Iberia CEO leaves effective immediately as labor scuffle continues

British Airways parent IAG said the head of unprofitable Spanish unit Iberia will step down with immediate effect, mid-way through a cost-cutting program that’s provoked union ire as it seeks to eliminate 3,140 jobs.

Rafael Sanchez-Lozano will leave by “mutual agreement,” London-based IAG said today. He’ll be replaced by Luis Gallego, who heads the Iberia Express discount unit and is a former chief operating officer of low-cost affiliate Vueling Airlines SA.

“The conflict with unions could have weighed on Sanchez- Lozano’s decision,” said Francisco Salvador, a Madrid-based strategist at FGA/MG Valores. “Iberia needs a big restructuring to adjust to a more competitive market environment, and Gallego brings his expertise from Iberia Express and Vueling.”

Iberia Express, established last year with less-generous employee contracts, is running at a profit, while the main Iberia operation posted a 351 million-euro ($450 million) annual loss. IAG is seeking a 600 million-euro earnings turnaround at the Madrid-based business by 2015.

“Iberia is entering its next transition phase and I have every confidence that Luis can return Iberia to profitable growth,” IAG CEO Willie Walsh said in the statement, adding that Sanchez-Lozano had led Iberia “through a very difficult period.”

Sanchez-Lozano, who has a degree in law and business, was appointed Iberia CEO on July 9, 2009 -- 18 months before the merger with BA that formed IAG -- the same day as chairman Antonio Vazquez, who subsequently became group chair. Gallego, who studied engineering, also takes his place on the IAG board.

Manuel Atienza, a spokesman for the UGT union, said the departure of Sanchez-Lozano had been “coming for a while” and that his management was “terrible, leaving the company in critical situation.” Atienza welcomed Gallego as “an open-minded guy,” while cautioning that he should avoid bringing an Iberia Express culture perceived to be anti-union to the main airline.

Shares of IAG, as International Consolidated Airlines Group SA is known, traded 1.4 percent lower at 252.30 pence as of 10:32 a.m. in London. The stock has gained 37 percent this year.

Editor: Chris Jasper. To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net. To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net.