Strong Q2 causes BA protection cost to narrow 200bp

The cost of credit protection for British Airways (BA) has tightened by 200 basis points to 725bp following surprisingly strong second-quarter earnings figures released yesterday. The airline beat market expectations by pulling off a financial turnaround with a pre-tax profit of £245 million in the second quarter to the end of September, up from £5 million a year ago – a quarter that included a plunge in sales due to the World Trade Center attacks.

Following the post-September 11 downturn in air travel, BA has made sharp spending cuts and shed jobs. The company confirmed that sales and passenger numbers were both down, with revenue falling to £2.1 billion during the quarter from £2.25 billion last year. But, barring “war” or “terrorist action”, BA said it expected to report a full-year profit, but provided no further details on how it defined these terms.

Credit default swaps for BA traded around 650bp-mid in August before the company said