British Airways Parent IAG Keen on Counter-Seasonal Purchase

Updated on
  • Five-year operating margin, ROC and EPS forecasts all raised
  • Vueling chief Cruz takes over from Williams at U.K. flagship

IAG SA, which has made three airline purchases since its formation from a merger of British Airways and Spain’s Iberia in 2011, said it sees scope for more transactions and is particularly interested in a deal that would reduce its reliance on the northern summer.

“We believe there is further opportunity for consolidation,” Chief Executive Officer Willie Walsh told analysts in London Friday. “We’re not afraid of a turnaround, but we’re not out there looking for broken airlines to acquire.” No talks are underway right now, he said.

A counter-seasonal deal would be “very attractive” and is something IAG is examining, without having identified a target it “would make sense to pursue,” Walsh said. He said earlier that IAG has a “clear desire to work closer” with Chile’s Latam Airlines Group SA, adding: “When the time is right and they’re ready to sit down with us we’ll have further constructive discussions.”

Buying discount carrier Vueling, Ireland’s Aer Lingus and the former BMI, now merged into BA, secured “the right airlines, with the right attitudes, in the right markets,” said Walsh, who also raised financial targets for Europe’s No. 3 airline across a range of parameters. Operating profit is forecast to reach 12 to 15 percent of sales in the 2016-2020 period, up from a 10 to 14 percent target.

Cruz Control

Shares of IAG rose as much as 4.4 percent to 606 pence and closed 3.7 percent higher at 602 pence in London, where it’s based. The stock has advanced 24 percent this year, valuing the company at 12.2 billion pounds.

Walsh also announced the appointment as British Airways CEO of Alex Cruz, who previously led Barcelona-based Vueling in its efforts to compete with Ryanair Holdings Plc and EasyJet Plc. No successor to Cruz, who replaces Keith Williams, was announced. Steve Gunning, head of IAG Cargo, will take over from Nick Swift as BA finance chief.

Aer Lingus, acquired this year for 1.4 billion euros ($1.6 billion), has the potential to “really contribute” to earnings, Walsh said, adding that he’s also “delighted” with IAG’s relationship with Qatar Airways, a 10 percent investor and ally in the Oneworld grouping. Cooperation has been developed in the cargo market, with scope for a closer relationship in other areas, he said.

IAG also lifted goals for earnings per share, return on invested capital and annual earnings before interest, taxes, depreciation, amortization and restructuring. The upgrades reflect lower fuel prices, with a potential benefit above 2 billion euros over three years. Gains from trimming staff and supplier costs will also drive profit, IAG Chief Financial Officer Enrique Dupuy said.

The group plans a “flexible” approach to fleet expansion, most probably with 578 jets by 2020, up from 483 today, excluding Aer Lingus, which is getting two Airbus Group SE A330-300s for long-haul flights, predominantly to the U.S.