Debt-laden Eurotunnel yesterday said it could go bust in two years as it posted another damaging fall in income from its car and truck shuttles.
The Channel Tunnel firm said it would not be able to repay its debt in the first half of 2007 as it blamed competition and price wars for a seven per cent revenue decline last year.
However, it said it was confident of doing a rescue deal with its lenders in time to avoid bankruptcy.
Eurotunnel, which has £6.2 billion of debt, is facing a series of changes to its finances in the next couple of years that look set to worsen its predicament.
The group said arrangements allowing it to use convertible bonds, or IOUs, to pay interest on its debt should leave it with enough cash to see out 2005.
However, it said its finances would become more shaky in 2006 when it starts having to repay all the interest in cash.
In addition, Eurotunnel has to start repaying the
capital on its loans from the beginning of 2007. Under the current regime, it only has to pay the interest.
The group also faces the end in November next year of the so-called Minimum Usage Charge regime, under which passenger operator Eurostar and rail freight firm EWS pay minimum fees to use the tunnel.
Under the arrangement, worth about £67 million to Eurotunnel, Eurostar and EWS receive indirect government subsidies to cover the shortfall between their revenues and the tunnel fees.
When it ends, Eurostar and freight operators will only have to pay on the basis of passengers and freight tonnes carried.
Eurotunnel is pinning its hopes of survival on discussions with lenders about a debt restructuring.
Last week, Eurotunnel's creditors waived their right to regard the start of talks as a default on the group's debt, allowing the negotiations to begin.
The waiver is valid until January 1, 2006 and requires the proposal of a restructuring plan by mid-July. Chairman Jacques Gounon said bankruptcy was "an option" in 2007, although he said creditors' willingness to enter restructuring talks indicated their desire for a deal.
Mr Gounon said he would not favour a debtfor-equity swap, which could dilute investors' stakes to nothing.
"I am determined to protect the interests of this company and to reduce the burden of financial charges on Eurotunnel to a level that the company can support, thus ensuring its future growth and development," he said.
Eurotunnel said intense competition from ferries and low cost airlines between Dover and Calais had caused the seven per cent drop in revenues from its shuttles at constant exchange rates.
The company said its passenger market was declining and a price war with rivals had taken its toll. Losses came in at £570 million against £1.3 billion last time.
Rebel shareholders succeeded in replacing Eurotunnel's entire Anglo-French board with a new, all-French team at the group's annual meeting in Paris last April.
The new management has drawn up a strategy to increase revenues.