Branson weighs up 5% stake in BA as share price tumbles

RICHARD BRANSON, the chairman of Virgin Atlantic, is dusting off plans to buy a 5 per cent stake in his arch rival British Airways if the company's share price continues to tumble.

News of Mr Branson's renewed interest in taking a stake came as BA's shares fell a further 5 per cent to 325.5p. The shares, buffeted by a fresh series of profit downgrades by analysts, are now only marginally above their low for the year of 308p reached last October.

Mr Branson placed a buy order that month with his advisers, Deutsche Morgan Grenfell, instructing them to buy a stake of 5 per cent in BA should the share price fall to 300p. The stake would have cost pounds 159m.

In the event, the shares bounced before they hit 300p, and subsequently rose as high as 553p in April before renewed worries about price cutting and overcapacity on transatlantic routes took their toll once more. In the past five months BA shares have fallen 41 per cent, wiping almost pounds 2.5bn off the company's market value.

A Virgin spokesman confirmed yesterday that last October's buy order had lapsed. But he added: "As the price heads towards 300p it must begin to look interesting as a recovery stock and we would certainly consider buying at that level."

The free-fall in BA's share price has perplexed its supporters in the City and raised question marks once more over the future of its chief executive, Bob Ayling.

Analysts are braced for more bad news next Tuesday when BA reports traffic and yield figures for September. In August it reported an 80 per cent slump in underlying first-quarter profits to pounds 23m and warned that the second quarter between July and September, traditionally BA's most profitable, would be "significantly affected" by continuing excess capacity.

Since then BA has disclosed that it will take a pounds 40m charge this year to cover the cost of a restructuring programme that will see it shed 1,000 jobs and reduce capacity by 12 per cent or 6.5 million seats over the next three years. The airline will also be affected by higher fuel costs because of the surge in oil prices and losses on yen-denominated aircraft leases due to the strengthening of the Japanese currency.

Chris Tarry of Commerzbank has raised his forecast of losses before exceptional gains to pounds 110m this year. ABN Amro is forecasting a loss on the same basis of pounds 124m and rates the shares a sell down to 318p.

Mr Tarry remains a buyer of the shares, however, saying there are clear signs that BA's strategy of concentrating on business class passengers is beginning to pay off. He said Lufthansa, KLM and Swissair had all announced plans to reduce capacity significantly in the coming year. "It is a bold move by BA to break the mould and not chase market share any longer," he added.

Virgin Atlantic is due to report profits of around pounds 100m for the 12 months to last April. However, profits in the current year will be down due to the cost of launching new routes. Virgin has begun services to Chicago and Shanghai and is hopeful of winning additional rights to serve Cape Town and Las Vegas.

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