British Airways (BA) and bmi are on a collision course with trade unions representing nearly 50,000 workers as both airlines try to impose pay freezes. The two carriers account for nearly 60 per cent of flights out of Heathrow, the world's busiest international airport, and a confrontation with unions could lead to industrial action this spring.

Willie Walsh, chief executive of BA, said yesterday that he hoped the unions would work with him on a new pay deal as the airline faces an unprecedented downturn in business. BA wants its 43,000 staff to accept a pay freeze and Mr Walsh has also raised the possibility of job cuts.

However, Unite, which represents nearly half the BA workforce, is insisting on a pay deal of inflation plus 2 per cent. The union is putting forward its proposal on behalf of all the BA staff to strengthen its bargaining position. Union representatives will meet BA next week to discuss their proposals. A union spokeswoman said: “We are not going in to talk about job cuts or a pay freeze but pay rises.”

Bmi is also facing a battle with its 5,000 staff after reneging on a promise to raise pay this year. The airline met Balpa, the pilots' union, on Thursday for a “full and frank” discussion about its decision. The pilots are also angry that bmi, the former British Midland, appeared to remove salaries from employee bank accounts last month so that a pay rise could be deducted.

Nigel Turner, chief executive of bmi, told staff two months ago that the airline would honour a three-year pay deal signed in 2006. However, he wrote to staff last week to tell them this would not be possible in the current economic environment.

BA confirmed yesterday that the economic downturn had resulted in a £51 million loss in the three months to December 31. The airline reiterated its forecast that it will lose £150 million in the full financial year.

The British flag carrier said that it had carried 97,000 fewer passengers last month against the same period in 2008. This included a 13.7 per cent fall in premium traffic and a 1.4 per cent drop in economy passengers. However, BA also cut the number of flights it operates, which meant that its planes carried slightly more passengers and were 73.2 per cent full.

Mr Walsh said: “We know we can continue to improve the efficiency of this business and we are looking at all aspects of how we operate.” BA is examining the adoption of so-called lean manufacturing principles, which squeeze efficiency gains from eliminating unnecessary processes.

The gains typically come from detailed planning with staff and the success of this project may rely on how the pay talks are concluded. Mr Walsh struck a more conciliatory note yesterday when talking about the potential pay freeze. “We want to engage with the union and explain the current economic environment and why we cannot envisage any increase to base pay,” he said.

Jim McAuslan, general secretary of Balpa, said: “There is little doubt that BA, as with all companies, is facing a very difficult trading environment and will need to take steps to address this. We will be undertaking our own financial analysis to provide an independent assessment of the basis of BA's demands for cost reduction.”

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive