British Airways Slumps to Record Annual Loss

British Airways slumped to a record loss and cancelled its dividend for the year to end March, adding that tough market conditions made it impossible to give any guidance for the current period.

Europe's third-biggest airline by revenue has been suffering from a sharp downturn in air travel — particularly on its core London-New York business routes — and on Friday echoed comments by bigger rival Air France-KLM that there were no signs of improvement on the horizon.

"The prolonged nature of the global downturn makes this the harshest trading environment we have ever faced and, with no immediate improvement visible, market conditions remain challenging," Chief Executive Willie Walsh told reporters.

BA shares, which had risen 14 percent this month, were off 3.7 percent at 156.7 pence, valuing the business at more than 1.8 billion pounds.

The company posted record annual operating losses of 220 million pounds ($347.5 million) for the year to end March, compared to a record profit of 875 million pounds in 2007/08.

That included restructuring costs of around 80 million pounds as the company slashed its workforce to save cash.

It said its headcount had been reduced by 2,500 since March last year, and Walsh said more redundancies would follow.

BA scrapped its dividend, just a year after it was reinstated with much fanfare for the first time since 2001, and said there would be no guidance for the current year due to difficulty forecasting sales.

"This is sobering stuff after an extraordinarily difficult year. They are being very downbeat on the current year," Blue Oar airlines analyst Douglas McNeill told Reuters.

He added that on a positive note the airline would get a boost from a 400 million pounds cheaper fuel bill in 2009/10.

The airline reported a full-year fuel bill this time around close to 3 billion pounds due to last summer's record oil prices, up 44.5 percent from the previous year.

Talks Continue

Walsh said there was nothing to report on long-running merger discussions with Spanish partner Iberia.

"Discussions continue — the main issue remains corporate governance," he told reporters, referring to the make-up of the umbrella company that would control the combined group.

Kirsty Wigglesworth / AP

BA and Iberia expect a ruling on their plans for an anti-trust transatlantic alliance with American Airlines by October.

The move would follow the recent profit-sharing venture between Air France-KLM and Delta .

BA said flying capacity for next winter will be cut by 4 percent.

The British carrier's debt rose to 2.4 billion pounds at end March, up from 1.3 billion pounds the previous year, while its cash position slid 483 million pounds to just under 1.4 billion pounds.

Pension Deficit

Analysts and shareholders have been concerned about the group's pension deficit, which was valued at 1.5 billion pounds at March last year but is likely to have grown substantially since then.

"If the financial markets deteriorate further, our pension deficit may increase, impacting balance sheet liabilities, which may in turn affect our ability to raise additional funds," the airline said in the statement.

A full actuarial review of the retirement scheme is currently underway, with the results expected to be published in late summer.

The group will not comment further until then.

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