BA set to announce very large loss
Source <a href="http://luchtvaart.pagina.nl" target="_blank">latest news</a> . . . .British Airways will report one of the biggest quarterly losses in its history on Monday, as the airline discloses the full impact of the drastic decline in demand for air travel that followed the September 11 terrorist attacks in the US.
Despite having one of the weakest balance sheets among the leading European airlines, BA is not expected to launch a rights issue in the near future, however.
According to bankers and financial analysts, BA is not in immediate need of funds, having moved quickly to strengthen its cash position in the weeks after September 11.
"BA has more than ample liquidity to see it through this downturn, so there is no need to do anything quickly," said Chris Avery, aviation analyst at JP Morgan. "It is not under pressure, so it can choose the timing. It is better for it to sit on its hands and wait for an improvement in the market."
BA raised close to an extra £1bn ($1.4bn) of liquidity during the seven weeks after September 11, giving it total liquidity of around £3.4bn including around £1.1bn in cash and unused bank facilities of more than £800m. It also had marketable assets of about £1.5bn.
BA has already suffered the blow of being downgraded by both Moody's and Standard and Poors, the US rating agencies, to junk from investment grade two months ago.
It is rated Ba1/BB+, the highest speculative grade, by both agencies. The downgrading hit around $940m of BA debt securities adding to the airline's borrowing costs.
The airline is expected to launch an eventual share issue later this year to help rebuild its battered balance sheet, but not until it can show signs of a marked recovery in business travel across the North Atlantic, its key market and traditionally its main generator of profits.
BA shares closed 8p or 3.9 per cent higher on Friday night at 212½p, as investor confidence was improved by reports from airlines on both sides of the Atlantic that the worst of the aviation crisis may be over.
KLM, the Dutch national airline, reported on Thursday a "noticeable improvement" in trading during the past two months as well as a continuing favourable trend in advance bookings.
Ominously for BA's recovery prospects, however, KLM also said announced that it had decided to reduce business class capacity and to increase the number of economy class seats in response to the decline in demand for business travel.
BA has built its strategy around gaining a growing share of lucrative business passengers, but KLM said "We see a structural reduction in business class travel in Europe. We don't think this is coming back."
The consensus forecast for BA's third quarter result is an operating loss of £225m, down from an operating profit of £80m a year ago, and for a pre-tax loss of £230m, down from a profit of £65m.
The airline has already reported that its traffic fell steeply by 18 per cent in the three months October to December, while capacity was cut by only 14 per cent, meaning that the airline filled only 65.2 per cent of available seats, down from 68.3 per cent.
Most worryingly for its financial performance, premium traffic fell by 27.3 per cent in the quarter compared with a fall of 16.2 per cent in non-premium traffic.
In the wake of its results BA is due to announce in the next two weeks the result of its far-reaching "Future Size and Shape" review that is expected to lead to a restructuring of its operations aimed at achieving sustainable profitablity and to overcome this year's record losses.
It is expected to take action to eliminate loss-making routes and products, to cut costs, including several thousand job losses, and to reduce capacity to stem years of losses on its short-haul operations in Europe.