IAG’s Walsh Will Carve Up Iberia to Boost British Airways, Union Head Says

Willie Walsh, chief executive officer of the merged British Airways-Iberia, favors growth at the U.K. carrier and will carve up its partner to cut costs, the head of the Spanish unit’s pilot union said.

Plans announced Oct. 6 to switch 13 planes from Iberia’s mainline operation to a low-cost unit by Dec. 31 are aimed at bypassing merger terms designed to guarantee the Spanish carrier’s status within International Consolidated Airlines Group SA, Sepla union official Justo Peral said in an interview.

“We think it’s a way to cut the company to pieces,” said Peral, who is president of Sepla’s Iberia branch, adding that the strategy was probably imposed by Walsh on the Spanish carrier’s CEO, Rafael Sanchez-Lozano, “to make pieces of Iberia and have a new hub in Madrid without any restrictions.”

Sepla, which represents about 1,600 Iberia pilots, is consulting with other unions on strikes and legal action over the creation of Iberia Express, which IAG says aims to boost margins on short-haul flights that might otherwise be unviable. Workers are also concerned that BA is growing faster than Iberia and will operate a newer aircraft fleet, Peral said.

IAG closed up 0.5 percent yesterday in London, where it’s based. The stock has declined 41 percent since the company’s formation in a Jan. 24 merger, giving a market value of 3.1 billion pounds ($4.9 billion).

‘Simulated Negotiations’

Before IAG announced the creation of Iberia Express, Sepla and other unions offered to cut pay and boost productivity to save 150 million euros annually and better compete with discount specialists Ryanair Holdings Plc (RYA) and EasyJet Plc (EZJ), a proposal that was ignored, Peral said Oct. 12 by phone from Madrid.

“They never gave us a reason,” he said. “They simulated to negotiate with us, but they never did really. We have managers from the company who told us the CEO’s aim was to outsource and that he was never ready to negotiate something different. We were ready to work like Ryanair and EasyJet within Iberia.”

The union plan would have taken “many years” to deliver the promised savings, Iberia spokeswoman Consuela Arias said.

“If the pilot’s proposal was really that good it would have been accepted,” she said by phone. “We need a solution now.”

Peral says that prior to the merger with British Airways Sepla secured a deal with Iberia precluding the subcontracting of work to other units, such as franchise partner Air Nostrum and Vueling Airlines SA (VLG), in which it has a 46 percent stake.

No Credibility

“We’re very disappointed that IAG in their first decision after the merger has managed to violate our agreement,” he said.

IAG is also circumventing an accord struck by pilots in 2009 guaranteeing that any expansion at the Madrid hub would be shared equally between Iberia and British Airways, Peral said.

“The only growth we’ve had since the merger was flights to Brazil and Argentina, and now they’ve cut these,” he said. “So we’re not growing at Iberia, and BA is going to grow at five to six percent a year and has ordered new, efficient planes.”

Michael O’Leary, CEO at Ryanair, Europe’s biggest low-cost airline, said yesterday in an interview that IAG’s unveiling of Iberia Express may have “more to do with its negotiations with pilots” than the genuine foundation of a discount unit.

“No flag-carrier airline in Europe has had any credibility or success in setting up a low-fare subsidiary,” O’Leary said in Frankfurt. “They’ve all tried, and Iberia already claimed to have a low-cost subsidiary in Vueling, and now they’re back talking about another. It has no chance of success whatsoever.”

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