Transport Airlines

British Airways boss says Iberia purchase may have been better delayed

May 11, 2013 12:14 am

Skift Take

British Airways’ leadership doesn’t seem to know exactly where it wants to go or how it intends to get there, but it’s certainly happy to forge ahead in the hopes it’ll figure it out along the way.

— Jason Clampet

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British Airways’ merger with Iberia, the troubled Spanish airline, should perhaps have been delayed, the boss of International Airlines Group has admitted.

The airlines were combined to form IAG in 2011. But Iberia has since pushed the parent company deep into the red, as the Spanish national carrier has battled against recession, high unemployment and competition from low-cost rivals.

Mr Walsh conceded on Friday that — with the benefit of hindsight — BA may have sought to delay the deal with Iberia, which has been questioned by some investors. “If I’d known the Spanish economy was going to deteriorate to the scale that it did, we may have delayed the decision but ultimately I believe the merger is the right thing,” Mr Walsh said, adding that BA was benefiting from cost-savings generated through the merger.

IAG on Friday unveiled a €670m (£566m) pre-tax loss for the first three months of the year — its first quarter — as it shouldered €311m of exceptional charges, predominantly related to the restructuring of Iberia, which is laying off more than 3,000 staff.

Iberia made operating losses of more than €200m during the period as the carrier continued to struggle against Spain’s deep recession, which has pushed unemployment to a record 27pc. By contrast, BA made losses of £58m. Airlines traditionally make losses over the winter before generating profits over the key summer season.

IAG is axing 3,141 staff at Iberia and reducing capacity but Mr Walsh said more restructuring was likely, although he said any further job losses would not be “on the scale” of the latest cuts.

“The restructuring that we are doing, I described it … as being a good start but clearly we will have to do more, “ Mr Walsh said. “Some of that will be on the commercial side, it’s not just about the cost performance of Iberia. It’ll be a mixture of cost efficiency and revenue improvements.”

IAG’s €670m pre-tax loss compares to losses of €247m during the same period last year. Losses at BA were exacerbated by IAG’s decision last year to buy bmi from Lufthansa for £172.5m. About £35m of BA’s first quarter losses were attributable to the loss-making bmi.

Earlier this week it was reported that Qatar was considering a 12pc stake in IAG, which is currently held by the bailed-out Spanish lender, Bankia.

Mr Walsh said it was up to Bankia to decide when and to whom to sell the holding. IAG is, however, working with Qatar Airways as the Gulf carrier seeks to join the oneworld alliance of airlines, he said.

IAG’s first quarter results were published on Friday as MPs on the transport select committee called for at least one extra runway at Heathrow.

Mr Walsh welcomed the committee’s recommendation but said he had no faith the Government would come to a decision about extra runways in the South East. “I still think the issue of Heathrow expansion — or indeed any new capacity at airports — is too sensitive a political issue even with the transport select committee’s report,” said Mr Walsh.

Heathrow will next week publish proposals for short-term solutions that could help alleviate the aviation capacity crunch. A group of leading businesses in London have called for a runway management system called “mixed mode” to be adopted by 2017 at Heathrow, which would pave the way for up to 68 additional flights a day at the West London airport.

Mr Walsh called mixed mode, which involves using the same runway for take-off and landing, a “nonsense” and warned IAG would campaign against such a move.

“It’s completely artificial because the [extra] capacity would only ever be generated on paper – you could never actually get the increase [in flights]” he said. “I would argue that it would just make the situation at Heathrow worse.”

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