IAG’s Spanish subsidiary Iberia to undergo major revamp

International Airlines Group (IAG) reported a whopping pre-tax loss of €997m (£864.17m) for 2012 after taking a €343m (£297.3m) impairment charge on Iberia, its troubled Spanish subsidiary. The troubled airline group is also going ahead with its planned 3,800 job cuts under a restructuring plan to revive its loss-making unit Iberia. The turnaround plan is being vehemently opposed by workforce and trade unions due to massive amount of job cuts. Iberia, Europe’s biggest carrier to Latin America, has been battling competition from low-cost airlines and high-speed trains, labour disputes and Spain’s deep economic crisis and dearth in cash as revenue fails to cover high operating costs.

IAG’s chief executive Willie Walsh, said that the operating performance of the airlines was “solid” with an overall loss of €23m (£19.94m) once exceptional costs such as the writedown were stripped out. But one-off items which include restructuring of the troubled Iberia, the writedown and pension costs, pushed the year’s results massively into the red with a €997m (£863m) pre-tax loss. The €343m (£297.3m) charge at Iberia involves writing down all €249m (£215.83m) of goodwill associated with the acquisition of the Spanish airline by British Airways in 2011.

The charge also covers Iberia’s brand and other intangible assets. IAG’s other exceptional items in 2012 included a €87m (£75.41m) restructuring charge at BMI British Midland, the airline bought last year from Lufthansa. The deal gives British Airways a stronger presence at London’s Heathrow airport. Pension charges of €266m (£230.56m) also contributed to IAG’s €997m (£864.17m) pre-tax loss.

Iberia’s turnaround plan is the crux of IAG’s improved operating profits before one-offs in 2013 than the €485m (£420.38m) reported in 2011. Iberia has planned 3,800 layoffs after it failed to reach an agreement with its trade unions who opposed the initial proposal of cutting 4,500 jobs, or 22%. The new plan also includes a 15% cut in capacity, and unions promised 15 days of strikes in response. Apart from Spanish recession, Iberia is also hit by competition from Ryanair and Latin American rivals such as Latam Airline Group.