In-flight caterer Alpha Airports has scrapped its legal claim against a third-party consultant that allegedly defrauded it out of £2.5m.
The proposed lawsuit followed an internal Alpha probe that investigated the handling of overseas VAT payments in several European countries by the UK-based party.
Sources close to Alpha alleged cash was siphoned off over a period of time and in January the company notified the City of its concern that it had been a victim of fraud.
But the caterer has now dropped the action and written off £2.5m from its books.
In its annual report and accounts, the company said: "A charge of £2.5m was made in respect of the group's cost of a suspected fraudulent activity carried out by a third-party service provider, which has gone into liquidation since the year end."
An Alpha spokesman said legal action was being pursued against the same third-party by a bank.
The 2006 annual report showed that former chief executive Kevin Abbot's basic pay rose by £31,000 to £347,000 this year. His share options and pension pot were worth an additional £1m.
Meanwhile, ex-financial director Heather McRae earned £212,000 compared with £196,000 in 2005.
Both resigned in May after the company's shares were pulled from the London Stock Exchange after PricewaterhouseCoopers refused to sign off its accounts due to legal uncertainties surrounding a deal with Icelandic charter airline Excel Airways.
Alpha admitted that the October 2005 deal could have put Excel in a position that may have let it manipulate its financial statements at a time when its parent company was preparing for an initial public offering.
By Tom Bill