As British Airways CFO John Rishton prepares to release interim results on 10 November, he may find some comfort in the fact that the last full-year results were described by chairman Lord Marshall as coming from the 'most difficult period in living memory' for the aviation industry.
Indeed, since Rishton himself became CFO on 1 September 2001, he must be thinking that the worst is over.
Shortlisted for Finance Director of the Year in Accountancy Age’s Awards for Excellence, Rishton already has something to be proud of. The last full-year results for the year to 31 March 2003 represent a turning point for the airline.
While turnover was down 7.8% to £7.7bn, operating profit was up to £295m after a loss of £110m the previous year. BA returned a pre-tax profit of £135m after a loss of £200m, and earnings per share were 6.7p.
The task of aggressive cost cutting largely fell to Rishton. In the aftermath of 11 September 2001, BA had a debt mountain of £7bn and was losing cash at a rate of £2m a day. Rishton imposed immediate and stringent cash controls, and he and four other senior executives devised a recovery plan aiming for sustainable cost efficiencies worth £650m annually.
By the last year-end, costs had been cut by £1bn, or 12%, and net debt between September 2001 and March 2003 was reduced by £1.4bn.
The market seems to view these achievements as a good start. The share price has largely held up, but problems in the aviation sector and for BA in particular persist. A summer of strikes has cost the airline both hard cash and, crucially, customer goodwill.
Discontinuing Concorde meant the closure of an area of the business that was no longer commercially viable, but also meant the airline wrote off £84m in the last accounting year and faces further costs relating to the disbanding of the supersonic craft’s operation.
Henk Potts, an analyst at Barclays Private Client, said that discount airlines were still finding favour with the market at the expense of opera-tors like BA.
‘They have cut costs very aggressively and the shares have actually performed quite well, but we still remain very cautious about them. They have a very high debt position,’ he said.
Potts said the market was looking for further consolidation, but that current ‘open skies’ agreements were a barrier to mergers and acquisitions.
No surprise then that the man urging US and EU negotiators to create a new aviation treaty to link the US domestic market and the EU single market was BA chief executive Rod Eddington. Such an agreement would pave the way for cross-border M&A activity.