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Friday, 7 September, 2001, 16:47 GMT 17:47 UK
BA risks FTSE rejection
British Airways tail fins
The US slowdown has hit business traffic
British Airways risks being evicted from London's blue-chip FTSE 100 index next week because of recent falls in its share price.

BA's shares fell 7% on Thursday, closing at 270p, then hit a 52-week low on Friday afternoon before a marginal recovery saw the stock end the week at 271p.

Analysts say BA's shares have been falling because of increasing fears about the weakness of the American economy and its likely impact on BA's transatlantic earnings.

The index of leading shares is due for its quarterly reshuffle on Wednesday 12 September and companies which are rejected will immediately be dropped from a host of institutional investors' portfolios.

Companies whose market value has fallen outside the top 90 by market capitalisation at Tuesday's close risk relegation.

A host of technology stocks are also facing eviction, and are most likely to be replaced by old economy stocks.

Poor timing for new strategy

BA is trying to shift its business away from selling economy class seats towards high-paying business passengers, a strategy which hinges on its transatlantic routes.

To meet the downturn, BA has told unions that it will cut 1,800 jobs by the end of the financial year.

The bleak economic picture in the US led HSBC transport analyst Robin Horn to cut his forecast for BA's operating profits and downgrade the stock on Thursday, partly triggering the stock's slide.

"Shares are falling because of worries about the dividend and on worries that we may be heading for an all-out recession", said Mike Powell, an airline analyst at Dresdner Kleinwort Wasserstein.

Mr Horn said operating profits for the year to March 2002 are likely to be 235m, not 318m as predicted earlier.

Morgan Stanley and Deutsche Bank analysts predicted BA will slip into loss in the year to March 2002, and Deutsche Bank downgraded the stock.

Strike fears

Investors are also worried about the risk of strike action at the airline's loss-making German subsidiary, Deutsche BA.

Pilots are demanding wage rises of at least 22% to compensate them for nine years of below-inflation pay deals.

So far, Deutsche BA has rejected the pay claim, offering 2.5%, though it has said it will make the pilots a new offer on 13 September.

"We cannot spend money which we do not have," said Deutsche BA chairman Adrian Hunt.

BA recorded a pre-tax profit of 40m for the three months to June 2001, compared to a 50m loss for the same quarter last year.

But this year's figure includes the 100m profit the company made when it sold its no-frills airline Go in June.

BA will announce its dividend on 6 November 2001.

"BA has paid the same dividend for three years and if it pays that again, it will be the fourth year they've held it flat", said Deutsche Bank analyst Jonathan Wober.

The BBC's Tom Symonds
"British Airways says it will be looking to lose staff voluntarily"
See also:

04 Sep 01 | Business
British Airways cuts 1,800 jobs
06 Aug 01 | Business
BA profits hit by US slowdown
12 Aug 01 | Business
BA and AA seek US approval
13 Aug 01 | Business
BA 'reviews future' of German unit
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