The new chief executive of British Airways could be announced this week with former Aer Lingus chief Willie Walsh now a leading contender.

While Mr Walsh faces competition from two internal candidates, the indications are that the former Aer Lingus boss may now be in the strongest position in the race to succeed Rod Eddington, the current chief executive.

British media reports suggest that Mr Eddington will step down this summer.

It is understood BA chairman Martin Broughton has been speaking to several candidates in recent weeks.

The company is holding an investors' day this Thursday and speculation is mounting that an announcement about Mr Eddington's replacement will be made then.

Apart from Mr Walsh, the other candidates are believed to include chief financial officer at American Airlines, James Beer, and two internal candidates John Rishton, chief financial officer, and Martin George, commercial director.

Since leaving Aer Lingus Mr Walsh has been considering several job offers and also examining the idea of a low-cost trans-atlantic airline operating out of Dublin.

He has been working closely with two other Aer Lingus managers, Mr Brian Dunne, chief financial officer, and Mr Seamus Kearney, chief operations officer.

However, sources close to Mr Walsh speculate that he is interested in the BA position.

As one aviation source put it yesterday: "Jobs like this do not come up very often in the airline business".

Whoever takes over at BA will face several serious challenges. The most demanding of these is the airline's target of achieving an operating margin of 10 per cent.

Mr Walsh, along with his management colleagues, managed to greatly increase operating margins at Aer Lingus in recent years.

In 2001 margins stood at minus 4.7 per cent, they increased to 6.7 per cent in 2002 and in 2003 they reached 9.3 per cent.

The 2004 results for Aer Lingus are expected to show operating margins of almost 12 per cent.

BA is also expected to reduce staff numbers in the period ahead, although a target for this has not yet been set.

The airline's chief financial officer Mr Rishton recently said key indicators were out of line with the airline industry generally.

BA cut its workforce by 13,000 between August 2001 and March 2004.

This was part of an attempt to cut £1.1 billion (€1.5 billion) out of its cost base.

At the investors meeting on Thursday a new business plan will be presented.

It is believed to include a target of reducing employee costs by £300 million by March 2007.