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The most important number in the IAG results is not British Airways’ €13m (£10.2m) operating profit, the 25pc increase in fuel costs or even Iberia’s €263m operating loss.
No, the most important number in today’s half-year numbers is the €4bn of cash that chief executive Willie Walsh has accumulated on the company’s balance sheet. It’s the number that will probably prove the difference between success and failure for this fledgling airlines conglomerate and eventually secure Walsh’s legacy.
Without those reserves in place it’s questionable whether the creation of the group, through the combination of BA, Iberia and bmi over the past 18 months, will fly.
With the benefit of hindsight some will be questioning the sanity of buying Iberia, Spain’s flag carrier, as the eurozone crisis engulfs that beleaguered country. As we report today, prime minister Mariano Rajoy is positioning Spain for a bailout with harsh fiscal conditions attached. Mario Draghi, head of the European Central Bank, warned on Thursday that countries such as Spain had to continue with stinging austerity measures before any sovereign debt relief arrives, which means Spain’s economy will struggle for years. But the rationale for adding Iberia’s Latin American network and international routes to BA’s remains.
It simply makes the rationalisation of Iberia’s costly and inefficient operations all the more urgent. Walsh has an expensive and disruptive industrial relations battle on his hands as he restructures Iberia, but Spain’s moment of acute crisis is possibly the best time to be addressing these issues. And we know that not only does Walsh have the cash reserves to weather prolonged strikes and disruption, but he also has the track record for winning and imposing rational, efficient practices — witness his track record at Aer Lingus and BA.
Operating in Europe he faces multiple challenges from the specifics of Iberia, the deteriorating Spanish economy, the slowing eurozone economy more broadly and a weakening euro currency which cost him €198m in the first half alone. There’s global economic sluggishness and fuel costs up from €2.4bn to €3bn.
So amid this business nightmare, €4bn in cash helps Walsh sleep at night. But surely holding so much cash in euros is the biggest risk of all?
IAG’s cash and financial hedging operations leave it with huge counter party risks, should more banks succumb to the crisis. This would be acute if the cash was held in Greek banks or, indeed, in quite a few Spanish banks. No wonder Walsh has a once a fortnight eurozone crisis management group and has pulled his cash out of Spain as part of a plan anticipating a Spanish euro exit. Where that country’s banks accounted for 27pc of the group’s banking exposure they now account for just 3pc — probably enough to fund day-to-day salaries and other expenses. Likewise banks in Greece, Italy, Ireland and Portugal, which hold between them less then €1m (£785,000) of IAG’s cash.
So €4bn of well husbanded cash should see IAG through to the other side, emerging as a serious global player. But today’s results also show that while a euro break-up remains but theory in the minds of many politicians and economists, it is already being addressed as a reality by business.