LONDON (Bloomberg) — British Airways Plc, Europe's third-largest airline, plans to pay an annual dividend for the first time 2001 and expects to increase the payments as the carrier approaches its operating profit margin target."We intend to start dividend payments at a level that will allow them to grow over time," chairman Martin Broughton said yesterday at the annual shareholders' meeting in London. He didn't give a figure for the dividend, which would be paid in 2008.

British Airways stopped distributing profits to shareholders in 2001 after the September 11 attacks in the US caused a slump in travel demand. The London-based carrier paid its last dividend, 12.8 pence a share, on July 31, 2001. The airline is "on track" to meet a 10 percent operating margin goal this year, British Airways said in May.

"We are approaching our 10 percent margin target and have addressed the pensions deficit; the board have decided on a dividend policy for the current year," Broughton said. "I know from the cards and e-mails returned with your voting forms that this is the No. 1 issue on your minds."

The dividend payments will be "consistent with other cyclical companies and our major airline competitors," he added.

Air France-KLM Group, Europe's largest carrier, announced a full-year dividend in May of 48 euro cents a share, a 60 percent increase from a year earlier. Deutsche Lufthansa AG, the region's second-biggest carrier, raised the dividend by 40 percent to 70 cents after posting a 77 percent surge in 2006 net income.

British Airways expects operating profit as a percentage of sales to be 10 percent in the fiscal year ending March 31, 2008. The company had a 7.1 percent margin in fiscal 2007, down from 8.5 percent a year earlier.

The airline reported its first loss in eight quarters May 18 after cancelling flights because of a labour dispute and setting aside $350 million ($716 million) to pay antitrust fines related to fuel charges.

British Airways plans to achieve a further "25 percent improvement in fuel efficiency" by 2025 compared with 2005, chief executive officer Willie Walsh said at the meeting. The airline's fuel bill rose 22 percent in fiscal 2007 to $1.93 billion. The bill in fiscal 2008 will rise to about $2 billion, the carrier has said.

"We do not fool ourselves that alternative fuels can provide a dramatic breakthrough overnight," Walsh said. "They will not." The carrier will appoint a manager to take charge of environmental issues, the CEO added.

British Airways is part of a group led by US buyout firm TPG Inc. that may bid [EURO]3.4 billion ($4.7 billion) to take over Iberia Lineas Aereas de Espana SA, Spain's biggest carrier.

The UK airline is committed to considering an offer, Broughton said yesterday. "We believe a joint approach with TPG is in both Iberia and BA's interests."

Carriers are jockeying for access to routes between the US and the European Union under an "open skies" treaty that takes effect in March, allowing European carriers to fly from any airport in the EU to the US.

British Airways has said it plans to order 34 aircraft to replace a mixture of Boeing Co. 747s and 767s as the carrier expands long-haul routes. The airline is considering 787 Dreamliners and 747-800s from Chicago-based Boeing, and the A380 and A350 XWB aircraft made by Toulouse, France-based competitor Airbus SAS.