Loss of BA contract prompts a warning from Alpha Airports

RUSSELL HOTTEN

Alpha Airports, the in-flight catering and retail group, issued a profits warning yesterday after announcing the loss of an important contract with British Airways.

The contract to provide flight services at New York's JFK airport will not be renewed when it expires on 30 September. The company's shares fell 7p to 142p.

Alpha, whose American operations have been under pressure because of refurbishments at JFK, warned that the loss of the deal means the US operations will not make a profit in the current year.

Last week Paul Harrison, Alpha Airports' chief executive, said the company's retail businesses were trading "strongly", and that the resolution of the difficulties at JFK had meant the US operations returned to profit in the second quarter of this year.

The loss of the contract comes a week after Alpha announced it had agreed to buy independent US aviation-services group DynAir for pounds 75.8m to expand its position in what it said was the growing US air-traffic market. To help fund the deal, Alpha is raising pounds 20.7m through a one-for-nine placing and open offer at 126p a share.

One analyst said the loss of the contract was a disappointment but was unlikely to affect the fund-raising. "Alpha is pursuing the right strategies abroad and I'm sure this is a temporary setback," he said.

Alpha's contract with BA is worth about pounds 7.5m a year in sales. This compares with the company's total flight-service sales of pounds 220.1m last year, of total group sales of pounds 476.5m.

The BA contract, awarded in 1988, was to come up for re-tendering next month. Alpha said it re-tendered but was unsuccessful against strong competition. The company continues to provide flight services to BA at Gatwick airport, and at other regional airports in the UK.

Alpha said the trading environment at JFK would remain tough for the foreseeable future but it believed it could tender for other contracts to dampen the loss of the BA business. The company said it had recently won a contract with the Dutch airline, KLM.

Alpha was floated by Forte, the hotels group, in January 1994 and has been pursuing acquisitions and joint ventures as the airline industry consolidates. Its catering operations have been under pressure as airlines have reduced spending, and the company wants to spread its airport activities.

The planned purchase of DynAir is the most significant move to date in Alpha's expansion strategy. The US company provides services including luggage handling, maintenance and fuelling, and gives Alpha a strong presence in the US market, where passenger volumes are expected to grow by 4 per cent a year.

The deal should also help Alpha when it bids for ground handling contracts at European airports, which the European Commission has ruled must go out to tender from 1997.