Former Aer Lingus chief executive Willie Walsh formally takes over as chief executive of British Airways (BA) this morning with a series of tough challenges ahead.

Mr Walsh has been shadowing current chief executive Rod Eddington for the last few months, learning about the company's financial position and operations.

He is expected to adopt a tough stance on the airline's costs and is also likely to examine closely its short-haul network, which has performed poorly over recent years. Mr Walsh will also preside over the airline's move to the new terminal five at Heathrow by March 2008. He will be anxious to ensure that embedded costs are not transferred over to the airline's new base. Mr Eddington has described the move as a "once in a lifetime" opportunity.

Mr Walsh has already taken steps to create his own team at the airline. The departure of chief financial officer John Rishton has allowed Mr Walsh to promote Keith Williams, the group treasurer and head of taxation.

Another senior BA manager, customer service and operations director Michael Street, is retiring, allowing Mr Walsh to split some of his functions among various line managers.

The issue which caused so much rancour at Aer Lingus - the renewal of the long-haul fleet - is also likely to be near the top of the agenda for Mr Walsh at BA. For example, he will have to decide whether to order a batch of Airbus A380s, known as superjumbos, over the next year or so.

The recent disruption to flights caused by the Gate Gourmet dispute means the industrial relations climate is, at best, fraught.

Mr Eddington, who is retiring to his native Australia, warned of tough times ahead. "It has been a long frantic ride for the aviation industry and I believe there is more turbulence to come," he said at an industry lunch last week.

BA's operating profit for the year to end-March 2005 was £540 million (€792 million), higher than any other carrier, despite stiff competition on short-haul routes in Europe and soaring fuel costs.

The airline still has some way to go to reach its target of a 10 per cent operating margin, and it has no plans yet to resume paying a dividend, indicating the fragility of its future earnings potential.