BA prepares for war with £2bn reserve

British Airways is amassing a £2bn warchest to enable the airline to survive the downturn in air travel that would follow a protracted military campaign to remove Saddam Hussein from Iraq.

Although BA would not comment in detail on its contingency plans, it is working on the assumption that a war in Iraq would last longer than the Gulf War in 1991 and would have a more prolonged impact on air traffic.

Rod Eddington, BA's chief executive, said the "kitty" now stood at £1.5bn and analysts estimate that by Christmas the airline could have cash reserves of close to £1.8bn to see it through a protracted war in the Gulf. The collapse in air travel which followed 11 September cut traffic on BA's lucrative transatlantic routes by 30 per cent and left it haemorrhaging £2m in cash a day – enough to survive for a year at most.

But Mr Eddington said the airline was in a much better position to withstand another catastrophic plunge in the market now. Since 11 September it has announced 13,000 job cuts, reduced seat capacity by 11 per cent, overhauled its loss-making short-haul operations and is on course this year to achieve cost savings of £450m, against a target of £650m by March 2004. "Our capacity to withstand any new shocks is much greater than it was after 11 September," Mr Eddington said. "We have already taken 8,000 jobs out of the business and cut the cost base. We are better placed."

In the event of war, BA's contingency plans would come into effect immediately, enabling it to adjust its flight schedules instantly to avoid over-flying areas of conflict and to rescue stranded passengers.

But Mr Eddington added: "I adhere to the old military adage which is that no plan survives contact with the enemy. We have taken all the measures we think necessary at this time but if we are forced to cut capacity we can do that very quickly."

As the first anniversary of 11 September arrives, Mr Eddington said the airline industry could never rule out a similar terrorist hijacking. He also said that it was likely to take until next autumn rather than the spring to complete the £30m programme to fit bullet-proof cockpit doors on the entire BA fleet.

BA is in favour of relaxing the ban on items such as nail clippers and cutlery being carried on board but Mr Eddington is thought to oppose the idea of arming pilots or having armed sky marshals on its planes.