British Airways caterer facing financial crisis

Gate Gourmet may seek protection from creditors

August 23, 2005|By BLOOMBERG NEWS

LONDON - Gate Gourmet, the caterer for British Airways PLC, may seek protection from creditors for its United Kingdom unit unless the company signs a new and better contract with the carrier by today.

Gate Gourmet, owned by U.S. buyout fund Texas Pacific Group, sent a letter to the airline asking for an agreement with better terms by 5 p.m. today, said Marie Cairney, a spokeswoman for the catering company based in Reston, Va.

"Gate Gourmet needs a more favorable contract with British Airways," said Cairney. "It's a really severe financial situation."

British Airways is recovering from a two-day strike 10 days ago when 1,000 of its employees stopped working to support union members fired by Gate Gourmet. The strike at London's Heathrow Airport stranded 100,000 of the airline's passengers and may cost it $72 million.

The carrier hasn't changed the terms of a contract offer made in April, but discussions with Gate Gourmet are continuing, said Jay Merritt, a British Airways spokesman.

British Airways shares rose 4.5 pence, or 1.6 percent, to 289.75 pence in London yesterday. On the New York Stock Exchange yesterday, its U.S. shares rose 75 cents to close at $52.10.

The Transport & General Workers Union, which represents workers at British Airways and Gate Gourmet, says the airline should fire the caterer because of its poor handling of the work force. Gate Gourmet fired 650 employees, provoking the sympathy strike.

"BA mustn't capitulate to Gate Gourmet," said Tony Woodley, general secretary of the Transport union, at a rally for workers held in a Sikh temple in Southall, west of London. "They should do the honorable thing and take Gate Gourmet back into its own ownership."

Many of the fired Gate Gourmet workers are Sikhs originally from south Asia.

British Airways said it wouldn't take back the catering business that it sold to Swissair in 1997. Texas Pacific bought Swissair's catering business in 2002, when Swissair went bankrupt.

"We are an airline, not a catering company," said Merritt, the airline's spokesman. "It will not happen."

Gate Gourmet, whose customers also include United Airlines and Emirates Airline, predicts that its operations in Britain will lose 25 million pounds this year unless costs are reduced. The company is trying to cut expenses after clients were battered by the decline in air travel after the Sept. 11, 2001 attacks in the U.S.

Gate Gourmet supplies 300 British Airways flights a day at Heathrow and 80,000 meals a day. The airline said hot meals on long-haul flights from Heathrow resumed yesterday for the first time since the strike Aug. 11-12.

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