Dan-Air future looks grim as rescue talks with BA begin

THE FUTURE of Dan-Air looked increasingly bleak last night as the beleaguered airline entered last-ditch rescue talks with British Airways after the collapse of negotiations with Richard Branson, chairman of Virgin Atlantic.

BA would almost certainly walk away from a deal with Dan-Air were it to be vetted by the Monopolies and Mergers Commission or made contingent on BA surrendering route licences.

But rival airlines will insist that any deal is examined by competition authorities in London and Brussels. Sir Michael Bishop, chairman of British Midland, warned last night that any link-up between BA and Dan-Air would have to be subjected to full and open investigation by the MMC and Brussels because of the anti-competitive effect it would have at Heathrow and Gatwick.

Mr Branson meanwhile said that if Dan-Air did tie up with a 'mega-carrier' such as BA then he would go ahead with the creation of a new airline, Virgin European Airways.

The Gatwick-based airline would be separate from Virgin Atlantic and would operate to about six destinations, including some currently flown by Dan-Air.

There was surprise yesterday that David James, chairman of Davies and Newman, Dan-Air's parent company, had rekindled talks with BA just three weeks after earlier negotiations collapsed.

Part of the reason for their failure was that BA, like Virgin, discovered Dan-Air's financial position to be worse than previously thought. The airline is expected to lose at least pounds 30m this year compared with forecasts of a pounds 7m loss.

Mr James is understood to have told Mr Branson last Friday that two other parties were interested in entering negotiations. It is thought that the second party might have been LTU, the German travel group, which has airline and tour operating businesses and owns Thomas Cook.

BA and LTU both refused to comment yesterday on whether they were in talks with Dan-Air.

The negotiations between Mr Branson and Mr James began with discussion of marketing and operational links coupled with a pounds 50m cash injection. But Mr Branson concluded that the only prospect of salvaging Dan-Air was to place the airline in administration and then form a new carrier flying a core of profitable routes with a smaller fleet of aircraft.

In a statement yesterday Virgin said that Mr James visited Mr Branson at his home on 24 September. 'He explained that unless he could persuade Mr Branson to look at Dan-Air he might well have to close the company down the following morning.'

Virgin said it had been told last week that another party had begun talks with Davies and Newman. For this and other reasons, Mr Branson decided not to continue negotiations.