From today's Telegraph Questor:
You'd BA fool to board this low-flying aircraft
ROD EDDINGTON, the British Airways chief executive, used all his charm yesterday to reassure investors that there was no danger of the airline going bust.
"From survival to viability", trumpeted one slide he showed the City's planespotters, outlining the three steps to recovery: "Liquidity in place - rebuild cash flow - industry leader." If only it were that simple.
Post September 11, BA is burning towards £2 million cash a day. "No worries," said Aussie Rod: there's £3.4 billion fuel in the tank.
That includes more than £1 billion advance cash from passengers and a new £800 million loan facility, secured against about 20 aircraft. Then there's £1.5 billion of property and "investments".
As those investments are stakes in other airlines, including Qantas and Iberia, that's none too reassuring. But, if you believe BA, it has enough cash to keep airborne for at least three years, assuming things don't get worse.
That's hardly a reason to buy the shares, however, which yesterday fell 1.25 to 154p. Mr Eddington envisages a "prolonged" downturn, while his joint broker Merrill Lynch reckons it will lose £775 million this year and could fail to turn a profit before 2005.
Its strategy of chasing front-of-cabin traffic bound for America has turned the airline into an option on the US economy. Sure, BA's yields went up by 6.1 per cent in the second quarter - its busiest - but that's not much help if operating profits fall 73 per cent to £72 million.
Moreover, while Mr Eddington focuses on cutting costs and preserving cash, the likes of Ryanair and Easyjet plan to make hay - Ryanair's operating margins are currently nine times BA's.
BA will recover one day. But one reason the shares are trading below the group's 220p net asset value is that the market has not ruled out a deeply discounted rights issue. With no dividend to soften the pain, the shares are best avoided for now.
