June 01, 2007

British Airways Doesn't Expect Private-Equity Bids

British Airways Plc Chief Executive Officer Willie Walsh dashed speculation about a private-equity bid, saying the airline isn't attractive as a buyout target and hasn't been courted.

``We haven't been approached by anyone; I haven't seen any activity that would suggest people are actually looking at British Airways,'' Walsh said in an interview. Asked whether a private- equity bid might take place, Walsh said: ``No.''

Shares of British Airways, Europe's third-largest airline, rose the most in six months on May 29 on speculation of an offer from a buyout firm. The London-based airline is attractive because first-class and business-class travel is growing, Goldman Sachs Group Inc. analysts said on May 17.

``It is true the straightforward things have been done and assets have been sold, but there may be interest in the airline anyway,'' said Gert Zonneveld, an analyst at Panmure Gordon in London with a ``hold'' rating on the stock. British Airways may be a target because it holds more than 40 percent of the takeoff and landing slots at Heathrow Airport, he said.

The airline sold regional subsidiary BA Connect in November to U.K. regional carrier Flybe and disposed of an 18.25 percent stake in Qantas Airways Ltd. for 430 million pounds in September 2004. It has also closed down ticket-sales offices and saved costs by moving bookings to the Internet.

The shares fell 2 pence, or 0.4 percent, to 468 pence at 12:56 p.m. in London. The stock has dropped 3 percent since May 29 and 11 percent so far this year, giving the carrier a market value of 5.39 billion pounds ($10.7 billion). The 10-member Bloomberg Europe Airlines Index has risen 7.8 percent this year, led by a 42 percent gain at Iberia Lineas Aereas de Espana SA.

Iberia Bid

British Airways, which owns 10 percent of Iberia, said on May 22 that it would support a takeover bid for the Spanish airline led by TPG Inc., the U.S. private-equity company previously known as Texas Pacific Group.

A formal bid for Iberia, Spain's biggest airline, ``is a long way away,'' Walsh said in an interview yesterday in his office. ``We haven't had access to the information. We have made the request to the board of Iberia.''

British Airways has cut its workforce by 23 percent to 49,957 employees since 2000 and reduced debt to 991 million pounds from a peak of 5.7 billion pounds in 2001.

The company's remaining primary assets are a fleet of 242 planes, the headquarters at Waterside near Heathrow and the holding in Iberia.

Biggest Shareholders

``If you turn the clock back, I'd say maybe there might be private-equity interest in British Airways because what private equity would do is they would look at what is non-core and look to monetize that,'' Walsh said. ``And that's exactly what we've done.''

The largest British Airways shareholder is Standard Life Plc, a U.K. insurer, with a 7.1 percent stake, followed by Barclays Plc with a 6.8 percent holding and Amvescap Inc., an investment firm, with 6.7 percent, according to data compiled by Bloomberg.

The airline reported its first loss in eight quarters May 18 after setting aside 350 million pounds to pay antitrust fines related to fuel charges and canceling flights because of a labor dispute. Walsh succeeded Rod Eddington as chief executive in October 2005. Shares of British Airways have increased 61 percent since he took the post.

Buyout firms are attracted to carriers like Qantas Airways and Iberia because they have assets in addition to their fleets. Recent discussions British Airways had with TPG were purely about forming a group for a potential bid, Walsh said.

Qantas Attraction

``If you look at Qantas, it is a very different company; they've got a lot of activities that I would describe as non- core,'' Walsh said. ``If you look at Iberia, there are a lot of activities that are non-core, and that's what private equity looks at.''

The interest in Iberia is not a defensive move aimed at protecting routes operated jointly by the airlines, he said.

``We have a strategic stake in the company that has value,'' he said. ``We want to make sure we look at every option to maximize the benefit of that in the interests of our shareholders.''

Iberia is ``clearly too expensive'', Wolfgang Mayrhuber, chief executive officer of Deutsche Lufthansa AG, Europe's second- largest airline, told NZZ am Sonntag newspaper on Apr. 8. Walsh said the comments had no influence on British Airways strategy.

``It's a bit like beauty, it's in the eye of the beholder,'' Walsh said. ``It may have a different value to different people.''

The airline will order 34 long-haul aircraft by September or October, he said. The airline is considering Airbus SAS A380s and A350 XWBs and from Boeing Co., 777s, 787s or 747-800s.

Credit-default swaps based on 10 million euros of British Airways debt fell 2,000 euros to 78,500 euros, according to Deutsche Bank AG.

By Emmet Oliver
To contact the reporters on this story: Emmet Oliver in London at eoliver4@bloomberg.net .

Source: www.bloomberg.com

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