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USAir nearer to deal on cost cuts

Pressure on British Airways eased yesterday after USAir, its loss- making American partner, moved a step closer to agreeing a cost-cutting package with another union.

USAir said the International Association of Machinists agreed in principle to accept pay cuts in return for shares in a restructured company.

A similar agreement has already been agreed by the Air Line Pilots Association, leaving the Association of Flight Attendants and the Transport Workers Union as the only two groups yet to accept a deal.

BA, which had hinted that its £187m investment might have to be written off, said the latest development was encouraging, but there was still a long way to go.

The machinists' union is thought to have agreed a 20 per cent pay cut in return for shares in the company.

The terms of a deal have still to be drawn up, and union members will have to vote on it. A deal is also subject to agreement by BA, which holds 24.6 per cent of USAir.

Mike Powell, airline analyst at NatWest Markets, believed that negotiations between USAir and its employees could be completed within two months. "The pieces in the puzzle are beginning to fit together," he said.

The earlier agreement with the pilots' union had been pivotal as their lead was an influential factor in pushing ground and cabin crew towards a deal.

Mr Powell said that BA was likely to object only if there was any suggestion that the changes would give employees a majority stake in USAir.

Increasingly, analysts believe that USAir, which last year teetered on the edge of requiring Chapter 11 bankruptcy protection, will survive. Having traded through the difficult winter period, USAir last month reported sharply lower losses for the first quarter.

The news continues to help the BA share price, up 14p to 422p. On Wednesday BA, chaired by Sir Colin Marshall, announced a 15 per cent rise in revenues for April, and a record passenger load factor of 72.7 per cent for the month.

Nigel Davies, analyst at Panmure Gordon, has raised his 1995/96 profit forecast sharply, from £485m to £625m. Other analysts were expected to raise their forecasts.