Huge fraud suspected at British Airways

THE CROWN Prosecution Service is studying a police report on suspected extensive fraud within British Airways.

The report was compiled by the CID at Heathrow after a 10-month investigation into the alleged multi-million pound fraud. Eleven people, some of them BA employees, have been arrested and are on police bail in connection with the affair.

The CPS will decide shortly whether to bring charges or to refer the matter to its own fraud investigation group or to the Serious Fraud Office for further investigation.

The SFO may be brought in because it is understood the alleged fraud is larger and more complex than was at first thought, and it has been made more difficult to penetrate by BA's policy of not breaking down its accounts. Part of the reason for referring the matter to the SFO will be to draw on its accounting expertise and its special powers of investigation. Further arrests are possible.

Heathrow police informed BA of their decision to pass the report to the CPS, and possibly on to the SFO, on the morning of 5 February, the day of the board meeting after which Lord King announced he was retiring early.

The potential involvement of the SFO is the third serious legal problem to hit BA recently. Last month, it was forced to apologise to Richard Branson for conducting a 'dirty tricks' campaign against Virgin Atlantic and pay him substantial libel damages.

There have also been allegations that problems with information on the airline's 'Time' inventory computer system resulted in the wrongful prosecution of two businessmen for stealing aircraft parts. Last week, Theodore Goddard, the men's City solicitors, wrote to BA demanding compensation for malicious prosecution. They are seeking pounds 10m for damage to their clients' businesses and reputations.

The latest problem to confront Sir Colin Marshall, BA's new chairman, began last March with a tip-off to police of alleged fraud in the airline's huge property division. In its last accounts, BA values its properties, which include offices, hangars and other facilities, at pounds 415m.

The alleged fraud, which is thought to have been going on for some time, involved payments for maintenance work apparently never done or repeated payments for work undertaken. In return, BA managers are said to have taken kickbacks in the form of cash, overseas holidays, expensive cars and extensions to their homes. The sums involved are believed to run into millions of pounds.

Several managers in property maintenance are suspected of having collaborated with at least one and as many as 10 outside contracting firms. Apart from the 11 arrested already, police would also like to question two former contractors now living in Spain.

One company that has been the subject of the police inquiry is Heathrow Mechanical Services (HMS), which gave its registered office as Leeds but operated from Camberley, Surrey. The company is now in liquidation.

In one deal, BA seemingly paid HMS for the replacement of rainwater drainpipes at two Heathrow hangars - Technical Blocks D and E - but the work was allegedly never undertaken.

Police have discovered dozens of other such deals where BA apparently paid for work which was never done, or made more than one payment on a completed contract.

A BA spokesman said: 'We have been co-operating with the police into an investigation into possible irregularities involving sub-contracting work at Heathrow. The matter is in the hands of the police and any further comment must come from them.'

A police spokesman confirmed: 'We have conducted an investigation into an allegation of large-scale fraud within the property maintenance department of British Airways. The investigation was into contracts awarded by BA to outside contractors and their payment.'

He added: 'The papers are with the CPS awaiting their response. A number of people are on bail and due to return to police at Heathrow at a later date.'

British Airways is expected to reveal a sharp drop in profitability when it announces third-quarter results this week. Chris Tarry of Kleinwort Benson predicts the airline will disclose profits of around pounds 10- pounds 20m, compared with pounds 100m for the same period last year.

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