AGM chairman's address

British Airways PLC
18 July 2006



British Airways' Annual General meeting

QE11 Conference Centre

Tuesday, July 18

Chairman's  Address


Good morning, ladies and gentlemen, and welcome to our 2006 Annual General
Meeting.



I hope you enjoyed the film which highlights some of the UNICEF Change For Good
projects our staff and customers support around the world in Nigeria, Mexico
India and Southeast Asia.  Together we have raised over £22 million for some
very worthy causes.



It is encouraging to see so many of you here again this year.  Thank you for
your continued support.



It has been another eventful year for British Airways.



The transition from one Chief Executive to another is always a testing moment
for any company.  Especially so, when the outgoing Chief Executive has been such
an unquestionable success as Rod Eddington.



Truly a hard act to follow.



So it gives me great pleasure to report to you today that Willie Walsh has
settled into the role remarkably swiftly and easily.  Willie used the handover
months very wisely and effectively so that even though he was a newcomer to
British Airways the transition, when it came, was seamless.  It reflects great
credit on not just Willie but the whole Leadership Team around him that this was
possible.



This morning, I will take you through our financial performance and progress on
strategic matters and Willie will then update you on the exciting new products
and services we are developing for our customers.  But first let me address you
on a serious issue which you will have read and heard about in recent weeks.



British Airways recently announced it is assisting the Office of Fair Trading
and the US Department of Justice with an investigation into alleged cartel
activity including fuel surcharges.



Two members of staff have been asked and have agreed to take leave of absence
including Martin George who is a board member. You will have noted his absence
here today for this reason.

The company, the industry and the individuals have been subjected to intense
public scrutiny and speculation - none of which can be commented on because this
is a criminal as well as a civil investigation.



Since then we ourselves have made no further public comment because it would be
inappropriate to do so.  Nevertheless in the light of press speculation it may
assist shareholders if I put the allegation in context.



Whilst the document requests are widely cast, the recent investigations have
focused on longhaul passenger fuel surcharges and follow an earlier
investigation into cargo surcharges.  There is no suggestion of any breach of
competition law in relation to shorthaul passenger fuel surcharges.  Indeed most
of our direct shorthaul competitors do not show fuel surcharges separately.



Our longhaul passenger surcharges first commenced in May 2004 and have grown in
response to ever increasing fuel costs albeit that they do not recover the full
cost of those increases.  For the record, longhaul passenger surcharges for the
year just ended amount to around 3 per cent of total turnover and in the
previous year under 1 per cent of turnover.



Needless to say, we very much hope there will be a swift outcome to the
investigation. In the meantime your company is fortunate to have the quality of
management with the skills to ensure it is very much business as usual.



Turning to our financial performance I am pleased to report operating profits of
£705 million, re-enforcing British Airways' position once again at the top of
the airline league table for profitability.

The result gives us an operating margin of 8.3 per cent which triggered a well
deserved bonus for all our staff.  We remain committed to our goal of achieving
a10 per cent margin by 2008.



Our top line growth was strong at 9.6 per cent - driven by our highest ever seat
factors and positive yields - both going in the same direction for the first
time in five years.



Total costs were up however by 8.2 per cent to £7.8 billion, driven primarily by
fuel costs - up nearly 45 per cent  - and employee costs up 5.0 per cent mainly
due to increased pension costs.  Over the last two years we have seen our fuel
bill rise by around 80 per cent to £1.6 billion and this year it is expected to
be £2.2 billion.



A particular highlight was the return of our shorthaul business to the black -
albeit only just - for the first time in ten years.  Willie will outline how
this was achieved - a performance that silenced those critics who said it was an
impossible task.



Good though these results were in the context of the aviation market - IATA
forecast industry losses of $2.2 billion for 2006 - I'm afraid they give a false
sense of prosperity.



They lead to reasonable questions on the part of shareholders, for example, '
Where's my dividend?'



And on the part of employees in our New Airways Pension Scheme for example, 'Why
do I have to work longer to get my pension?'



The truth is, we as a Board are responsible for balancing all reasonable
stakeholder expectations, be they customers, employees, shareholders or business
partners such as suppliers.  And, in our estimation, that needs an average 10
per cent operating margin to achieve.



For example, when we come to re-equip the long haul fleet - and we expect to
complete the decision-making process for that sometime towards the end of next
year - that will demand annual capital expenditure outlay of close to £1billion
a year for a decade or more.



Set this cost against our after-tax profit of a little short of £500 million -
and you can see that balancing stakeholder expectations is a real challenge.



So, are we recommending a dividend this year?  No, but as the share price
appreciation made British Airways one of the best performing stocks in the FTSE
100 we believe we have met shareholders' reasonable expectations.  And the
recognition that we should aim to restore the dividend is accepted by the Board.



