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LONDON—British
Airways Plc., Europe’s third-biggest airline, said it’s
spent at least £17 million ($33 million) on establishing
a subsidiary that will fly between continental
Europe and the
US.
British
Airways, which had previously declined to say how much
it was investing in the start-up, released the
information in financial accounts for the year ended
March 31, published on its web site. The accounts also
reveal that chief executive officer Willie Walsh will
get a 5-percent pay rise next year.
The
subsidiary, called OpenSkies, is being established by
London-based British Airways in response to a European
Union-US treaty that liberalized trans-Atlantic air
travel in March. The carrier will fly between Paris and
New York from June 19 using a Boeing Co. 757 and aims to
operate six planes by the end of 2009.
“It
sounds like there’s been a lot of work, a lot of
investment has gone into OpenSkies,” said Stephen
Furlong, an analyst at Davy Stockbrokers in Dublin who
has British Airways on his focus list. “It’s an
intriguing development but they’ll need to see a return
on that investment.”
British
Airways, which will increase CEO Walsh’s base pay by
£35,000 to £735,000 pounds in the 12 months beginning
July 1, according to the accounts, closed down 1.4
percent at 224.5 pence. The stock has lost 28 percent
this year, giving a market value of £2.59 billion.
British
Airways said in January that it expects the new airline
to be profitable by its third year of operation.
OpenSkies’ planes, taken from the British Airways fleet
of 13 757s, will have 24 business-class seats converting
to flatbeds, plus 28 premium economy-class seats and 30
in economy. So-called premium-seating is the most
lucrative source of trans-Atlantic revenue for the UK
company.
Record
oil costs, a global tightening of credit and an economic
slowdown have contributed to the failure of 24 airlines
in recent months, according to the International Air
Transport Association, among them business class-only
carriers Silverjet Plc. and MAXJet Airways Ltd.
“With
the demise of all these premium-only carriers, such as
Silverjet, maybe there’s a niche for OpenSkies,” said
Furlong. “But at these testing times, making it a
profitable niche is going to be difficult.”
Walsh,
who has said the current fiscal year will be
“challenging,” may get a bonus equal to 150 percent of
his salary in his next pay year, the accounts show. He
turned down a 100-percent bonus worth £700,000 pounds
for the current year after the chaotic opening of London
Heathrow airport’s new Terminal 5. (Bloomberg) |
