Can Iberia Airlines win its “fight for survival”?

Willie Walsh is from the straight-talking school of management, so employees and trade unions at Iberia should be in no doubt they face a tumultuous year. International Airlines Group (IAG) said on Friday morning that Spain’s national carrier, Iberia, was in a “fight for survival”.

That phrase will carry an unsettling echo in the corridors of British Airways’ Heathrow headquarters. Walsh used those very words in an email to BA staff in June 2009, warning then that the airline faced a “fight for survival”. Walsh does not hide behind hyperbole. While those were carefully selected words, designed to brace the workforce for tough changes to working practices, Walsh followed through on the implicit threat of significant workplace reform.

Frustrated by the pace of talks with union representatives, he unilaterally reduced cabin crew staffing levels on long-haul flights shortly afterwards, and BA was soon embroiled in one of the most rancourous industrial disputes of the post-Thatcher era.

So when IAG says there could be deeper cuts at Iberia than the 4,500 already outlined on Friday morning if there is no agreement with unions by the end of January, Walsh means it.

One veteran of the cabin crew dispute, speaking on Friday morning, said: “It’s a well-used cliche and it means heavy-handed cost-cutting isn’t far off.” Investors, though, are concerned about Iberia. It is burning through €1.7m (£1.4m) a day – BA was eating nearly £3m a day in 2009 – and it is unprofitable in all its markets. The logic behind merging BA and Iberia was to pool costs and markets, providing some financial stability in a perennially loss-making industry. According to some analysts, it has tied BA to a flawed business that needs a fundamental overhaul.

“The problems are systemic and pre-date the current economic crisis. We continue to believe the market has underestimated the scale and nature of the challenge faced by Iberia,” said Gerald Khoo, analyst at Espirito Santo.

In a note to IAG’s first-half results, published in the summer, the company refers to an “impairment review” that could lead to a writedown in the value of Iberia on IAG’s books (Iberia’s brand and goodwill are more than €550m on IAG’s books).

IAG said: “If Iberia’s current performance is not addressed in the new five-year plan, an impairment of Iberia goodwill would be required. Depending on the nature and extent of underperformance, an impairment of Iberia’s indefinite life intangible assets would also be required.”

In other words, Friday’s announcement might head off the need for a costly writedown. Nonetheless, if Iberia staff are counting the cost in terms of thousands of jobs, for shareholders it could be in the millions of pounds.