two sides were in talks to keep the ground handling operations in-house.

"There is a growing mood of anger now," said Brendan Gold, the union's national secretary for air transport. "The timing of today's announcement causes us real fury about an agreement having been done already."