January 27, 2013 9:08 pm

Deadline for IAG cost-cutting deal looms

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This is a big week for International Airlines Group and efforts to restore profitability at Iberia, its lossmaking Spanish subsidiary.

Thursday is the deadline set by Willie Walsh, IAG’s chief executive, for an agreement between Iberia’s management and trade unions on a sweeping cost-cutting plan for the Spanish flag-carrier, including a proposal to axe 4,500 jobs, or 22 per cent of the workforce.

Iberia is struggling to cope with more nimble competitors amid the Spanish recession and its difficulties are souring the 2011 merger with British Airways that created IAG.

Unions are giving mixed signals about whether an agreement will be reached with Iberia’s managers on the restructuring.

IAG is warning that, if no deal is struck, Iberia will unilaterally impose a more draconian restructuring – dubbed “Plan B”.

Sepla, the pilots’ union, said it could resort to strike action after accusing Iberia’s managers of failing to enter into meaningful negotiations over the restructuring plan. “We will do whatever we have to do to stop this plan,” said Justo Peral, head of Sepla’s Iberia branch.

Sepla is prepared to accept salary cuts and some job losses at Iberia but it is strongly opposed to the proposed 15 per cent reduction in the airline’s fleet.

Manuel Atienza, a member of the negotiating team for the UGT union, which represents cabin crew, ground-handling and maintenance staff at Iberia, said he believed an agreement would be reached with the airline.

The unions think they have extracted a significant concession after Iberia agreed to extend the implementation period for the turnround plan from 2015 to 2017.

They are also encouraged by how two-thirds of the planned job losses could take the form of early retirements.

IAG was always willing to tweak the restructuring plan and, at a board meeting last Thursday, Rafael Sánchez-Lozano, Iberia chief executive, briefed directors on efforts to reach an agreement with the unions.

He outlined what he thought was a realistic compromise with the unions on the restructuring – but one person familiar with the details said this deal might not enable Iberia to hit its goal of swinging from an expected €300m operating loss in 2012 to a €300m profit in 2015.

IAG said it stood by its financial targets outlined in November of securing a €1.6bn operating profit by 2015 – with €1.3bn coming from British Airways and the remainder from Iberia.

This implies that Mr Sánchez-Lozano could have to push back on the unions this week for a tougher restructuring deal that is consistent with IAG’s financial targets.

The IAG board will meet again on February 1 and if no acceptable deal has been agreed with the unions by then, directors are expected to approve the more draconian turnround plan.

This could involve up to 7,000 job losses and a 25 per cent cut in Iberia’s fleet, said one person familiar with Plan B, who stressed it had not been finalised.

Mr Walsh’s willingness to take a no-holds barred approach to streamlining Iberia is not straightforward because the government has so far made supportive noises towards the unions.

Two people close to IAG expressed frustration at the government’s stance.

Ana Pastor, Spain’s transport minister, has expressed concerns on several occasions since November that Iberia’s restructuring plan is too draconian, calling for “sensitivity and flexibility” from the airline to reduce the number of job losses.

It is not the first time the government has made unhelpful interventions from IAG’s perspective.

Last April, the government appointed Jaime Montalvo as arbitrator to settle a dispute over Iberia’s establishment of Iberia Express, a new low-cost airline, and he has produced two rulings that IAG has objected to.

Iberia Express is a central part of efforts to restore profitability at Iberia because it operates short-haul services to the airline’s Madrid hub, where passengers can transfer on to long-haul aircraft – notably to the flag-carrier’s destinations in Latin America.

The unions are opposed to Iberia Express because the pay and perks of pilots and cabin crew are lower than at the main Iberia airline.

The arbitrator ruled in December that Iberia pilots moving to Iberia Express cannot have their pay cut and placed limits on the carrier’s growth. IAG is now considering the case for appealing against this decision in the courts.

But the more immediate issue is to try to reach agreement with the unions on the broader restructuring plan – or embark on Plan B.

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