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Last Updated: Friday, 18 May 2007, 17:08 GMT 18:08 UK
BA may face 350m collusion bill
BA plane at Heathrow

British Airways has put aside 350m to cover possible fines and legal action after it broke competition law.

The decision relates to last year's finding that BA had discussed fuel surcharges with rivals. BA shares ended 2.9% lower on Friday after the news.

The announcement came as BA said annual operating profits had slumped 13% to 602m after a spate of negative events.

Thousands of flights were cancelled after a terror threat in August, with many more hit by fog at Christmas.

Members of our staff breached our comprehensive policies on competition compliance rules. I find that very regrettable and completely unacceptable
Willie Walsh
BA Chief Executive

And only last-gasp talks with unions managed to stop a proposed cabin crew strike going ahead - but not before thousands of passengers had cancelled reservations.

'Best estimate'

The UK Office of Fair Trading, the European Commission and the US Department of Justice have been investigating alleged price-fixing of fuel surcharges for almost a year.

If found guilty of operating a price-fixing or market-sharing cartel, an airline can expect to be fined as much as 10% of its worldwide sales - and criminal action could also result.

In October, BA's commercial director Martin George and communications chief Iain Burns - who had been on leave of absence since the probe began - quit the company.

I wouldn't be at all surprised if no fuel surcharges were actually fixed in a way that damaged customers
Robert Peston
BBC Business Editor

The 350m put aside is to cover any liability resulting from legal action over the rigging of fuel surcharge prices, as well as fines.

The provision was the "best estimate" of the amount needed to settle all claims, BA said, adding that there was uncertainty about the final bill.

"Members of our staff breached our comprehensive policies on competition compliance rules," chief executive Willie Walsh told the BBC.

"I find that very regrettable and completely unacceptable".

BBC Business Editor Robert Peston said that he "wouldn't be at all surprised if no fuel surcharges were actually fixed in a way that damaged customers".

But he added: "It's almost a matter of life-and-death to honour competition regulations to the letter in a world where competition watchdogs from Washington to London to Brussels are straining at the leash to bite."

'Frustrating'

Mr Walsh said that BA's results were "strong" in what had been "a challenging year", which saw sales up 3.4% to 8.49bn in the year to 31 March.

Pre-tax profits fell 0.8% to 611m, better than analysts had expected.

"We know at times it has been a frustrating year for our customers, caused by disruption and overly restrictive UK government security measures on hand baggage," he said.

The August terror threat saw BA cancel 1,280 flights, and left BA with a hefty bill for hotels, catering and baggage recovery.

Increased security restrictions introduced also meant the number of business passengers taking its flights fell in the following weeks.

Last-gasp talks in January prevented a series of strikes, but the cancellations already made led to profits falling 72% between January and March.

Attractive

After the collapse of a private equity bid for Australia's national carrier Qantas, some analysts have tipped BA as a potential takeover target.

Its shares had risen 2.4% on Thursday as Goldman Sachs described it as the "jewel in the crown" in terms of its attractiveness to potential buyers.

BA is also believed to be considering a bid for Spain's carrier, Iberia, in which it already owns a 10% stake.

Earlier this year the airline sold off its loss-making regional airline BA Connect as it tried to plug a hole in its 2.1bn pension deficit.

The airline also announced on Friday that it had ordered eight new short haul Airbus A320 planes for delivery between 2008 and 2010.


VIDEO AND AUDIO NEWS
BA chief Willie Walsh on the threat of fines



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