British Airways parent IAG SA sealed a pay deal with ground staff at unprofitable Spanish arm Iberia, securing the last outstanding labor accord as group Chief Executive Officer Willie Walsh seeks to end losses there.

The accord retains a 7 percent cut proposed in mediation efforts, followed by a pay freeze until 2015, while eliminating a further 4 percent reduction imposed after the failure of earlier productivity talks, Madrid-based Iberia said today.

IAG, as International Consolidated Airlines Group SA is known, is cutting more than 3,000 jobs and closing unprofitable short-haul routes at Iberia in a push to deliver long-term profitability. The deal with ground-handling and maintenance workers comes just over two weeks after an accord with cabin crew and one month after the Sepla pilot union agreed terms.

“With these agreements we’ll have a labor cost base that will be very competitive, especially as time goes by,” Iberia CEO Luis Gallego said in Madrid, adding that the accords mean that the carrier should also “be able to meet the necessary profitability goals to commit to investments such as planes.”

IAG, Europe’s third-largest airline, has said investments to modernize Iberia’s fleet — including extra Airbus Group NV A330 long-haul jets and the addition of the latest A350 model — are contingent on the unit achieving sustainable profitability.

CEO Walsh has also set up Iberia Express with less-generous employee contracts and acquired control of Barcelona-based discount carrier Vueling SA.

Today’s agreement in principle will improve flexibility and productivity in the areas of maintenance and airport handling, Iberia said, adding that seniority and promotion rules will be brought in line with industry practice.

A turnaround at Iberia is a key part of Walsh’s plan to lift IAG’s operating profit to 1.8 billion euros ($2.5 billion) in 2015. Walsh said in October that the unit should turn profitable in 2014.

To contact the reporters on this story: Angeline Benoit in Madrid at; Kari Lundgren in London at To contact the editors responsible for this story: Benedikt Kammel at Christopher Jasper. 

Photo Credit: A man holds a banner during an Iberia workers strike in February 2013 at Terminal 1 of Barcelona's airport. Albert Gea / Reuters