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updated 1/28/2004 1:16:14 PM ET 2004-01-28T18:16:14

British Airways is launching an attack on employee costs including a drive to reduce "sickness" absence with the aim of saving an annualized £300 million ($549 million) by March 2006. 

The latest cost-saving drive is expected to remove up to 3,000 more jobs from the overall group workforce of 47,000. 

The GMB union said BA was cutting 4,000 jobs, but the airline refused to name a target. 

BA said that its level of staff absence - at an average of 15 days a year per employee - was more than double the national average of 7.1 days reported in the last CBI report on workplace absence. Staff sickness costs about £70 million a year. 

This latest initiative, contained in BA's next two-year business plan, comes on top of the existing restructuring program aimed at making annualized cost savings of £1.1 billion over three years to March 2005. 

About 1,000 jobs are currently being cut as the final part of the airline's existing effort to reduce the mainline workforce, excluding subsidiaries, by 13,000 jobs, or 23 per cent, between August 2001 and March this year. 

Rod Eddington, BA chief executive, said that the group would enter urgent negotiations with its workforce and trade unions with the aim of reducing employee costs at head office by 30 percent and costs in operational areas by 15 per cent, while maintaining the present size of its flying program. 

He said BA would aim to achieve the job cuts through voluntary means including unpaid leave, part-time working, early retirement and voluntary severance programs. 

The GMB and TGWU, the two biggest unions at BA, warned they would oppose any compulsory job cuts. BA is aiming to achieve £100 million of savings in the first year and a further £200 million in the second year of the program. 

Mr. Eddington said that the group, which remains one of the most heavily indebted European airlines, still had a long way to go to reduce its debt to a targeted level of £3 billion to £3.5 billion. It had already fallen to £4.8 billion at the end of September, the lowest level since June 1998 and down from a peak of £6.6 billion in late 2001. 

BA has failed for many years to reduce staff sickness levels. 

At the group's last shareholder meeting Mike Street, director of customer service and operations, admitted that an "extraordinary increase of sickness," which had left the airline with 180 more cabin crew than normal on sick leave, had forced it to charter in an old Boeing 747-200 jumbo from Air Atlanta, the Icelandic carrier, to fly its service from Heathrow to Cairo. 

Mr. Street was told by Derek Fry, a former cabin crew member, that the problem of staff shortage happened every year. "We always have the same problem. It is called Henley, Wimbledon, Ascot and the like." 

The fresh round of cost cutting will further test industrial relations at the airline, which suffered an expensive unofficial strike last July by customer service staff, that brought chaos to its operations at Heathrow and cost the airline about £40m. 

Mr. Eddington said "the last two years have been about survival, now we want to be in a position to prosper." He said the cost base "still remains too high." 

The group is also proposing a new bonus scheme for all employees linked to operating profit margins. 

BA faces significant extra costs this year in particular from a big jump in pensions contributions, from higher airport charges and a higher pay bill. The rising price of fuel is being mitigated by the weakness of the US dollar, the oil trading currency. 

The £900 million deficit in its UK pensions funds, revealed last November, is requiring the airline to make £133 million a year in extra contributions from this month, and it estimates that its U.S. pension contribution must rise by about £2 million a year.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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