Greg Wright: The tough challenge of trying to end turbulence at BA

The new Tory-Lib Dem Government is facing its first big challenge in business terms – the bitter and seemingly intractable dispute at British Airways.

Last night, British Airways won its High Court legal battle to avert strikes by cabin crew which were due to start today.

Passengers and BA management must have sighed with relief, although the strike's supporters remain defiant.

The row over pay and conditions is unlikely to end amicably. We can expect to see more trips to court by both sides.

This is no ordinary feud. Any large company with the word "British" in its title is bound to command global attention.

Remember British Leyland? The troubles there added to the murk of the late 1970s.

With the Government keen to promote Britain as a land of industrial harmony, it's hardly surprising that the new Transport Secretary Philip Hammond was willing to be seen as a potential honest-broker.

He held "constructive talks" with Unite's joint leader Derek Simpson yesterday, although it's unclear whether the Government will be able to help the two entrenched sides reach a deal.

In recent months, BA chief executive Willie Walsh has faced a sea – or perhaps an ash cloud – of troubles.

BA is set to post a second year of huge losses on Friday after the global recession, industrial disputes and snow caused a colossal headache for management.

Charles Stanley analyst Tony Shepard is expecting record annual losses of 600m for the year to March from BA, which will follow on from 401m in pre-tax losses for the previous year.

The latest blow will include an estimated 45m "hit" from the seven days of strikes taken by cabin crew in March.

Since the year-end, Iceland's volcanic ash cloud has added to the group's problems, with the closure of most of European airspace costing it up to 20m a day.

The carrier will be seeking compensation along with other affected operators such as easyJet, which said the ash cloud could knock up to 75m off annual profits.

Mr Shepard noted: "2011 should see a recovery but unfortunately, the new financial year has started badly as a result of natural and unnatural forces."

At least there is brighter news on the horizon for BA over its merger with Spanish carrier Iberia, which is eventually expected to generate 400 million euros (343m) a year in cost savings.

The two airlines signed the merger agreement last month and while their brands will remain distinct, the new company – International Airlines Group – will come into being at the end of the year.

The new firm will be one of the world's largest airlines with 408 aircraft.

It will carry more than 58m passengers a year and it will hopefully herald a brighter future for BA itself.

But the BA dispute has certainly not reached its final act. The pressure on the Government to launch a decisive and lasting intervention is sure to grow.

Apart from implementing sweeping public spending cuts, the new Government will be hoping to see signs of growth.

Without investment from entrepreneurs, the recovery will remain incredibly fragile.

Data from the Bank of England is expected to highlight that the strength of any economic recovery remains uncertain.

This is hardly surprising, because the UK's banking sector is still repairing its balance sheet and the private sector is likely to focus on savings.

We may be emerging from recession, but progress could be painfully slow.

The weakened state of the Eurozone adds to the sense of unease.

That's why any spending cuts must be tempered by an awareness of the need to encourage training, research and development.

How about tax breaks for companies that have invested heavily in R&D, or financial incentives to re-introduce old-fashioned apprentice- ships?

Trimming the public sector is only part of the solution to our deep-rooted economic troubles.