BA Firm Grounded by Pain in Spain

March 1, 2013
The gloom surrounding the loss-making Spanish airline forced IAG to write down the Iberia brand by pounds sterling 296m and take a pounds sterling 174m hit on the cost of restructuring it to restore profitability.

March 01--BRITISH Airways shareholders did not lose out in the pounds sterling 5bn merger with Iberia to form IAG, boss Willie Walsh insisted, as the Spanish airline dragged the group to a euro 1bn (pounds sterling 862m) loss.

Walsh said investors would eventually see the benefit of the tie-up, despite the gulf between the fortunes of the two airlines.

While BA soared to a pounds sterling 300m operating profit in 2012, shrugging off a pounds sterling 160m hit on the acquisition of regional airline bmi, Iberia fell pounds sterling 303m into the red.

The gloom surrounding the loss-making Spanish airline forced IAG to write down the Iberia brand by pounds sterling 296m and take a pounds sterling 174m hit on the cost of restructuring it to restore profitability.

Iberia's dismal performance drove the group to a pre-tax loss of pounds sterling 862m, compared with last year's pounds sterling 434m profit, despite revenues rising 11pc to pounds sterling 15.6bn.

But shares in IAG climbed nearly 8pc to 239.2p as it predicted that 2013 operating profits would be higher than the pounds sterling 418m surplus seen in 2011.

Walsh admitted that last year's loss was "disappointing" but insisted that "the turnaround at Iberia will be successful."

"You can't say BA would have been better on its own," Walsh said, citing pounds sterling 270m of savings made during 2012, ahead of IAG's pounds sterling 194m target.

He said BA had not overpaid by signing a deal that gave it just 56pc of the new company, despite its superior performance.

"I still believe consolidation is part of the solution for the industry and we're going to see more of it," he added.

Walsh risked further inflaming tensions with Spanish unions, warning that the restructuring of Iberia might go beyond existing plans to cut 15pc of capacity and 3,800 jobs.

If there is further capacity reduction then there may be further job reductions associated with that," he said.

The Irishman has insisted that Iberia cannot survive without being radically hacked back.

Walsh, who ran BA before taking the top job at IAG after the 2011 merger, brushed off fears the airline will be affected by delays in the delivery of Boeing's giant 787 'Dreamliner' aircraft.

The Dreamliner has been rocked by technical faults that have slowed its production line. But Walsh, a former pilot with 33 years' experience in aviation, said he had anticipated potential delays.

"Clearly I would have liked to see their entry into service without these problems but we anticipated them and decided we didn't want to be in the early bunch of operators using the 787," he said.

IAG said fuel costs were up 20pc to pounds sterling 5.6bn but it does not expect a repeat performance this year.

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