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British Airways has slumped to its worst first-quarter loss as it announced plans to raise more than £600 million to keep the carrier afloat.
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.
Reader views (25)
BA....!! I have been a regular traveller with them until of late. Had the most unpleasant experience travelling with them recently from Larnaca; despite their high costs I persevered. I was travelling with my disabled mother who needs help right up to her seat. All my requests for her to have the right one failed, we were allocated the most unsuitable ones and the result was a disaster. Again last week I booked with them to go to Milan again with my mother, had to go through medical clearance, customer services, seat allocations; I nearly had the right seats (bulk head ones) but was only given the right seats on the outward journey; whilst I was trying to sort the homeward journey I have an email
telling me that my seats have been chanced and no explanation whatsoever. I will not again book with them. I am going to send an email to the Chief Executive but I doubt any one will take notice. The Customer services/complaints are still looking into the incident which took place on our last flight; and they will get back to with me! sometime soon. Ithink My Walsh should take the passengers seriously after all we are the ones paying for their salaries. I also travel with other airlines and the staff are so much nicer and helpful. If they carry on the way they are there will not any passengers travelling with them. They are not what they used to be.
- Gy, London
Gordons airport tax ain't gonna help much either.
Incredible that the man still pushes it through, Brown is bad for Britain, bad for business and then some!
- George, Hempstead - Kent
Doubtless another big bill coming the way of the British tax payer.
- Graham Rodhouse, Helmond, Netherlands
Hello London,
BRITISH AIRWAYS was bought from the tax payer for £1 and over the period of the P.L.C. it has made big profits and made many people very wealthy.
The bussiness runs from year to year and yes through this recession it's taken a hit like many other companies.
Multi millions of pounds paid out by the tax payer to give the Airline at the time a fantastic aircraft the Concord made B.A. B.A..
Short sighted management of the P.L.C., cut short the life of this airliner, and the management goes on making good money for themselfs losing millions for the company through there mistakes and it's not just B.A. thats doing it.
National Express has given back to the Government it's franchise to the East Coast Main Line because it can't make Vast profits, and it's the workers that take the hit first .... not fair?.
If a football manager fails to do his job its not the team thats replaced the manager is replaced, for it is he or she that turns the cogs, so Willy you must go, and take with you a nice little earner you will be O.K. and a fat pension to go with it, and I hope this Government reclaims for the sum of £1 BRITISH AIRWAYS, AND AS FOR THE SHARE HOLDERS ..... WELL NICE WHILE IT LASTED.
HAS ANYONE SEEN "SID"?.
- John L., Scarborough. N. Yorkshire. U.K.
I am a shareholder and attended the BA AGM which went extremely well. Shareholders were very supportative of Willie Walsh and his team of the past achievements and the way they are handling the cash crisis and dealing with the TUs. The finacial meltdown left the World economy is in dire straits, governments are borrowing and borrowing to stablise the financial system. The financial companies have gone belly up i.e. Lehman, Bear Sterns and UK's big 4 banks etc etc became worthless this in turn had a huge impact on BA's premier passengers. Due to Willie Walsh's leadership BA is still in a better position than other airlines. While the financial system has been bailed out by the tax payers, BA has not asked for Government help. If you are geniuely concerned about BA, go and buy BA tickets and fill the seats.
Stop trying to put down BA and its leadership. They are doing a good job in very difficult circumstances. Once economy stabilises, we have passed the 'green shoots' brown shoots at the moment BA will be the most successful airline to have survived. So please stop diluting everything - show support. Thank you.
- Mel, London, UK
I must agree here with the majority and even though I am on BA flights once or twice a month, it is because I have no other chance. Virgin, Lufthansa, KLM, BMI, Singapore and the other airlines have become much better than BA over the last few years and I think that especially on-board the staff should be better. They seem not to care. Friendly definitely not!! BA has become a high-cost low-service airline.
