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Following The Earlier UA Debate, Can BA Go Bust?  
User currently offlineDelayedagain From , joined Dec 1969, posts, RR:
Posted (10 years 2 months 2 weeks 4 days 23 hours ago) and read 2058 times:

I was following an interesting earlier thread about UA's predicament and have a similar topic about BA.

On a BMI flight I was talking with the f/a's about their desire for LHR-USA flights and threw in the comment ''you can just wait til BA goes bust & take their slots''. She said the govt would never allow BA to go bankrupt!! How true is this? I know BA just posted a profit, but my understanding from financial press is that this profit wasn't from flying, just from lay-offs and selling assets. they still have literally billions of debts.

So, could BA be allowed to go tits up? I don't want a debate of ''ooh I love BA, I hope not'' or the opposite: just the cold facts/opinions as to whether bankrupty COULD be allowed.

the way I see it, BMI could replace them overnight in Europe and Virgin could do same on the longhaul. Be back to BEA and BOAC!! and also, realistically, just how close to the wind are they sailing these days.

p.s. Good luck to UA. seems there's a lot of goodwill out there behind them  Smile


20 replies: All unread, jump to last
 
User currently offlineLeskova From Germany, joined Oct 2003, 6075 posts, RR: 70
Reply 1, posted (10 years 2 months 2 weeks 4 days 23 hours ago) and read 2052 times:

It would most likely depend on the size of the - theoretically needed - bailout: the EU is quite strict in how much governments can help airlines (or any other business), so - even though I prefer BMI over BA - I think this comment belongs more in the "We've been flying for so many years and still people don't take us nearly as serious as they do BA or Virgin"-frustration column...

So, yes, I do think BA could go bust if they started really going downhill... just as Air France, Lufthansa, Iberia, TAP and others could - and as Sabena and Swissair already have done.

Regards,
Frank



Smile - it confuses people!
User currently offlineScbriml From United Kingdom, joined Jul 2003, 12566 posts, RR: 46
Reply 2, posted (10 years 2 months 2 weeks 4 days 22 hours ago) and read 2042 times:
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I don't think there's much that the Government would be allowed to do - BA is a privately owned airline. If it goes bust, it goes bust. Then things would get interesting!


Time flies like an arrow, but fruit flies like a banana!
User currently offlineNickofatlanta From Australia, joined May 2000, 1488 posts, RR: 0
Reply 3, posted (10 years 2 months 2 weeks 4 days 22 hours ago) and read 2022 times:

... and - correct me if I'm wrong here - there's nothing similar to the Chapter 11 bankruptcy filing that artificially props up some airlines over in the States.

User currently offlineCapital146 From United Kingdom, joined Jun 2003, 2125 posts, RR: 43
Reply 4, posted (10 years 2 months 2 weeks 4 days 22 hours ago) and read 1995 times:

I know BA just posted a profit, but my understanding from financial press is that this profit wasn't from flying, just from lay-offs and selling assets. they still have literally billions of debts.

just how close to the wind are they sailing these days.

Somebody can correct me if I am wrong about this but I don't think BA has billions of debts. I'm pretty sure that large airlines (such as BA) put aside large reserves of capital in the 'good days' of the late 1980's and during the mid-late 1990's when profits were very good to help them through leaner times such as the past few years. This is probably why carriers such as AA and DL have managed to keep their heads above water despite posting huge losses post 9/11.








Like a fine wine, one gets better with age.
User currently offlineSteve7E7 From United Kingdom, joined May 2004, 476 posts, RR: 50
Reply 5, posted (10 years 2 months 2 weeks 4 days 22 hours ago) and read 1992 times:

Nickofatlanta

I think you'll find that the UK equivalent of Chapter 11 is Administration...the rules are quite similar to Chapter 11,it allows the company enough time to organise a rescue package whilst continuing to trade.

It is true that BA are debt laden but so are many companies these days.My Travel have been carrying a multi billion deficit for the last couple of years and somehow continue to trade...me thinks they will go down before BA.

Steve.


User currently offlineBostonguy From United States of America, joined Jul 2000, 514 posts, RR: 7
Reply 6, posted (10 years 2 months 2 weeks 4 days 22 hours ago) and read 1993 times:

I'm not sure if there is a Chapter 11 equivalency available for BA.

