British Airways faces record £330m loss and further cutbacks

As BA's troubles become clearer, banks throw a lifeline to Swissair
Click to follow

British Airways is set to plunge to a record loss this year in the wake of the terrorist attacks on America, according to the first authoritative assessment of the airline's prospects.

The gloomy prediction came as BA's troubled rival, Swissair, obtained rescue financing after a weekend of talks with the government and creditors aimed at staving off bankruptcy at Europe's fourth largest airline.

Chris Tarry, aviation analyst with Commerzbank, is forecasting that BA will make a pre-tax loss for the year of £326m, and estimates that the collapse in traffic on transatlantic routes will help wipe up to £1bn off BA's revenues in 2001-2002. For the following year he forecasts a loss of £70m at the airline.

The forecast loss would be the worst in the airline's history and the first since its privatisation in 1986.

Last week BA disclosed that it had lost £48m in revenues in the first week after the attacks on New York and Washington as transatlantic travel fell by 60 per cent. The market is now awaiting BA's traffic figures for the whole of September, due out in the next week, to assess the full impact of the US atrocities on the company's prospects.

Forward bookings across the Atlantic are reported to be down by 30 to 35 per cent. This compares with a 24 per cent decline in transatlantic traffic in January 1991 when the Gulf war began.

BA is more exposed to a fall in the transatlantic market than any of its European rivals such as Air France, Lufthansa and KLM. The North Atlantic accounts for 37 per cent of ticket revenues and 124 per cent of BA's profits.

BA has responded to the crisis by axing 7,000 jobs, grounding 20 aircraft and reducing capacity by 10 per cent – with the result that it will now operate 190 fewer services a week. But analysts believe it may need to make further cutbacks depending on how serious and extensive President George Bush's war on terrorism proves.

Despite the gloomy outlook for profits, Commerzbank rates BA a buy. Mr Tarry has a price target on BA shares of 268p against last Friday's closing price of 180p. That would value BA at £2.9bn against its current market capitalisation of £1.9bn.

Last month's terrorist attacks on the US also intensified existing problems at Swissair, which yesterday secured a last-minute financing deal with Switzerland's two biggest banks, UBS Warburg and Credit Suisse Group. The banks are thought to be providing 1bn Swiss francs (£418m) to the airline, whose chairman and chief executive, Mario Corti, had earlier warned that it might not be able to pay its fuel and wages bills in October.

The company has indicated that it needed several billion Swiss francs to survive while Sabena, its troubled Belgian associate, required an immediate 200m Swiss francs (£86m) cash injection.

Talks with the government, which owns a 3 per cent stake in Swissair, were continuing. Analysts said the company needed some 3bn Swiss francs (£1.26bn) in total.

Even before the terrorist atrocities, the airline had run up huge debts in an attempt to expand its business overseas. None of the money being provided by UBS and Credit Suisse would be used to pay off debt, sources said.

"We can't get through this without government help," a Swissair spokesman said.

Separately, Ansett, the Australian airline that went into voluntary liquidation shortly after the US terrorist attacks, said five potential buyers would begin conducting due diligence on the company today.

Cathay Pacific, the fifth largest airline in Asia, has indicated it may need to cut certain routes in response to the downturn being experienced by the aviation industry.

Comments