Beleaguered British Airways rocked by sky-high loss

The beleaguered airline, which many expect to nosedive to its worst-ever losses this year, has been forced to disclose the extent of its decline ahead of the launch of a convertible bond in the City today.

BA admitted it racked up operating losses in April, May and June — the first quarter of its financial year — of around £100 million after a crash in revenues of 12% to £1.98 billion.

It is BA's first Q1 loss in the 22 years since privatisation.

Last year, when the airline made an annual loss of £400 million, BA still made an operating profit of £35 million in the first quarter. Two years ago it posted first-quarter profits of £266 million.

News of the losses came with the issue of a five-year, £300 million convertible bond, which will pay interest of around 6% and can be exchanged for BA shares at a later date. Those future shares are expected to be priced at around 180p each, around a third more than the current price of 136.6p, up 4.5p.

The airline said it has also done a deal with the trustees of its massively in-deficit pension fund to free up a further £330 million.

The trustees have agreed to release certain bank guarantees held by the pension funds — reckoned to be around £3 billion in deficit — in the event the airline goes bankrupt and is not able to fulfil its funding commitments.

"This is not taking money out of the pension funds," said a spokesman. "These are guarantees which have been held in the event of the airline's insolvency.

"Clearly it is in everyone's interests — including the trustees — that the airline does not become insolvent and that is why the guarantees have been released."

Though still heavily in debt, BA says the fund-raising will give it around £2 billion of available cash.

Leading shareholder Standard Life said the fund-raising has got City support but that investors will expect BA chief executive Willie Walsh to deliver cost cuts in return.

"It was important to do the funding," said Standard Life head of UK equities David Cumming. "Now if it keeps costs under control things will improve."

Separately, the BA boss is believed to have been forced into an embarrassing u-turn and put the airline's loss-making OpenSkies subsidiary up for sale.

The OpenSkies brand, which flies to New York from Paris and Amsterdam, was only launched a year ago.