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British Airways Owner IAG Loses £864m As Iberia Merger Costs And Fuel Price Hits Profits

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BRITISH AIRWAYS IAG RESULTS
IAG reveals £864m loss after Iberia restructuring costs hit the airline group's profits | PA

British Airways' (BA) parent company International Airlines Group (IAG) has revealed a €997 million (£864m) loss after the restructuring and merger costs dented its profits.

Stripping out the Iberia restructuring costs, IAG's operating losses of €68 million (£58.8 million) were much healthier than the guidance loss of €120 million (£103.7 million) it issued to investors in November.

The 2012 loss is much higher than the previous year; 2011 saw BA merge with BMI, making an operating profit of €347 million (£300 million). The Iberia merger was much more expensive due to the large amount of debt write-downs forced of IAG as part of the takeover.

Willie Walsh, IAG's chief executive, said in a statement that the company's pension scheme had also weighed heavily on the costs - BA's £9 billion schemes currently runs a deficit of around £2bn. BA's fuel bill also rose by 20.4% in 2012.

"BA, which is already seeing the benefit of permanent structural change, produced a solid financial performance in 2012, benefitting from a strong London market," Walsh said.

"The integration of BMI into BA was handled very effectively and, crucially, the airline remained focused on its overall business performance during this period. We look forward to extracting the full potential and financial benefits that the BMI acquisition brings us in years ahead."

Bhaven Patel, trader at Accendo Markets, was among the city commentators who warned about the industrial action of Iberia staff further hampering IAG's progress - staff at Iberia have been threatening to strike since IAG announced more than 3,800 jobs were to go at the airline as a measure to help IAG plug losses of £1.4m a day.

"The road to restructuring Iberia has not been easy with recent strikes yet the 3,800 job cuts and planned 15% capacity cut demonstrates that Walsh is wrangling right up to the picket line with the Spanish trade unions. A brave man would bet against the Irishman whose fearsome reputation is captured when he said 'a reasonable man gets nowhere in negotiations'," said Patel.

"The performance of Vueling, the Barcelona-based budget airline which IAG owns 46%, will serve as an example of rare Spanish home grown aviation success. With Willie Walsh eyeing up a full takeover there is a short-term risk of agitating trade unions further but it may prove to be a risk worth taking for 'El Jefe' (the Chief, in Spanish) as it could prove to speed up IAG's transitional changes in Spain."

Walsh remains defiant that Iberia's reforms are needed to ensure the airline survives. "Despite three months of negotiations between Iberia and its trade unions, no agreement was reached on an initial restructuring plan. Therefore, we have announced that Iberia will proceed with a 15% cut in capacity and has started the formal collective redundancy process which will affect 3,807 jobs," he said in his statement, showing his strong arm tactics against the unions.

The next Iberia strike is due to take place on Monday, 4 March.

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