But, with recent history (as mentioned above... Sabena, Swiss, etc.) I think it's possible BA could be permitted to cease to operate without government support should things get really bad. In addition to wondering about a chapter 11 equivalency for BA, I'm wondering what EU rules are on government support. My understanding from the Sabena situation is that the EU doesn't want airlines to be artificially supported. I think France and Germany are trying to loosen up some of these "no government intervention" rules, however.

Should BA go bust, Tony Blair would have to use a different aircraft for international travel (he uses a BA 772, correct?). Would it be unseemly for a head of government to arrive on an aircraft with VIRGIN in big letters? Has the Queen (who has flown BA) ever flown Virgin for longhaul?

As for filling travel demand after a BA belly-up (I do like the British equivalent... "tits up"... hehehehehe, never heard that one before) I think intra-European segments could easily be handled by the multitude of LCC's and Virgin would then have no problem filling A380's on longhaul routes (I bet Branson would pack the A380 with as many seats as possible). Hasn't BA turned many of those segments over to LCC subsidiaries anyway?

Last Wednesday the "Wall Street Journal" had an article regarding United's potential demise and indicated that conventional wisdom amongst analysts was that although United's prospects are dim, it would nonetheless continue to survive "until the next downturn (recession)". BA having a better financial condition than UA would, if this conventional wisdom apply, enable BA to continue flying through the next downturn.


User currently offlineLeskova From Germany, joined Oct 2003, 6075 posts, RR: 70
Reply 7, posted (10 years 2 months 2 weeks 4 days 21 hours ago) and read 1985 times:

My understanding from the Sabena situation is that the EU doesn't want airlines to be artificially supported. I think France and Germany are trying to loosen up some of these "no government intervention" rules, however.

I don't think so - at least not in the case of Germany... after all, what would be the use of that? Germany (as a country) does not own an airline - Lufthansa is privately held, no government ownership - so there really wouldn't be any benefit in it...

I also doubt that France is arguing for loosening those rules, but, then again, I don't know...

Could it be that you've confused those rules with France and Germany, unfortunately, trying to get the "Stability Pact" for the Euro relaxed?

Regards,
Frank



Smile - it confuses people!
User currently offlineWearyBizTrvlr From Netherlands, joined May 2004, 58 posts, RR: 0
Reply 8, posted (10 years 2 months 2 weeks 4 days 21 hours ago) and read 1981 times:

BA is not in any immediate danger of going bankrupt, and in fact has been profitable pretty consistently. It is true that it does have a substantial amount of long-term debt (around 8 billion sterling), but the servicing costs are not excessively onerous given its current profitability.

If BA does screw up and starts losing money, then eventually it will go under, and should be allowed to go under, just like any other airline. Then again, with so many precedents of other countries circumventing or flouting EU government aid directives, who knows? The barriers to exit in the airline industry are absurdly high, which is one of the reasons so few airlines are consistently profitable.



Trudging around the world from AMS
User currently offlineBostonguy From United States of America, joined Jul 2000, 514 posts, RR: 7
Reply 9, posted (10 years 2 months 2 weeks 4 days 21 hours ago) and read 1950 times:

Could it be that you've confused those rules with France and Germany, unfortunately, trying to get the "Stability Pact" for the Euro relaxed?


Not confused, but you're on the right track as I was thinking of that! I think what I'm trying to say is that we might be seeing a trend developing with efforts to ease the Stability Pact and France's recent efforts at intervention in Pharmaceutical company mergers (Sonofi, I think). This is merely speculation on my part... the result of putting together unrelated issues and situations and wondering if these might result in the long run to be early signs of a developing trend. Speculation nonetheless!

As it currently stands there seems to be no impediment to BA's ability to go under, nor does it currently appear that the Government would even be willing to actively prevent it from happening.


User currently offlineLeskova From Germany, joined Oct 2003, 6075 posts, RR: 70
Reply 10, posted (10 years 2 months 2 weeks 4 days 21 hours ago) and read 1939 times:

Bostonguy, France's Sanofi intervention was actually not very well received here in Germany - both by the corporate side and the political side, so at least Germany would - most likely - not be on France's side in that regard...

At least I really hope so.

But I agree with you that that intervention by France in the Sanofi merger wasn't necessarily something that would build outside confidence in the EU...



Smile - it confuses people!
User currently offlineFLYGRA From United Kingdom, joined Jun 2004, 18 posts, RR: 0
Reply 11, posted (10 years 2 months 2 weeks 4 days 20 hours ago) and read 1935 times:

WearyBizTrvlr ...

Correct current debt figure is around £4.2billion, down from £6.5billion in 2000.

