Bloomberg News

Iberia Pilots Urge Talks With Walsh While Offering Trade-Off

January 30, 2013

Iberia pilots appealed to International Consolidated Airlines Group SA (IAG) Chief Executive Officer Willie Walsh, saying they’re willing to cooperate to help prop up the unprofitable Spanish flag carrier.

“We are fully conscious of Iberia’s actual situation and we are ready to undertake our share of needed sacrifices,” Justo Peral Cabrera, chairman of the Sepla union that represents the pilots, said in a Jan. 29 letter to Walsh obtained by Bloomberg News. While the union is “really concerned,” it’s willing to “follow any path” to avoid a “conflict situation,” he said.

IAG announced plans in November to shrink Iberia’s fleet and scrap 4,500 jobs, more than one-fifth of the total, as Europe’s third-biggest airline seeks to stem losses that have wiped out earnings from its British Airways brand. The Spanish union offered to travel to IAG’s headquarters to meet Walsh in a last-ditch attempt to reach an accord, amid a looming Jan. 31 deadline for Iberia management to reach agreement.

Workers unions including UGT walked out of negotiations yesterday when they failed to reach confirmation that IAG would accept a negotiated deal, said Manuel Atienza, a spokesman for the union. The six major Iberia unions will meet the carrier’s management tomorrow at 11 a.m. in Madrid, Atienza said.

“We just don’t want to waste our time if IAG will eventually not back our decision” he said. A compromise proposal to reduce total job cuts by 700 positions to 3,800 is “ridiculous,” he said. “Iberia has completely lost control of the company to IAG.”

Capacity Cut

An Iberia spokesman, based in Madrid, declined to comment when contacted by Bloomberg News today.

IAG shares fell 0.7 percent to 218 pence at 2:27 p.m. in London. The stock has gained 23 percent in the past 12 months, valuing the London-based company at 4.04 billion pounds ($6.37 billion).

Under the restructuring plan announced in November, Iberia’s fleet will be cut by 25 aircraft to reduce capacity by 15 percent next year, short-haul salaries will be clipped to levels at low-cost carriers, and unprofitable routes will be suspended. Walsh, who led the BA-Iberia merger in 2011, is seeking a 600 million-euro ($813 million) turnaround in earnings by 2015 at the Spanish unit, which lost 262 million euros in the first nine months of last year.

“IAG have gone into this knowing there would be an element of bargaining,” Donal O’Neill, an analyst with Goodbody Stockbrokers in Dublin, said in an interview. “They need to come up with a satisfactory deal where IAG gets 90 percent of what it wants.”

Competitors Save

Rival Air France-KLM Group, Europe’s No. 1 carrier, is looking to shave 10 percent from non-fuel costs and cut net debt by 2 billion euros under its Transform 2015 plan. Deutsche Lufthansa AG, Europe’s second-biggest, plans to save 1.5 billion euros by 2015, by cutting 4,500 jobs, scrapping routes, freezing capacity and delaying an upgrade of its inter-continental fleet.

Dropping unsuccessful Iberia routes will stem operating losses in excess of 100 million euros, Oddo Securities analysts Yan Derocles and Olfa Taamallah said in a Jan. 9 note to investors. Redundancy costs will probably total about 300 million euros, they said.

IAG is also bolstering Spanish operations via a 113 million-euro bid for the shares it doesn’t yet own of Spanish discount carrier Vueling Airlines SA. The company already owns 45.85 percent of Spain’s second-largest carrier after Iberia, and plans to complete the deal later this year, establishing a low-cost platform within the group.

To contact the reporters on this story: Manuel Baigorri in Madrid at mbaigorri@bloomberg.net; Kari Lundgren in London at klundgren2@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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