Russell Hotten and Matthew Fletcher, Mail on Sunday30 September 2001, 12:00am
GERMAN airline Lufthansa has been unmasked as the speculator behind a bizarre attempt to make money by gambling that the share price of British Airways would fall.
City analysts are astonished that an airline had dared to use shareholders' money on what was a highrisk gamble on a competitor's shares. 'I don't think I've ever come across this sort of thing before,' said one stockbroker. Lufthansa has done nothing illegal. But the news will not endear it to BA, where a source said: 'We were amazed.'
Two weeks ago, market regulators in London began investigating a series of suspicious share trades in airlines just before the US attacks.
There was speculation that in the days before 11 September, terrorist groups engaged in sophisticated share trading. This involved 'short-selling' airline shares - selling the stock, waiting for the price to drop, then buying it back and pocketing the difference.
The Financial Services Authority investigated a large trade in BA involving put options - share options giving the right to sell at a fixed price. In effect, this was a bet that BA shares would fall. The FSA found no evidence of terrorist involvement and said the deals were not linked to the attacks. It said: 'A sizeable put option in the shares of a British airline turned out to have been on behalf of another airline, as part of an overall hedging strategy.'
Lufthansa this weekend denied the company was involved. But share traders have confirmed the German operator's connection. A stockbroker said: 'Speculating like this is an odd way for a company to use shareholder funds.' It is also surprising that Lufthansa and its advisers speculated at a time when the industry was already facing recession.
The head of one of Europe's most successful airlines said: 'I don't know why one airline would be punting on a rival's shares. It's hard enough just to run an airline-without doing this fancy stuff.'
BA shares, which closed at 264p the night before the attacks, ended on Friday at 180p after a strong rally because of the announcement of a big cost-cutting programme. The European Commission is weighing up a multi-billion pound bail-out of Europe's airlines in the wake of the attacks. Brussels' aim is to stop member governments using the outrage as an excuse to prop up their ailing flag carriers. The plan looks set to be put to a meeting of EU transport ministers in Luxembourg on October 16.
Concerns are growing that European governments with big stakes in their national carriers - including Italy's Alitalia, Portugal's TAP, Greece's Olympic Airlines and Ireland's Aer Lingus - will demand the EC's blessing so that they can inject fresh cash into their airlines.