Market Watch: Turbulent trading as British Airways stock takes a dive

Published on Saturday 27 June 2009 13:54

GROWING concerns over the future of British Airways helped push the FTSE further into negative territory.

The FTSE ended the week down almost 105 points, or 2.4 per cent, at 4241.

BA experienced a particularly rocky five days after it was revealed that just a fraction of its 40,000 staff had agreed to work for free as requested by chief executive Willie Walsh. Rival Sir Richard Branson also caused some investors to abandon the stock on Monday after he warned that BA is "not worth much any more". The stock lost 8.6 per cent of its value on Monday but recovered slightly by the end of the week to close at 129.3p, a loss of 5 per cent on the week before.

Transport will be a recurring theme in the markets this week when investors eagerly await updates from National Express and Arriva.

The City has been keeping a keen eye on debt-laden National Express, which operates the East Coast Main Line from London to Scotland. The operator won the franchise before the recession hit rail companies hard and it is now trying to renegotiate the terms of the deal with the Department of Transport. Under the current terms, National Express is required to pay the government 1.4 billion by 2014. But City speculation suggests National Express could walk away from the agreement, which would trigger defaults on its other franchises. Alternatively, analysts think National Express may call on shareholders for funds.

Although it secured some extra breathing space earlier this month on its 1.2bn debt pile, analysts are treating National Express stock as high risk.

"We believe that a nasty cocktail of rail and debt makes investing in National Express highly risky at the current time," said UBS analyst Dominic Edridge.

Arriva has also suffered at the hands of the recession, particularly on its CrossCountry franchise. However, it is in the fortunate position that if passenger numbers continue to fall on this franchise, it will be able to call on revenue protection mechanisms from 2011.

Retail investors will be keen to learn how the three-year turnaround plan at HMV Group is progressing when it reports annual figures on Tuesday.

Analysts expect a 10 per cent hike in annual profits to 62.3m.

WEEK AHEAD

TOMORROW

ASOS (finals); Premier Foods (trading update)

TUESDAY

Assura, HMV (finals)

WEDNESDAY

Marks & Spencer, National Express, John Wood (trading updates); Home Retail (AGM)

THURSDAY

Greene King (finals)

FRIDAY

Tesco (AGM)