G


User currently offlineSleak76 From Kuwait, joined Nov 2000, 345 posts, RR: 2
Reply 12, posted (10 years 2 months 2 weeks 4 days 20 hours ago) and read 1931 times:

From BA's press release regarding results 03/04

'Net debt at £4,158 million, fell by £991million from March 2003 and by £2.4 billion from the December 2001 peak to its lowest level since December 31, 1997. Gearing is at its lowest level since 1992 at 53.9 per cent.'

BA seems to be in control of the situtation (though their debts are the highest of any European carrier). And just like the BMI cabin crew, I myself feel that the UK government wont easily allow BA to go 'tits-up'. They employ thousands in the South East schatchment area, their tax rev to the government is nice (85 mil GBP for 03/04, and 50 mil the year before = 135 million pounds in 24 months), they indirectly employ another few thousands due to their presence there..etc. There is so much economic consequences associated with BA going down then one thinks, esp in the SE area.

Personally, seeing that BA came from predecessors such as BEA and BOAC makes me seriously hope the government would would stick in for 'her'.  Smile



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User currently offlineWearyBizTrvlr From Netherlands, joined May 2004, 58 posts, RR: 0
Reply 13, posted (10 years 2 months 2 weeks 4 days 20 hours ago) and read 1907 times:

Hm, I should know better than to post from memory rather checking my facts... thanks to FLYGRA and Sleak76 for correcting me on BA's debt load.

To those interested in BA finances, BA Shares has a wealth of investor information available, including a presentation summarizing latest results.



Trudging around the world from AMS
User currently offlineFlyCaledonian From United Kingdom, joined Dec 2003, 2090 posts, RR: 3
Reply 14, posted (10 years 2 months 2 weeks 4 days 15 hours ago) and read 1846 times:

As FLYGRA and Sleak76 have stated, BA has been working hard to reduce its debt, and everything seems to indicate that it will continue to do so. The Future Size and Shape programme initiated by Rod Eddington has delivered bigger than expected cost savings in a shorter than expected time space. Also, despite BA posting a profit Eddington remains determined to keep driving down costs. His stategy is very much about establishing BA on a much firmer footing for the long term, and this means not stopping the reforms now.

Bostonguy, exactly what LCC subsiduries does BA have? Go was sold a few years back. GB Airways, the LGW based franchise carrier has taken over a couple of former BA routes to France in the past couple of years, but it has added lots of its own too. BA CitiExpress, the regional operation, has slashed many routes, not picked them up from BA, with the possability of more going if nothing is going to replace the Dash 8s in its fleet by next March. What BA has been doing is to increase the profitability of all its operations. Perceived wisdom is that throughout the 1990s BAs shorthaul operations were not only loss making but cross-subsidised by the longhaul routes. Now, it is rumoured BA is close to, if not actually, breaking even on shorthaul operations. It has been offering low fares, increased aircraft utilisation, cutting excess capacity, but still reamining full service. If it is true that its shorthaul operations have been turned around so much then I think, IMH, that this shows how BA has strengthened itself.

So to answer the original post I don't think BA could go bankrupt in the forseeable future. If it got in such a position that this could happen, I actually think it would be allowed to happen. The political fallout would be huge whatever decision was made, but allowing BA to go under would I believe be the more likely. Massive state intervention is not going to happen, especially where so many carriers can fill the void.

On a separate note it is probably sad to say that there is more chance of bmi going under than BA - and that certainly would be allowed to happen. BCal got taken over by BA when it was in poor financial health, and both Dan-Air and Air Europe went under in the early 1990s. VS is making money, though bmi is still loss making.



Let's Go British Caledonian!
User currently offlineSrbrenna From United Kingdom, joined Apr 2004, 100 posts, RR: 0
Reply 15, posted (10 years 2 months 2 weeks 4 days 15 hours ago) and read 1836 times:

As long as BA continue to post profits they will be OK. However in some years the profits have been generated by cost cutting and selling off parts of the business which is a worry.

I think they have turned things around recently but the Future Size and Shape came very late. They should have thought about it a few years before. They have been very slow to react to downturns, LCCs etc and I think that this could catch up with them. They need to be a bit more nimble and ready to react to situations more quickly.

