Friday 21 May 2010

BA losses in a spin

I really don't get the City reaction to the BA results today. Sometime analysts are just like journalists, they want a story and make the facts fit it.

In short, BA posted its worst ever losses today on the back of all the troubles last year, a £531million pound loss. A very rough calculation is putting this at over £10,000 loss per flight taking off!

The City is focusing on the fact that the company led it to believe it would lose £600 million. Therefore this number is a beat for them and the shares are marked up!

However, all these figures are pre the next set of strikes which could cost £150 million and the cost of the Ash cloud - which of course could well be a recurring theme.

Not only this but BA's pension deficit is still a disaster zone, with the deficit being worth triple the company's value and the planned merger with Iberia will stick BA with another loss making airline - it may not even be a UK domiciled company for much longer.

BA is said to have £1.7 billion of cash on the balance sheet. Therefore the company can stand these conditions a while longer. What the analysts are missing is that BA is not replacing its fleet. Look at how old its planes are here: compare it to say Virgin or Easyjet.  These aircraft that need replacing cost $70 - $200 million each. OK BA gets 50% discount, but it is still over £2 billion of replacement costs needed very shortly.

I have always said BA have good management, despite the sniping in the press, Willie Walsh, Keith Williams both do a terrific job, but it is a Sisyphean task.. But the Unions and weather are conspiring to ruin the brand once and for all. Perhaps with the merger they will try a re-brand?

All this and the share at at 190p - in current parlance - get real.


Budgie said...

There are two problems here. One is the Unite's socialist mind-set which says in effect: 'never mind what the customer is willing to pay, we the workers should be payed what we want'.

Second is the attitude of modern management which, unlike say the active commissioned officers in the armed forces, will not rough it with their subordinates.

If Walsh and co want to save BA they must lead from the front - literally. They must take pay cuts, get rid of their plush offices, sack the hangers on and yes-men. They should be leaders not pushers. Their troops will respond.

Andrew B said...

Financial gravity can be defied for a while.
I do no know who placed the word 'Rational' next to 'Market', but they were not completely correct.
Whilst I agree with the analysis, I will not be going short.

Numberwang said...

I like the fleet age website. On the same basis, shareholders (not to mention customers) of Jet2 (part of Dart Group) should be concerned. Average age 22 years!

Old BE said...

Let the company go bust. Their greatest assets are surely the Heathrow slots. Let them be auctioned off and the ridiculously pampered staff can go and work for whatever rises from the ashes.

BA cabin staff are paid about double what Virgin's get. QED.

Michael said...

The Last comment is just daft and inaccurate.B.A crew earn on the old contracts a fortune but there are not many of them left, the new contract crews earn considerably less, these contracts where bought in about 1996/7. The brand new crew earn a little above minimum wage.And the majority of crew do not want a strike, many are not in the union.
If the company goes bust, highly unlikely, the pension fund would maybe sink the PPF.
The age of A/C is a good point, but then and its really only fuel efficiency that they are needed, but is it worth the expense?
Isnt the share price holding up because they expect to be in profit next year and have the tie ups of AA and Iberia to look forward to.

Anonymous said...

It's a strange world we live in when the threat of a strike by some waiters and waitresses hits the headlines....

Y Ddraig Goch said...

"I have always said BA have good management, despite the sniping in the press, Willie Walsh, Keith Williams both do a terrific job"

Could you expand on that a bit, because I can't see it? My impression is that BA's management and unions deserve each other. The management couldn't run a whelk stall and the unions don't seem to know or care about the connection between customers and pay.

rwendland said...

Looking at BA's last accounts (2007/08), Employee costs (£2,166m) are 27.5% of operating costs. Assume Walsh hopes to get a 20% reduction in cabin crew costs, say 10% of entire employee costs, that's an operations costs saving of 2.75%.

Are BA's problems so small a 2.5% cost saving would fix it?