A secret auditors' report detailing Deutsche BA's debts and losses has revealed that the company would have gone bankrupt last year, but for a cash bail-out from British Airways.

The report, compiled by Ernst & Young, was leaked to the German press. It states that the five-year-old company's debts would have forced it into bankruptcy in July 1996 had BA not extended DM340 million ($200 million) an interest-free credit line through to the year 2000. The German banks, which still hold 51% of the airline, did not participate in the financing.

The refinancing was required by debts which had mounted to DM277 million by the end of the 1995/6 financial year to March 1996. Although BA has admitted that its German arm was struggling with losses, the extent of the problems have never before been officially confirmed.

The airline also admits that it ended the latest 1996/7 year with a deficit of DM59 million, as its fierce fares war continues with arch-rival Lufthansa. Deutsche BA, however, says that the operating performance was satisfactory, pointing sales growth of nearly 6% to DM520 million and passenger numbers of 2.2 million.

The numbers are nevertheless well below earlier predictions, but Deutsche BA says that this is because of the radical changes during the past year, with the sale of the airline's turboprop fleet and the shutdown of five international routes in favour of an emphasis on internal German traffic.

The company denies that its predictions earlier this year of profit within 18 months are overoptimistic, saying that it is "convinced" that its revised strategy makes this possible.

Source: Flight International