Likewise with pensions.  We have put forward a proposal for sharing the pain
between the company and staff and if accepted the Company will make a one off
payment of £500 million into NAPS.



We have also extended the normal retirement date in accordance with the Age
Discrimination Act which will allow employees to build up pension entitlements
to match their earlier expectations.



The pension deficit has to be tackled and although understandably no-one wants
their pension expectation reduced, employees would find it extremely difficult
to match our proposed terms if they left the airline and went elsewhere.



Consultation continues with the trade unions.  In the meantime, the trustees
have been looking at the NAPS funding position.  They have now written to the
company and are writing to the NAPS members to indicate that they accept that
on-going contributions much in excess of current levels may not be sustainable
and that a reduction in future benefits is likely to be required.  In the coming
months the company will be working with the trustees to reach agreement on this
important issue.



We cannot ignore the fact that despite doubling our contributions and strong
equity markets, the accounting deficit in the New Airways Pension Scheme has
gone up and the actuarial deficit, expected later this year, is also likely to
be worse.



Turning to broader strategic issues, aviation's equivalent of the Mousetrap
continues its long run.



By this I mean the negotiations towards a new aviation treaty between the EU and
the US.  Seasoned industry observers amongst you know that airlines are governed
by bilateral agreements which restrict them to flights in and out of their own
country, preventing the globalisation of the very industry which facilitates the
globalisation of others.



The result is that airlines can't expand beyond their national boundaries,
competition is stifled, and passengers pay more than they need.



Since liberalization in Europe a decade ago, the EU single market in aviation
has stood out as a beacon for international liberalisation. Within Europe new
products and services have been introduced, fares have come down and consumers
have benefited.



This is why we supported the European Commission when it was granted a mandate
by the member states in 2003 to negotiate an Open Aviation Area between and
within the EU and the US.



We saw this as a way of extending the benefits of the EU single market across
the Atlantic and providing a template for the rest of the world.  But progress
over the last 12 months has again been disappointing.



Unfortunately, the Commission set itself a much less ambitious target but even
that was frustrated by the US government which responded by tinkering around the
edges on foreign ownership and bypassing Congress.



Our view now is that no real progress can be made until the US government takes
a proper legislative proposal to Congress, as Congress itself has suggested. In
the meantime the Commission will just have to hold its nerve, and not be tempted
to use up all its considerable negotiating leverage on an unambitious and
imbalanced first stage deal that we could be stuck with for decades.



Unlike airlines, airports are not subject to the same constraints, as we have
seen with the recent takeover of British Airports Authority by Spain's
construction and road tolls' group Ferrovial.



While some quipped that the Spanish armada had docked at Heathrow thus
re-writing four centuries of history, we look forward to working with our new
landlords.



They share our commitment to delivering excellent service at cost effective
prices for consumers and airlines and we are optimistic that plans for a third
runway at Heathrow will become a similar priority for them.



Encouragingly, the regulator - the Civil Aviation Authority - has reassured us
that the costs and risks associated with the recent BAA takeover including any
windfall payment to shareholders, will not be passed on to customers or airport
users.



The CAA is currently in the middle of its review of charges at the London
Airports from 2008 onwards, which will also involve the Competition Commission
next year. In the five years to 2008, charges at our major Heathrow base will
have risen by over 50%.



We do not believe that continued increases of this order are necessary to fund
continued infrastructure investment at Heathrow, and will be submitting evidence
on the cost of capital and the scope for efficiency improvements to the CAA in
support of this view. British Airways and other airlines have made great strides
in reducing cost and increasing efficiency in recent years, and we wish to see
pressure exerted on the airport sector to deliver similar improvements.



We will also be contributing to the OFT's study into the UK airports market
announced recently.



Now, before I hand over to Willie I would like to acknowledge the tremendous
contribution our staff have made in delivering what is our best financial
performance in nearly a decade.  From the low point of summer last year they
have done a fantastic job restoring confidence in our brand and rebuilding the
trust of our customers.  Attracting and retaining customers is after all, what
keeps us in business.

ENDS

Certain statements included in this statement may be forward-looking and may
involve risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements.



Forward-looking statements include, without limitation, projections relating to
results of operations and financial conditions and the company's plans and
objectives for future operations, including, without limitation, discussions of
the company's business and financing plans, expected future revenues and
expenditures and divestments. All forward-looking statements in this report are
based upon information known to the company on the date of this report. The
company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.



It is not reasonably possible to itemise all of the many factors and specific
events that could cause the company's forward-looking statements to be incorrect
or that could otherwise have a material adverse effect on the future operations
or results of an airline operating in the global economy.






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