Threat of USAir write-off casts shadow over BA

Sir Colin Marshall, chairman of British Airways, repeated warnings yesterday that the company might be forced to write off its £258m stake in the troubled American airline USAir. There were optimistic signals last month that USAir's restructuring talks with unions were progressing, but Sir Colin said yesterday that the situation remained uncertain.

The threat of a write-off, and the possible damage to BA's strategy to become a global airline, continues to overshadow the company's strong financial performance.

BA yesterday announced third-quarter pre-tax profits up 56.9 per cent to £102m, well above City expectations of between £72m and £90m. But analysts were reluctant to revise full-year profits forecasts of around £450m until the USAir situation was resolved.

Sir Colin stressed that the alliance with USAir remained unaffected, emphasising the £70m a year in extra revenue BA expects to receive from cross-ticketing.

However, he said: "The outcome of continuing negotiations with USAir's unions remains uncertain. If these negotiations are not successfully concluded, BA believes that a provision for permanent diminution in value is likely to be required against the present book value of its investment."

Of BA's other alliances, Qantas traded profitably in the three months to 31 December, while combined losses at France's TAT Airline and Deutsche BA were higher due to tougher competition. BA does not disclose the losses.

BA's strong growth in the third quarter meant profits for the nine months rose 48 per cent to £443m, on sales up 9 per cent to £5.28bn. In the third quarter sales rose 8 per cent to £1.6bn.

The improved results reflected the benefits of continued growth in passenger traffic, up 7.4 per cent in the quarter, and low fuel prices. BA's fuel costs fell 9.8 per cent in the third quarter to £147m, due to exchange rate benefits and lower charges.

Sir Colin said prospects for 1995 remained encouraging, though price competition continues to be intense, with yields remaining under pressure. The company would meet its £150m cost reduction target in the current financial year.

Nigel Davies, analyst at Panmure Gordon, said: "They have become much more sophisticated in putting bums in seats. They are now getting the sort of load factors [percentage of seats filled] in quiet quarters that they used to achieve in busy quarters."

BA's lucrative premium traffice business - Concorde, First Class, Club World and Club Europe - grew in the quarter by 6 per cent, against growth of 11 per cent last time. BA said the fall was due to unusually strong growth last year.

Yields, the average amount paid by each passenger for each kilometre flown, declined by 0.2 per cent, reflecing this slowdown in the rate of premium traffic growth. Cargo carryings rose 13.3 per cent in the nine months to 506,000 tonnes.

The company expected Australia's Trade Practices Commission to decide within the next few days whether it will allow BA to merge its Far East flight schedules with Qantas. The commission originally ruled in November that the move was anti-competitive.

Sir Colin said: "The argument and debate and discussion has gone on since then and now I think they are getting close to issuing their final decision. I think that decision is quite imminent."

BA owns 25 per cent of Qantas, which is being privatised in May or June. However, BA is excluded from raising its stake It also has a 49 per cent stake in Deutsche BA and 49.9 per cent in TAT. It is looking for another strategic alliance in the Pacific Rim area, covered by the likes of Cathay Pacific.

BA shares rose 4.5p to 374p.