That said they are a good airline with a good product. They still have a bit of cash (over a billion sterling) to ride out difficult periods and have major assets in their stake in Qantas and their slots into LHR


User currently offlineVS11 From United States of America, joined Jul 2001, 1111 posts, RR: 0
Reply 16, posted (10 years 2 months 2 weeks 4 days 15 hours ago) and read 1816 times:

Not sure why people think that there are UK airlines to fill in the BA longhaul shoes. Much as I love Virgin, VS is not that big to operate all of the longhaul services of BA, not even close actually.

Several comments - the way EU governments can affect companies' bottom lines is to give them under certain situations cheaper loans - something the Italian government will be doing for Alitalia.

In general, in a market economy, a company can expect to exist as long as there is a market for its services. And as we know there is a huge protected market of international aviation services in the UK. The UK has so many economic and cultural connections with the outside world (not to mention the tour package vacationers) that there is always going to be a fairly strong demand for air travel to/from the UK. LHR is not the biggest international airport for nothing.

So the short answer is - BA is not going bankrupt as
1. Strong demad and
2. Protected markets (think of all the bilateral agreements)

And the financial markets are well aware so they would give BA money. And if not, the UK government probably will.

UA being very huge still does not have the same place within the US economy as BA has for the UK economy.

VS11


User currently offlineWearyBizTrvlr From Netherlands, joined May 2004, 58 posts, RR: 0
Reply 17, posted (10 years 2 months 2 weeks 4 days 14 hours ago) and read 1796 times:

Now, it is rumoured BA is close to, if not actually, breaking even on shorthaul operations.

They're certainly close. BA's short-haul losses from FY2000 to 2004 were 310, 172, 244, 117 and 60 million pounds respectively. So if they manage to keep improving at the pace of the last three years, they should break even or perhaps even eke out a small profit on short-haul in FY2005 (BA's fiscal year ends March 31st).



Trudging around the world from AMS
User currently offlineGDB From United Kingdom, joined May 2001, 13208 posts, RR: 77
Reply 18, posted (10 years 2 months 2 weeks 4 days 14 hours ago) and read 1780 times:

About this idea that the govt would somehow bail out BA, remember BA's worst ever crisis, the fall out from Sept 11th?
Stuff like 'Loan Guarantees' for BA were conspicuous by their absence.

BA has pointedly not asked for any help, they perceive the best help governments can give airlines like BA is an end to bail outs for EU carriers and the help US majors have been getting, (to be fair, the EU is much better on this now, though BA are less than happy about virtual basket cases like Alitalia still having a degree of government intervention).

BA were slow to respond to the LCC's having said that, they've not hung around trying to sort themselves out, they have to, as they can expect no effective help from anywhere else.

All BA want from government is a continued resistance to some of the frankly outrageous demands from the US side of bilateral talks, basically BA want the government to keep standing firm and insist that a greater penetration of our market by US airlines must be matched by an opening up of the US market to carriers like BA, as that's not likely to happen, expect continued deadlock, while not ideal, that's not too bad an outcome for BA.


User currently offlineFlyCaledonian From United Kingdom, joined Dec 2003, 2090 posts, RR: 3
Reply 19, posted (10 years 2 months 2 weeks 4 days 11 hours ago) and read 1721 times:

The slow reaction of BA to the LCCs was because Bob "World Tails" Ayling set up Go as the BA answer to them. The original intention was that many of the shorthaul routes would end up in Go's hands with BA concentrating on high yielding longhaul routes plus trunk shorthaul routes (Remember the policy to focus on high-yield O&D passengers). Go was sold by Rod Eddington during 2001 and after 9-11 many in the UK financial press criticised this move as airlines sort to shed costs and move to the LCC model. So the fact that three years later BA, is as I said, close to breaking even on its shorthaul services is no mean feat. Yes, Ayling's policy of not carrying so many transfer passengers helped, but a lot has been done as well to sell those shorthaul seats (Can't open a paper these days without seeing how small BA's prices are!)


Let's Go British Caledonian!
User currently offlineScotron11 From United Kingdom, joined Feb 2004, 1178 posts, RR: 3
Reply 20, posted (10 years 2 months 2 weeks 4 days 1 hour ago) and read 1639 times:

No way, Jose! Have you looked at BA's balance sheet lately? Certainly performing better than many European legacies out there. Even now, three years after 9/11, their profits on transatlantic are pretty good.

For all the "obstacles" that have been planted on airlines doorsteps (SARS, Iraq, fuel prices), BA's current position is impressive. Hopefully all those factors that have hurt this years recovery for the worlds airlines are easing, especially fuel, and that some serious money can be made by all.


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