Saturday, 22 May 2010

Is British Airways the General Motors of British aviation?

British Airways has recorded a substantial loss, has been over-ruled by the Appeal Court and is facing a series of three strikes lasting five days each starting from 24th May through to June. There has been a lot of “to-ing and fro-ing” from the Courts throughout BA’s negotiations with the union. In over-ruling the latest ban on strike, the Lord Chief Justice Lord Judge said “it seems curious that BA should use a law introduced to protect union members from irresponsible and undemocratic actions by union leaders to circumvent the democratic wishes of the workers.”
So, what next for BA?
Joseph Lampel, Professor of Strategy at Cass Business School, London, gives his reaction to the announcement of £531m of losses for the year to the end of March:
"I am not surprised by today's announcement of huge losses by BA, but it is likely that the underlying company assets may be strong enough to withstand the company going into insolvency. At this point, and into the near future, It's all about confidence - BA's investors and customers must believe it is possible for Willie Walsh to turn the company around.
"He has to make a lot of unpopular and difficult strategic changes because, if he doesn't, BA will have no future. You only have to look at the likes of Sabena, Swissair, Alitalia and other national airlines that became effectively insolvent for the same reason: high costs and inflexible labour practices.
"Willie Walsh must tackle the underlying cost factor in order for BA to survive. The company has been hit hard by the economic situation, and other cyclical factors, but this potentially reversible. The question is: Can BA survive until this comes to pass?
"There is an unfortunate resemblance between British Airways and General Motors. GM dominated the American car industry, just as BA dominates British aviation. GM made several "comebacks" only to be pulled down by high costs, truculent unions, and consumer disaffection, when economic conditions took its sales below survival volume. The response of the US government to this perfect storm was to bail out GM. BA faces a similar combination of adverse factors. Will creditors continue to fund the company in the light of recent losses? As in the US, this may become political issues, now that some of the large creditors are owned or partly owned by the government."