British Airways has become well practised at dealing with exceptional crises, such as terrorist threats and extreme weather disruption, but the events of the past ten days have rocked it like never before.

The opening of the national carrier’s home at Heathrow’s Terminal 5 was supposed to be the dawn of a new era. It was so important to BA’s future that the company successfully lobbied the British Government to delay the introduction of the open skies agreement between Europe and the United States so it could move first.

Instead, BA has faced daily abuse from passengers who have arrived at T5 to discover cancelled flights and lost baggage. The cost so far has been £16 million, BA claims, but the reputational damage must surely be much higher.

The mud is sticking and BA could find itself with the sort of negative reputation that just never goes away: think British Rail, the BBC staff canteen and Gerald Ratner.

Balpa, the pilots’ union, has taken this opportunity to call on City investors to oust Willie Walsh, BA’s chief executive. This apparently fell on deaf ears yesterday as the stock gained 5p to 240p, but BA’s management must realise that its credibility is draining away.

The company’s share price has halved in the past year and there appears to be little sign that the situation will improve.

Mr Walsh issued a profit warning last month saying that rising costs, specifically sustained high oil prices, would hit the company’s profit margin in 2008-09. The BA boss had promised that margins would be 10 per cent this year, equating to about £900 million profit.

BA now believes that margins will be 7 per cent but analysts say that it could get much worse. For example, Exane BNP Paribas forecasts a 4 per cent margin. Consider the challenges BA must face this year and this does not seem unreasonable: a worsening economic environment, further T5 problems, competition from other carriers as a result of open skies and a threatened strike by pilots over the establishment of a subsidiary European airline.

BA’s March traffic figures have already indicated that the economic slowdown in the US has had an impact, with premium ticket sales off 5 per cent. Business-class traffic between London and New York is what BA builds its profits on and if numbers continue to drop, the impact on margins could be dramatic. On the upside, BA’s product offering remains competitive, and once T5 beds down it will be a substantial improvement on the rest of Heathrow. An optimistic investor, therefore, could see BA’s share price fall of the past year as a buying opportunity.

This is reinforced by research done by Collins Stewart, which shows that BA is trading at a 20 per cent discount to the European aviation sector. BA can also claim to be somewhat insulated from economic slowdown in Europe because of its exposure to rapidly growing markets in Asia and the Middle East.

However, the downside risk that BA faces this year is far greater than the upside and its stock at present is as uninviting as its new terminal.

Travis Perkins

If buying a retailing business just as consumer sentiment turns pessimistic is considered brave, then buying three is surely tempting fate. Travis Perkins, owner of the Wickes DIY chain, spent £5 million yesterday on a 30 per cent stake in Toolstation, the screws and rawlplug home delivery specialist. It spent another £7 million paying off Toolstation’s debts and has an option to buy the remaining shares by 2014.

The acquisition is the third in as many months for Travis. Suppliers to the building trade and DIY shops are traditionally knocked hard in economic downturns, and Travis’s sales growth has already slowed.

The company appears to be trying to buy its way out of a looming slump by adding new businesses. Toolstation gives Travis greater exposure to the small builders who could help it to weather any worsening in the retail sector. If people are not buying new bathrooms, they may need old bathrooms revamped.

This gave investors something to be hopeful about and Travis’s share price gained 12p yesterday to £10.73. However, Travis has lost more than half its value in the past year. If consumer spending continues to fall as a result of higher household bills, no amount of acquisitions will insulate Travis from the pain.

Mining stocks

Rapid economic development in China and the resulting boom in commodity prices should be familiar stories by now, but investors appear to be consistently undervaluing the main beneficiaries. The big mining companies that supply the raw materials feeding Asia’s growth again saw their share prices jump yesterday after a huge increase in coking coal prices.

Posco, the South Korean steelmaker, said it had agreed to pay up to 210 per cent more for coking coal in what could become the benchmark for all producers. BHP Billiton rose 68p to £16.85, Xstrata gained 160p to £38.67 and Anglo American was up 125p to £32.87.

Mining stocks have also made gains recently on the back of big iron ore settlements and price rises in copper and nickel. When Rio Tinto published data on the outlook for the aluminium sector, aluminium stocks rose. The market has consistently failed to establish how much value Asia’s boom is adding to the mining sector and this offers opportunities for investors.

Anglo American has largely missed out on consolidation speculation and got on with divesting noncore assets. As a result, its share price has barely budged since last year, but it has a huge portfolio of assets experiencing big price rises. It is the most likely miner to have hidden value yet to be spotted by the City.

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