Bloomberg News

IAG Chief Walsh to Push On With Iberia Job Cuts After Talks Fail

February 01, 2013

IAG (IAG) Chief Executive Officer Willie Walsh said he’ll move forward with a cost-cutting strategy at the Madrid-based Iberia unit of Europe’s third-largest airline after unions spurned the latest plan to reduce headcount.

IAG will press on with a 15 percent capacity cut and implement “alternative” savings plans following the rejection of 3,147 job losses, it said in a statement after a board meeting. A refusal to agree terms will mean deeper reductions than first envisaged, the London-based carrier has said previously.

“We’re disappointed that no agreement has been reached,” Walsh, who in November had sought some 4,500 job cuts, said today. “We are determined and united to implement the necessary changes to secure the future survival and viability of Iberia.”

Walsh has previously faced down strikes to cut positions and pay at British Airways, which merged with Iberia in 2011 to form IAG, and as CEO of Ireland’s Aer Lingus Group Plc. (AERL) The Spanish operation may suffer job losses equivalent to as much as 45 percent of the 20,000-strong workforce, according to Damian Brewer, an analyst at RBC Capital Markets in London.

“If the unions won’t agree, IAG will have to impose something more stringent,” Brewer said in an interview. “Walsh stripped cost out of Aer Lingus, which is why he got the nickname ‘Slasher Walsh,’ and he had no qualms about taking on the cabin-crew unions at BA.”

IAG, as International Consolidated Airlines Group SA is known, had set Jan. 31 as the deadline for an agreement on a reorganization aimed at driving a 600 million-euro ($813 million) turnaround in Iberia’s earnings by 2015.

Strike Notice

Iberia-led talks on the latest package collapsed around midday yesterday, with labor leaders in the process of notifying Spain’s arbitration service of plans for at least five days of strikes starting as early as Feb. 18, according to the UGT union, which represents ground staff and cabin crew.

Management has indicated that the deadline won’t be extended “even for just one day,” six Iberia unions said today in a joint statement, adding that attempting to turn a 300 million-euro loss into a profit of the same size in three years “is crazy, especially amid the current economic environment.”

Still, Iberia is “ready and willing to negotiate with the trade unions,” IAG said in today’s statement.

The Sepla pilots union, seeking to negotiate separately, is awaiting a response to proposals it submitted to the company yesterday, spokeswoman Ana Serrano said today by telephone.

IAG traded little changed at 212.40 pence as of 3:30 p.m. in London. The stock has added 15 percent so far this year, giving a market value of 3.94 billion pounds ($6.2 billion).

Pay Terms

Iberia division CEO Rafael Sanchez-Lozano said at a Nov. 9 investor briefing that failure to reach a deal on jobs “would imply clearly more deep cuts, severe losses.” He added that the unit, which lost 262 million euros in the first nine months of 2012, is committed to ending negative cash flow by the second half of 2013, something that IAG reiterated today.

Under the latest proposal from Iberia, pay would have been cut by 23 percent for cabin crew and pilots and 11 percent for ground staff, versus an original target of 25 percent to 35 percent for all categories. It also offered to shrink capacity by 10 percent, compared with the 15 percent that IAG says must now go, and early retirement and other incentives were on offer.

The failure of negotiations “poses a serious threat to the company, to Spanish institutions and to the tourism industry,” Manuel Atienza, a spokesman for the UGT union, said yesterday.

Pilot representatives sought to defuse tension with a letter to Walsh this week urging talks at IAG’s headquarters, though Sepla’s latest statement said the most recent proposals from management were too tough.

Ryanair Jets

Iberia is struggling to compete with low-cost airlines amid a five-year economic slump and 26 percent unemployment rate in Spain. IAG is seeking to stem losses at the division, which have wiped out earnings from BA. Walsh estimated in November that Spanish operations are losing 1.7 million euros a day.

IAG shares have added about 33 percent in six months, compared with gains of 85 percent at Air France-KLM Group and 43 percent at Deutsche Lufthansa AG (LHA), the European market leaders.

Walsh’s hand is strengthened by that fact that the dispute is coming to a head in the off-peak winter period, Brewer said, adding that if the CEO wants to go on the offensive he could even hire jets from Ryanair Holdings Plc (RYA) to break the strike.

Walsh withstood the first cabin-crew walkout at British Airways in 13 years in 2010 to push through lower pay for new recruits. The CEO also eliminated 1,500 posts via voluntary departures and said Dec. 4 that he’s seeking cuts among 2,338 of the most senior flight attendants at BA’s London Heathrow hub.

Rival Cutbacks

The 51-year-old Irishman pared 2,100 jobs, equivalent to one-third of the workforce, when he led Aer Lingus to avoid bankruptcy and return the Dublin-based carrier to profit. Before rising through the corporate ranks, Walsh had been a pilot and labor activist at the Irish carrier.

IAG’s rivals are also scaling back operations. Air France- KLM (AF) plans to scrap 1,300 positions at its Dutch unit in addition to 5,000 already being cut at the French business. Lufthansa is culling 3,500 administrative posts and as many as 1,000 in catering, as well as 650 in maintenance.

Global air passenger traffic grew 5.3 percent last year, a slowdown from 2011’s 5.9 percent advance, according to the International Air Transport Association. Growth was above the 5 percent 20-year average and capacity restraint helped lift seat occupancy to near-record levels, giving a profit margin of about 1 percent, the trade body said yesterday.

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

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


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