Sir Richard Branson's latest salvo in his ongoing spat with British Airways knocked nearly 9% off the airline's share price today after the Virgin tycoon spooked investors with a warning that his arch-rival could collapse.

British Airways was the biggest faller in the FTSE 100, slipping by 8.65% to 124.6p, after the co-owner of Virgin Atlantic said the loss-making airline was "not worth much any more" and warned ministers against bailing it out if its finances deteriorated.

Rather than step in with a General Motors-style rescue, ministers "would be better to wait for its demise". "We and others are standing by ready to take on their routes and runway slots at Heathrow if they get into serious trouble," he said. "I thought the US government's bailout of the car companies was a bad idea and it's the same for BA."

The comments were dismissed as "fantasy" by BA but Branson was able to capitalise on recent apocalyptic comments by the airline's chief executive, Willie Walsh, who has warned the airline's 40,000 staff that the company is in a "fight for survival" after announcing a record pre-tax loss of £401m last year.

BA is expected to record another large deficit this year and its predicament became national news last week when it emerged that Walsh, who has waived his July salary, has written to staff asking them to work for a month without pay.

A BA spokesman said Branson's warning was based on "complete fantasy". "The scenario that he is talking about does not exist. We have been consistently opposed to state aid for airlines," he said. "It is just Branson trying to piggyback on an issue that is already in the media and get some publicity for his airline."

Analysts said Branson's comments were a reminder to investors that BA, faced with a dearth of profitable business passengers and a massive pension deficit, is struggling. However, BA's "fight for survival" line, and Branson's comments on the back of it, have not convinced many market-watchers, who point to the airline's dominant position at Heathrow and its £1.4bn cash pile. Douglas McNeill, analyst at Astaire Securities, said: "Richard Branson is playing up the nature of the threat. The problems facing BA are largely cyclical in nature. In the meantime it has ample cash to fall back on."

Branson was speaking ahead of a Virgin Atlantic flight to New York marking the airline's 25th anniversary. After posing with the model Kate Moss on the wing of a Virgin Atlantic jet, Branson predicted the end of first-class seats, leaving business class and premium economy as the only front-of-the-plane products. Guests on the flight included the cricketer Kevin Pietersen, fashion designer Vivienne Westwood and actor Christopher Biggins – a passenger on the inaugural flight in 1984. Virgin Atlantic also announced an order for six Airbus A330-300 aircraft from 2011, with a further four on lease.

BA announced yesterday that it would press ahead with the launch of its all-business class service from London City airport to New York's JFK airport despite a deteriorating market that saw a 17% fall in premium bookings last month. Tickets for the first flight, on 29 September, go on sale tomorrow and return fares will cost between £1,900 and £5,625.

Walsh said the service had generated "real enthusiasm" from its target market – financial services managers and executives – despite the credit crisis. BA relies on premium passengers for more than 50% of its revenues and that market has slumped since the collapse of Lehman Brothers, the investment bank, last September.

"In the harshest trading environment airlines have experienced, we believe it is more important than ever to embrace the future and innovate," he said. "There is real enthusiasm from our customers for this project." The flights will operate under the flight number BA001 – previously reserved for Concorde flights.