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IAG unveils deep restructuring plan for Iberia as Q3 profit drops

Iberia jets are seen in a parking zone at Barajas international airport in Madrid, Friday, Nov. 9, 2012. International Airlines Group on Friday warned that its Spanish carrier Iberia was "in a fight for survival" and unveiled a restructuring plan to cut 4,500 jobs as it reported a drop in third-quarter profit. (AP Photo/Daniel Ochoa de Olza)

LONDON - International Airlines Group warned on Friday that its Spanish carrier Iberia was "in a fight for survival" and unveiled a restructuring plan to cut 4,500 jobs as it reported a drop in third-quarter profit.

Iberia CEO Rafael Sanchez-Lozano said the carrier is losing money in all its markets and was "burning 1.7 million ($2.17 million) every day."

"Iberia has to modernize and adapt to the new competitive environment as its cost base is significantly higher than its main competitors in Spain and Latin America."

IAG, which was formed in early 2011 by the merger of British Airways and Iberia, has given the Spanish unions a Jan. 31 deadline to reach agreement on the job cuts. If one hasn't been reached by then, the company warned there will be deeper cuts and a more radical reduction in Iberia's operations.

The proposed job cuts would shrink Iberia's payroll from 20,000 to 15,500 and its capacity by 15 per cent. The company will suspend non-profitable routes, shed 25 aircraft and adjust salaries.

IAG's plan "condemns the Spanish airline to death," said Justo Peral, spokesman for the airline pilots' union Sepla, on state radio station RNE.

"Nobody doubts that Iberia needed restructuring to adapt it to the financial situation," Peral said, but what is being undertaken is "a dismantling of the national carrier."

Iberia pilots staged strikes every Monday and Friday between April 9 and July 20 to protest feared job losses among the company's 1,600 pilots following the creation of the airline's new low-cost affiliate, Iberia Express.

The job losses are more bad news for Spain, which is suffering its second recession in three years and an unemployment rate above 25 per cent. The government is struggling to reduce its deficits and is cutting expenses like jobless benefits.

Sanchez-Lozano said Iberia's problems predated the financial crisis in Spain and Europe and are systemic.

For the three months to Sept. 30, IAG reported a net profit of 237 million ($302 million), down 11 per cent from 267 million a year earlier. Revenue was up 11 per cent but expenditure on operations increased by 14 per cent.

Shares in IAG were up half a per cent at 168.8 pence in early trading in London.

Iberia's nine-month operating loss of 262 million ate up most of the 286 million profit from British Airways, IAG said.

IAG announced Thursday that it was bidding to take over Spanish low-cost airline Vueling, in which Iberia already had a 46 per cent stake. Analysts say buying Vueling could be a quicker way for IAG to combat competition in Spain's low-cost sector than growing its own instead of trying to grow its own subsidiary .


Harold Heckle in Madrid contributed to this report.


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