BRITISH AIRWAYS planned an audacious, multi-million pound takeover of one of India’s leading airlines - but the scheme was derailed by problems with industry-ownership laws.

The target was Go Air, a rapidly growing domestic carrier based in Mumbai. BA wanted to take a controlling or significant minority share, with senior industry sources saying it was ready to pay up to $600m (£371.2m) for the stake.

Such cross-border deals are normally out of the question in commercial aviation, which has tough rules preventing foreign nationals owning or taking control of airlines.

BA aimed to get round the restrictions by setting up an Indian intermediary company to hold its investment in Go Air.

Legal difficulties overwhelmed the deal within the past few weeks, however. It is understood BA may negotiate a marketing alliance with Go Air instead, with the Indian airline using BA flight codes on its domestic network. BA declined to comment yesterday.

Revelation of the plan comes at a crucial time for BA. This week it is likely to unveil some grisly quarterly results.

Second-quarter pretax profits could fall to about £50m, compared with last year’s £304m, analysts believe.

Some think Willie Walsh, the airline’s chief executive, will also have to warn that profits for the full year are likely to be lower than expected.

While the airline hopes to break even for the full year - last year it recorded its biggest-ever profit - it may this week forecast a small annual loss.

Demand for business travel across the Atlantic, BA’s main source of profit, has fallen rapidly in the aftermath of the credit crisis.

The airline has, however, managed to maintain prices in the face of falling demand and has gained a fillip to revenues from fuel surcharges.

Walsh is also expected to unveil more capacity cuts, with the airline’s network from Gatwick, London’s second-largest airport, most at risk.

Reports circulated last week that the airline may get rid of up to three of its largest aircraft, Boeing 747-400s.

BA will make 450 out of 1,350 middle managers redundant at the end of the year, and has recruited management consultants McKinsey to advise on an internal restructuring. BA confirmed yesterday that McKinsey had been working with the airline for several months.

Insiders say the airline’s management structure would be comprehensively revised, with a system of “directorates” introduced.

“It’s actually about reorganising around anyone who is left,” said one BA source.

BA’s decision to pursue an Indian tie-up has piqued the interest of rival airline executives, who have been focused on the stuttering progress of its planned merger with Spain’s flag carrier, Iberia.

“I think it indicates where they think the real future of the airline industry lies, and where their next deal might come from – India or China,” one said.

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