International Airlines Group Jumps Five Percent on Hopes of Agreement with Spanish Unions

International Airlines Group (LON:IAG), the owner of British Airways, saw its share price climb by five percent to ₤2.5790 on Tuesday, March 12 after Spanish unions indicated they would back a mediator’s proposal to temper job losses at Madrid-based Iberia.

The proposal, put forward by a Spanish government-appointed mediator, recommends that the number of jobs cuts in IAG’s planned restructuring should fall from 3,807, or about a fifth of the workforce, to 3,141. The compromise also offers a higher level of redundancy payment to fired workers.

The Financial Times reported that Spanish unions have already held two five-day strikes, at an estimated cost to Iberia of €3 million (₤2.62 million) per day, after talks between the company and labour representatives broke down at the beginning of the year. The airline owner, IAG, has had to cancel hundreds of daily Iberia flights and has been threatened with a third strike from March 18 to 22.

Pilots, flight stewards and ground crew have also warned there will be another stoppage during Easter week. In the previous strikes protesters waved red and yellow Spanish flags outside IAG’s offices in Madrid and held signs saying “British go home” and “Get your dirty hands off Iberia”.

City analysts quoted by Reuters pointed out that IAG seems to have won the negotiations with a package that will slash €250 million (₤219 million) off Iberia’s annual wage bill. As of the end of last year, 24 percent of IAG’s total costs came from staff wages, compared to 30 percent at Iberia.

"The deal sees IAG get a 15 percent reduction in Iberia's workforce, plus save an additional 5 percent through salary reduction schemes and productivity gains. It looks quite encouraging for IAG,” opined an analyst, as quoted by The Independent. Deutsche Bank, Nomura and Cantor Fitzgerald all reaffirmed on Tuesday their "buy" ratings for IAG's stock.

IAG Chief Executive Officer Willie Walsh is aiming at a €600 million (₤525 million) earnings turnaround at Iberia by 2015 after the Spanish airline pushed Europe’s third-largest airline group to an operating loss of €23 million (₤20.15 million) last year.

"It is all about the poor and unacceptable financial performance [of Iberia], which must be tackled in a permanent and structural way," Walsh said last month as IAG released its full-year earnings.

To improve IAG’s financial performance in Spain, the company CEO last year established a new unit called Iberia Express, with less-generous contracts, and that business has proved profitable. Walsh also made a takeover bid for Barcelona-based discount carrier Vueling Airlines, which was last week rejected by Vueling’s board.