The Investment Column: BA runs into more turbulence

British Airways has been a low-flying stock for the best part of a year now. Every time the outlook begins to improve the business runs into another bout of turbulence. Hence the dismal performance of BA's shares, which are trading at a near 40 per cent discount to the market.

The latest jolt was an unexpected pounds 32m bill from General Electric for engine repair work. The charge, together with a pounds 42m exchange rate loss and the pounds 5m cost of December's fire at Heathrow, conspired to drive third-quarter profits down by 30 per cent to pounds 80m.

However, the underlying picture is not actually quite that bad. BA is still confident of achieving pounds 600m savings next year from its "business efficiency plan" and has already re-employed a fifth of its cabin crew on 30 per cent less pay following last year's settlement.

Meanwhile, productivity is up 7 per cent, even though BA has added another 2,200 staff, and yields are up by an underlying 7 per cent stripping out currency effects.

Market sentiment to the airline may, therefore, be on the turn at last. The big uncertainty, however, remains the outcome of BA's long-delayed alliance with American Airlines. The conciliatory noises coming out of BA and Brussels and the eagerness of President Clinton and Prime Minister Blair to seal an open-skies agreement suggests the final denouement from the European Competition Commissioner Karel van Miert is at hand.

But the devil will be in the detail - 300 slots sacrificed immediately is a lot different to 300 slots fed out into the market over, say, four years. What's more, some wise old airline birds reckon open skies will equal the mother of all price wars, which would dent BA's yields.

Dresdner Kleinwort Benson is pencilling in profits of pounds 725m, putting the shares, up 7p at 560p, on a measly prospective multiple of 10. But wait to see the whites of Mr Van Miert's eyes before climbing on board.