- Jacqueline, Hampstead, London
Bad service, and even worse management what do they expect? No doubt they will be bailed out by us UK Taxpayers,the Chairman knighted and given a few £million pension.
- Mike, London England
Oh you miserable, miserable people. Whinge, whinge, moan, moan! I fly BA, and they are always very good. Unlike most of you who will only be happy when our flag carrier goes bust, I pay for my own tickets. The staff are generally excellent....it is their management that are letting them down. Have any of you flown ryanair, Lufthansa or Air France recently? BA staff beat them hands down.
Quit sniping at BA you ghastly doom mongers. A uniquely British disease! Good luck to the staff for wanting to retain just about decent terms and conditions.
- Robert Early, Berlin, Germany
To release 330million from a pension pot which is in the red by 3billion sends only one message.Ba staff will have to sit on their hands as they watch their pensions evaporate.Poor business plans,poor service,top heavey management,nothing has changed since Ailing....Oh except you still charge the Earth for 'Flying with the World's Favourate Airline!'...Well done BA!!
- Tithonus, Athens Greece
Think poor Willie has biten off more than he can chew..Perhaps he should look to Sir Terry Leahy the Tesco Maverick to see he can work the "Every Little Helps" magic at BA.
- Mark, London
Drew London wrote "I used to work for BA (back in the 'Good Old Days' when things just got better & better. I am retired staff and have a nice 'retired-staff' package of flights/pension etc. Ever since three years ago when my whole 'Holiday Experience' was Bloody Awful, I have not used BA since"
Maybe this is the problem the staff and x staff think the airline is run for them on staff travel and staff perks and the huge staff packages and pensions and free or 10% flights they get when working and when they have stopped working for them or retired. Have you ever noticed how staff are always in business or first class when Fare paying passengers rather than being upgraded to one of those cabins sit in econemy rather than them being upgraded. The airline and staff seem to think it runs for them and all the perks, staff travel huge pensions should stop. Then maybe the staff would run the airline for the passengers NOT the other way around which is the case now!
- Vic, London UK
“This is not taking money out of the pension funds,” said a spokesman.
So what is it? Is pension money a different kind of currency? Yet another example of the absurdity of allowing companies to run their own pension funds: if staff were paid an agreed monthly sum into a nominated fund which they took from job to job, the company's involvement with the individual's pension would be cut short. This would free them from a concern unrelated to running their core business, and also protect the individual from the company's temptation to meddle with the pension pot, as is happening here. The overhead cost of running a galaxy of separate schemes would be abolished also, improving everyone's returns. Most of the big company failures are closely linked to ballooning pension deficits. It's all avoidable: though pension funds would have their own problems in a recession,they'd be in a separate category.
- Mdj E10, london uk
I used to work for BA (back in the 'Good Old Days' when things just got better & better. I am retired staff and have a nice 'retired-staff' package of flights/pension etc. Ever since three years ago when my whole 'Holiday Experience' was Bloody Awful, I have not used BA since. Instead, Virgin. The staff are friendlier (and earn less money) the baggage weight restrictions are non-existent as the Check-In Staff know how to offset a light versus a heavy bag - genius! Their lounges are more of everything, whatever your pre-flight requirement and in-flight, the service, entertainment and again, cheaper paid staff, were so helpful and polite. BA - what BA? And the really funny thing is - no other airline would touch it!
- Drew, London, UK
Let the BELEAGUERED fall allowing the others to PROSPER
- Mike, Newbury UK
BA are in a tough position but they are not adapting quickly as the unions are reluctant to change. They should maybe offer the workers the same as BT 25% wages to take a year off. I think they would get this uptake but then the unions might say "we are going on strike as we now have nine cabin crew per plance rather than ten".
