Credit protection on troubled U.K. airline British Airways tightened as traders predicted staff shortages and other problems dogging the airline are set to improve. Last week the airline cancelled 90 flights out of Heathrow airport between Monday and Thursday, but it is also managed to avert a strike and the credit markets rewarded it for this, according to a London-based trader.
British Airways' default swap spreads tightened to 305 basis points from 340bps the previous week. One trader said some of the bad news was reflected in this move because BA's competitors, such as SAS, which published inferior results to BA, tightened some 50bps in the same period. All the airlines benefited from a fall in oil prices.
Mark Bayley, v.p. in credit research at JPMorgan in London, said one reason BA tightened was the threat of a bank holiday strike was lifted over the previous weekend. The trade unions agreed to a pay deal in which check-in staff and baggage handlers get an 8.5% pay increase over three years. In addition, the number of sick days each employee takes is being pushed down from 17 to 10. Over the long-term, BA's European operations have been improving and it is now breaking even, or even marginally profitable, whereas 18 months ago it was losing money.
Standard & Poor's rates British Airways BB plus and Moody's Investors Service has it at Ba1 with a negative outlook.
