USAir charge trims BA result

Record headline profits at British Airways yesterday were overshadowed by a surprise provision of pounds 125m on its USAir investment and continuing problems with its European alliances.

Sir Colin Marshall, BA chairman, dismissed the provision as a "technicality" caused by US accounting rules, but analysts described it as a big disappointment.

Although BA had hinted that a charge on its pounds 251m investment might be necessary, recent improvements in USAir's performance and progress on talks with unions suggested it would not be necessary.

BA's pre-tax profits were 61 per cent up to pounds 452m in the year to 31 March, from a restated pounds 280m last time. But the provision against its 25 per cent stake cut this to pounds 327m.

Sir Colin seemed unhappy at having been forced to make the charge, which he said would not have been made under UK accounting rules. Under new US rules a company is forced to write down any loss in an investment that would not have recovered within 18-24 months.

The size of the provision suggests that BA expected its convertible preference holding in USAir to be worth about pounds 125m in two years.

"It is ironic that it is happening at a moment in time when USAir certainly appears to be well on the way to turning the corner," Sir Colin said. The alliance had generated pounds 70m in revenues for BA last year, and could make more this year.

The French TAT airline, in which BA has 49 per cent, made "a poor result'', said Robert Ayling, managing director, though he would not disclose the size. The company had taken an undisclosed restructuring provision and would concentrate solely on the domestic French market. However, Deutsche BA, also 49 per cent-owned by BA, had performed better with traffic volumes up 72 per cent last year.

BA's link-up with Qantas, the Australian carrier, were beginning to feed through and would lead to a shared cost saving to the two airlines equivalent to the financing of a B747-400 and a B767, without having an impact on the frequency of their services, Mr Ayling said.

BA itself reported passenger traffic up 6.7 per cent and its load factor, which measures traffic versus capacity, was up 1.6 points at an annual record for the airline of 71.6 per cent.

Analysts welcomed the final dividend of 8.9p, making 12.4p for the year, but generally the reaction was muted. "The figures look disappointing and there is some confusion over the writedown,'' said one. The shares closed 15p down to 410p.

BA revalued the majority of its properties over the year, boosting the company's capital and reserves by pounds 289m. The revaluation reduced the airline's net gearing to 176 per cent.

Mr Ayling said Eurostar cross-Channel train services had cut passenger volumes by a "containable and modest" amount.

Investment Column, page 26