IAG Backs Arbiter’s Iberia Job-Cuts Plan After Compromise on Pay

British Airways parent IAG backed a mediator’s plan for about 3,140 job cuts at unprofitable Spanish unit Iberia after offering concessions that won union backing.

IAG’s board voted to approve a deal that pares job losses from the 3,807 it had pledged to drive through in the absence of a negotiated settlement, according to a statement today. Most labor groups accepted a package that also prunes pay cuts and shortens a salary freeze, though pilots have yet to sign up.

IAG Chief Executive Officer Willie Walsh is seeking a 600 million-euro ($780 million) earnings turnaround at Iberia by 2015 after the Madrid-based business propelled Europe’s third-largest airline group to an operating loss of 23 million euros last year. The plan proposed by Spanish mediator Gregorio Tudela would cut pay as much as 14 percent, with no raise before 2016.

“If accepted by the unions, this would see an end to strikes at Iberia and lead to a smoother turnaround,” said James Hollins, a London-based analyst at Investec with a “buy” rating on IAG stock. “Salary cuts should ensure that there is no slippage in timing of driving Iberia back to profitability.”

Shares of IAG, as International Consolidated Airlines Group SA is known, closed 0.2 percent lower at 245.70 pence in London. They’ve gained 33 percent this year, valuing the company at 4.56 billion pounds ($6.8 billion).

Ratification Required

Unions still have to submit the proposal to members for ratification, Manuel Atienza, a spokesman for the UGT union, said by telephone, while the Sepla pilots’ body hasn’t indicated whether it will back the deal. Labor groups will discuss details over the next 48 hours before meeting the mediator and Iberia management on March 13 to formally endorse the terms, he said.

The job cuts match the number of posts Walsh had initially stipulated must go as part of a negotiated deal including lower pay, before saying the equivalent of more than 3,800 would need to be cut when talks on staffing levels and contracts failed.

Atienza added that the workforce reduction is acceptable “because of the new conditions.” IAG agreed to fund redundancies by dropping a planned link to productivity gains, while salaries will be reduced by 14 percent for pilots and cabin crew and 7 percent for ground staff, down from as much as 35 percent under previous offers, which also sought to freeze pay until 2017.

To improve IAG’s financial performance in Spain, Walsh last year established a new unit Iberia Express, with less-generous contracts, and that business has been profitable.

The CEO also initiated a takeover bid for Barcelona-based discount carrier Vueling Airlines SA. The Vueling board last week rejected a 7 euros-a-share proposal that IAG made for the 54.14 percent of stock it does not already own.