| BUSINESSWEEK ONLINE : NOVEMBER 1, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
Is Iberia Finally Ready for Takeoff? (int'l edition) An IPO looms, but the airline is coming off a summer of trouble Not too long ago, Xavier de Irala's two-year stint as chairman of Spanish state carrier Iberia Airlines looked like the stuff of great corporate turnarounds. The 53-year-old Irala, a former colleague of John F. Welch's at General Electric Co., moved quickly to revamp the tired airline. Profits spurted to $440 million in 1998, on revenues of $4.4 billion, making Iberia one of Europe's top-performing carriers. Once spurned by the world's major airlines, the revitalized Iberia could suddenly pick its own partners, choosing British Airways PLC and American Airlines Inc. from a handful of big-name suitors. Given those gains, Irala figures he's ready to achieve his final goal: privatization. And he has scheduled it for late November. But after a summer of pilot strikes, thousands of canceled flights, and a 50% drop in estimated profits for the year, some wonder whether he has brought Iberia around. Beyond that, there's a bitter dispute over board control between BA and key Spanish institutional shareholders--and turbulence on the Madrid bolsa and Wall Street, where 75% of the institutional tranche is to be placed. Still, Irala refuses to be blown off course. ''Our results are still the best in Iberia's history,'' he says. ''We have restructured, consolidated, and the next stage is privatization.'' PATCHED UP. Madrid is taking no chances. It has made what Irala terms a ''minor downward adjustment'' to Iberia's market value, from $3.8 billion to $3.3 billion. Meanwhile, BA and key Spanish investors have patched up the quarrel over board control that almost scuttled the initial public offering. In mid-October, BA agreed to settle for one rather than two seats on the six-member board for the 9% stake it agreed to purchase last year. American, Iberia's other big partner in the oneworld alliance, created in September, owns 1% but will have no board seat. A successful privatization will be the ultimate test of Irala's leadership at Iberia. Although he's a corporate troubleshooter with years of experience at GE and Swiss-Swedish engineering outfit Asea Brown Boveri, Irala has barely changed the management team at Iberia, other than installing a new director general, Angel Mullor, a former leftist leader whom Irala hopes will improve labor relations. Although managers in place notched up losses of $2 billion in the first half of the 1990s, they have since proved their worth, Irala says, downsizing the workforce by 3,500 in 1995, to just over 20,000, and even negotiating a wage cut. Irala's big change is in the way Iberia does business. ''Iberia was a monolith with a poorly balanced fleet and miserable customer service,'' says Toni Alvareda, a former exec at Trans World Airlines Inc. in Barcelona. No more. Its fleet has been modernized. It has reabsorbed subsidiary Aviaco, raising capacity 25%, Irala says. Loss-making Latin American ventures are gone. Traffic flow has been overhauled and will be further improved by coordinating and sharing flights with BA and other oneworld partners, particularly for connections to the U.S. and Latin America. Still, Iberia's revenue has not kept pace with a buoyant Spanish market. Its 5% growth in ticket sales last year puts it well behind other domestic carriers, industry sources say. The fallout from marathon delays last spring and summer has hurt Iberia's market share in Europe, according to Jose Jaume at JKL Vitrac, an air transport consultant in Majorca. Competition will be stiffer now that Spanair, Iberia's rival in the national market, has joined the Lufthansa-led Star Alliance. Spanair, part owned by Scandinavian Airline System (SAS), has pilot productivity levels 20% or 30% above Iberia's, Jaume says. Iberia continues to hold the upper hand in Spain, though. The enormously profitable Madrid-Barcelona shuttle, with some of the highest yields of any route in the world, is still 70% Iberia's. By the time a planned high-speed train links the two cities, Iberia will have switched its core activities to international flights, says Irala. Once Iberia goes private, he says, a rising share price will bring harmony all around. An offer of options worth $50,000 to pilots was ''one of the keys'' to the recent labor settlement, says union leader Juan Jose Arroyo. Irala is already planning to boost the stock price through better productivity and human-resource management. As part of that, he wants to extend profit-related payment schemes--options and performance-based salaries--throughout Iberia. The biggest test of Irala's marketing skills may be his November roadshow. You know those Wall Street analysts: They want first class all the way. By Andy Robinson in Madrid _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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