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British Airways owner IAG plans Iberia job cuts

British Airways parent International Consolidated Airlines Group SA plans to cut jobs at Spanish arm Iberia as part of a revamp to be unveiled next month after the Madrid-based unit pushed the company to a second-quarter loss.

IAG will reduce the workforce as it shrinks Iberia’s business and reshapes the network in the near term to boost unit revenue while seeking cost cuts in all areas, chief executive officer Willie Walsh said Friday in a statement.

Shortfalls at Iberia mean London-based IAG will probably record a “small operating loss” for the full year, the company said, after earlier forecasting it would break even. The second-quarter operating loss was 42 million euros ($51 million), including costs from BMI, acquired in April from Deutsche Lufthansa AG, versus a year-earlier profit of 134 million euros.

“There will be a thorough review of all parts of Iberia’s business, from A to Z,” Walsh said on a conference call. “The problems are deep and structural and the economic environment reinforces the need for permanent structural change.”

IAG, founded in January last year via a merger of British Airways and Iberia, fell 5.2 percent to 151 pence as of the close in London. The stock has advanced 2.4 percent this year, valuing the company at 2.8 billion pounds ($4.4 billion).

Virgin Atlantic Airways Ltd., BA’s No. 1 rival on the most lucrative long-haul routes from Heathrow, had a pretax loss of 80.2 million pounds for the year ended Feb. 29 versus, a year-earlier profit of 18.5 million pounds, it said Friday.

Walsh said his restructuring plan for Iberia will be ready by the end of next month and will seek to address “a stark difference in the performance” of IAG’s subsidiaries. He declined to say how many jobs might be cut, while saying that the revamp would take place over an extended period.

“The task for Willie Walsh and his team is now to undertake the sort of surgery on Iberia which has already put British Airways in good shape,” said aviation analyst John Strickland, director of JLS Consulting in London.

Walsh said that while it was evident Iberia would require a revamp at the time IAG was formed, “Spanish macro headwinds” have made the need to address the situation more urgent, as have cost-cutting programs at competitors Air France-KLM Group, Europe’s biggest airline, and the No. 2 Lufthansa.

A “eurozone crisis management group” established to evaluate the impact of the region’s sovereign debt crisis is also meeting every two weeks to review scenario planning and hedging policies, IAG said, while a “road map project” has begun to consider commercial and other issues that would be triggered by a Spanish exit from the common currency.

The Iberia review will examine its competitiveness and profitability on routes to growth economies in Latin America, where the Spanish company is the top European carrier and Air France and Lufthansa have been adding capacity, Walsh said.

IAG’s quarterly result included 50 million euros of losses from BMI, which was bought to add scarce operating slots at British Airways’ London Heathrow hub, and the restructuring of the unit, which is being folded into BA, accounted for the bulk of 38 million euros of one-time items, it said.

Second-quarter revenue advanced almost 12 percent to 4.61 billion euros, IAG said Friday. Analysts had expected a quarterly loss of 35.6 million euros, according to a Bloomberg survey.

Air France-KLM and Lufthansa earlier this week reported earnings that beat estimates as cost-savings programs kicked in.

Air France cut its operating loss by more than half to 66 million euros, aided by the introduction of a 2 billion euro savings plan, it said on July 30. The stock jumped almost 19 percent, the most since the group’s formation via a Franco-Dutch merger in 2004, and has advanced 9.2 percent this year.

Lufthansa boosted second-quarter operating profit almost 28 percent to 361 million euros after introducing a 1.5 billion euro efficiency program and has added 11 percent this year.

Still, IAG is probably the most likely of the three to make cuts stick because of Walsh’s experience in restructuring BA, where he faced down a cabin-crew strike last year, and Ireland’s Aer Lingus Group Plc., where he was also CEO, Strickland said.

“We can expect some sparks, but Walsh is best placed to do this because he has already turned around BA and Aer Lingus and absolutely knows what’s required,” the analyst said.

 
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