- Mike, London
I have absolutely no sympathy for BA (Bloody Awful). As someone who flies out of necessity (my job is international) the airline has been consistently bad in all areas. Customer service? Put a dis- in front of that. Staff? Generally rude (they all appear to be disheartened) and unhelpful. Punctuality? Dreadful (despite how they manipulate the figures). Flights canceled or being bumped to other airlines. Luggage? Lost multiple times, exorbitant overweight charges. In flight entertainment? 60%+ of the time not working properly.
I could go on but want to sit back and watch them suffer. 19 hours delay BOTH directions to Australia is enough to piss off the most patient of travelers.
- James, Spain
Until BA sort out their current service level problem they will continue to lose customers. Their staff has just become so unfriendly and anti-customer the last few years and on-board their service just is not good enough, compared to the improved competition. Mr. Walsh should listen to his customer-complaints!
- Georgie, Islington, London
and what about the loss making investment from london city to jfk starting september 20th, do u remember when BD flew empty lon man which costed 60m to keep the heathrow slots, ba will have to give up heathrow slots when they tie up with ib/aa, but they are so paranoid in loosing their superiority/protecting their slots at jfk they are willing to run a 32 seat airbus from city...have a look at the ES biz section from this past tuesday..why do u think WW was so vague in his reply at the board meeting ..it wont take them long to waste another 500k
- Anthony, london
They will get bailed out by the government, using our money.
- Neil, London, London UK
In view of the government's proposale to expose high earners in the City, presumably they will also include overpaid and overrated executives of industry whose failed strategies threaten the very survial of the businesses they are employed in, not to mention the lazy shareholders who do nothing to make the changes at board level that are necessary
- John, Twickenham
I am the owner of an offshore oil industry company sending engineers to various locations around the world, last year we had a contract which required to purchase of a large no of business class seats round trip to Bangkok. We asked BA ,Emirates and Etihad for pricing. BA were twice the price, as a British company i contacted BA via the Executive club, the reply was an insult and a joke, "we are BA a full service airline who never compare prices" well BA we are a full service oil company who always compares and now use Emirates and Etihad on a regular basis, superb service, new aircraft and a dedicated person to service our booking needs, and it is difficult to immagine circumstances where we will use BA again.
- Alan Davey, London
A big black hole, throwing good money after bad. How can a company be allowed to run with a loss of £400 million and have the audacity to try and raise £300 million! Because it's a British flag carrier. The BA model is dead, lost in the past. Charging far more than its competitors is a no no. I lost my luggage with BA when traveling Copenhagen, London, London Bucharest. After 24 hours they found it. Nobody wants to support a company who has lost it's way and has failed to change it's business model. First Alitalia and now BA. National carriers are a joke.
- Frank, Copenhagen, Denmark
I recently tried to fly to Cyprus with British Airways.
They wanted nearly £400 for the flight. But Monarch Thomas Cook Easy jet and Cyprus Airways were all charging around the £300 mark.
BA flights are just too expensive not just to Cyprus but other destinations that i have flown to recently i have experienced more of the same.
Mr Walsh i try to fly with you but whoever is in charge of your pricing structures needs to be shot, no wonder you are losing money.
- Mr S.Port, London
Can someone please explain why the CEO of BA still has his job? I find it kind of hard that a man who has led the company to such a mess should be rewarded??
As for the Unions at BA, they are as usual totally out of touch with reality. I note Union officials don't lose pay if their members are on strike, in fact most Union official earn over £80k per year, bet most members didnt know that?!
- John, London
THIS IS WHAT HAPPENS WHEN YOUR GOVERNMENT LEAVES EVERYONE WITH NO MONEY, IT IS GOING TO GET A LOT WORSE,MOST OF THE PRIVATE COMPANIES IN THE UK ARE IN DIRE STRAITS.THANKS TO PRUDENCE AND HIS GANG,THEY ALL TOOK THIER FOOT OF THE BALL AND FORGOT TO MAKE THINGS AND EXPORT MORE,OUR FINANCIAL SECTOR IS A SHAM,WHAT DO WE ALL DO NOW,FLYING IS A NO NO JUST NOW,
- Sara, london
