British Airways is to axe more than a third of its managers, in the first big cost-cutting move by Willie Walsh, the airline’s new chief executive. The number of senior managers alone will be halved.
Mr Walsh said the swinging cuts would help put the company “back on track” to achieving £300m of employee cost savings by March 2007, a goal he inherited from his predecessor, Sir Rod Eddington.
As part of the plan 597 middle and senior management positions will be lost cutting the present total of 1,715 to 1,118 by March, 2008. Senior management will be worst hit, with their ranks halved from 414 just 207.
The job cuts are expected to lead to £50m per year in cost savings.
Mr Walsh would not be drawn on the scale of any further BA job cuts and would not provide details on how much of the £300m target had been achieved so far.
Chris Avery, aviation analyst at JP Morgan, said the announcement of the management cuts “was a very significant shot across the trades unions’ bows”.
“It is a real statement of intent to change BA’s costbase permanently,” he said.
“This is a CEO that seems to be rebuilding the management team from scratch. It is potentially quite significant for BA’s relative costs. You could not imagine Air France or Lufthansa doing this.”
Mr Walsh said that the target of cutting employee costs by £300m was approved two years ago and some progress had been made. “But it was clear at our second quarter results announcement (in early November) that we needed to put a bit more energy into our cost-cutting exercise.”
At the time of the results, BA revealed that costs were up in most areas.
As well as the job cuts, Mr Walsh said cost savings had been achieved by cutting absentee levels among workers and that expected savings on pensions contributions would also be an important part of the overall reduction in employee costs.
BA’s £2bn pension deficit is one of the largest in the UK relative to its market value and the airline is talking to staff about measures to reduce benefits or increase employee contributions.
About 3,000 staff leave the airline each year, which will also help the cost-cutting drive. “Clearly some of those people we have to replace, but not all of them,” Mr Walsh added.
“We are eliminating work that is no longer relevant, and cutting duplication and bureaucracy. We’re responding to what management wants by making the business run quicker with greater accountability.”
BA has set a target to achieve an operating margin of 10 per cent, and Mr Walsh said managers realised this was needed to generate funds to invest back into the business and to buy new aircraft.
The company also hopes to save costs through its move to Terminal 5 at Heathrow in March 2008.
Given the number of job losses some compulsory redundancies were likely among senior management, said Mr Walsh.
Mr Walsh, who took over from Sir Rod two months ago, helped turn round Aer Lingus, the Irish airline, by cutting about a third of its staff.
Sir Rod also cut about 14,000 BA jobs, more than a fifth of the workforce, starting from August 2001 but chiefly in the wake of the September 11, 2001 terrorist attacks in the US.
BA shares closed ¼p lower on Wednesday at 312p.
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