IAG's 2012 results published on 28th February re-open the question for former BA shareholders and indeed anyone interested in the airline: Why did they do it?
To refresh memories , the union of BA and Iberia under a new holding company,IAG, never made sense to those who knew the two businesses. That didn't stop the project, essentially driven by Willie Walsh, being much praised and supported by BA's institutional investors and nearly all 'analysts'. BA's generally supine Board oozed enthusiasm for it and its alleged savings and synergies and talked of the "merger", actually a takeover by a new Spanish registered company, leaving BA as British as ever. There was a lot of talk about big savings , seldom actually realised or identified in mergers despite all the hype,and the joys of operating over 2 European hubs. Anyone with an atlas was aware that Madrid was geographically useful only for South America and possibly parts of West Africa . Much of South America would continue to be served nonstop by competitors out of Heathrow anyway. The Board it seems were not hot on realities,- or even atlas ownership. The final BA AGM before the deal hardly touched on the subject, most of the time being taken up by cabin crew militants going on about the evils of the company which they clearly loathed.
The 2012 results bring home some realities. The BA brand made an operating profit of 347 million while the Iberia brand lost 351 million. Any dividend which would have been paid by BA as a standalone business has clearly gone by the board. On top of that 202 million euros were put Iberia's transformation (?) plan and " 343 million impairment of Iberia tangible assets". Is that a way of saying that these assets were overvalued at the time of the "merger" and BA as it was got a poor deal? In the absence of any explanation in tbe brief summary published by IAG it rather looks that way.
Before what looked like a panic union of last resort (We've got to have a merger,- who's left?) BA had twice mishandled almost completed talks with the only real game in town, KLM with its ideally located and spacious European hub base at Amsterdam. On the second occasion Lords King and Marshall strutted away from the deal and left the Dutch to go off to Air France as their only real alternative.The loss of the Netherlands' carrier was and remains a disaster for BA .The two airlines are culturally and temprementally similar, both their networks were globally extensive and complemented and reinforced each other .Amsterdam is the ideal place through which to flow UK provincial business to the world, leaving slot constrained/strangled Heathrow to deal primarily witn London and southern England. Heathrow and Amsterdam are only an hour apart and can function well in tandem. Almost every UK provincial airport great or small has flights to Amsterdam. Not so 2 hour distant Madrid .BA's problem of how to compete in its own country's provinces remains unsolved and is probably now unsolvable. The Gulf ,Asian and even American carriers have done it for them and walked off with the business .Newcastle-Madrid-Bangkok? A time consuming and unlikely itinerary and yet "analysts " even talked about it. Why would anyone choose to travel that way?
Despite all the urgings from the uncomprehending sidelines, BA did not have to unite or be united with anybody. With one of the most extensive route networks in the world it was and on its own would remain a successful business despite its Heathrow capacity problems.
Right now , Iberia with many of its change resistant high cost staff opposing almost any talk of diminished rewards , is going through a series of 5 day strikes "to protect jobs". Undermining the current 2013 financial results is a strange way to achieve that. Presumably they are expecting Spain's politicians to ride to their rescue. If so they have tragically underestimated Willy Walsh's resolve and they are likely to find themselves on the street faster than they can ever have believed. Even so, former BA shareholders should rue the day they allowed themselves to be persuaded to raise no objections or even queries to the takeover of their company by the new IAG. The Board must have been much relieved that BA's final AGM in London was hijacked by militant cabin crew , leaving little time or space for the much more pressing issue. The institutions whose votes would anyway have wiped out any from the AGM's floor should hang their heads at their lack of grasp of the realities.
If Iberia really can be restructured and reformed and its high costs stripped out the division could become profitable but it will be a long haul and why would a sensible investor bother ? That begs the question as to why anybody ever thought that marrying up BA to Iberia was a good idea. Former BA shareholders, especially the big ones,should ask themselves that every day.
Footnote: Always good for a rumble, Unite the union which supposedly represents the interests of its members employed in the UK by BA is today adorning its offices at Heathrow with a banner in furtherance of its war on Willie Walsh personally. As the premesis which overlook the runway are almost opposite the IAG offices, Mr Walsh will no doubt allow himself a smirk. Bête noir status isn't something to make him flinch. McClusky declares " We are all Iberia ". That has to be about the last thing most BA staff would want to be. How Unite thinks that it is looking after its members in the successful British side of the IAG business by expressing solidarity with Spanish workers striking in defence of unaffordable remuneration and outdated "terms and conditions" defies reason but when did that ever deter militants from destroying the very thing they should be striving to maintain, - the ongoing success of the company?
To refresh memories , the union of BA and Iberia under a new holding company,IAG, never made sense to those who knew the two businesses. That didn't stop the project, essentially driven by Willie Walsh, being much praised and supported by BA's institutional investors and nearly all 'analysts'. BA's generally supine Board oozed enthusiasm for it and its alleged savings and synergies and talked of the "merger", actually a takeover by a new Spanish registered company, leaving BA as British as ever. There was a lot of talk about big savings , seldom actually realised or identified in mergers despite all the hype,and the joys of operating over 2 European hubs. Anyone with an atlas was aware that Madrid was geographically useful only for South America and possibly parts of West Africa . Much of South America would continue to be served nonstop by competitors out of Heathrow anyway. The Board it seems were not hot on realities,- or even atlas ownership. The final BA AGM before the deal hardly touched on the subject, most of the time being taken up by cabin crew militants going on about the evils of the company which they clearly loathed.
The 2012 results bring home some realities. The BA brand made an operating profit of 347 million while the Iberia brand lost 351 million. Any dividend which would have been paid by BA as a standalone business has clearly gone by the board. On top of that 202 million euros were put Iberia's transformation (?) plan and " 343 million impairment of Iberia tangible assets". Is that a way of saying that these assets were overvalued at the time of the "merger" and BA as it was got a poor deal? In the absence of any explanation in tbe brief summary published by IAG it rather looks that way.
Before what looked like a panic union of last resort (We've got to have a merger,- who's left?) BA had twice mishandled almost completed talks with the only real game in town, KLM with its ideally located and spacious European hub base at Amsterdam. On the second occasion Lords King and Marshall strutted away from the deal and left the Dutch to go off to Air France as their only real alternative.The loss of the Netherlands' carrier was and remains a disaster for BA .The two airlines are culturally and temprementally similar, both their networks were globally extensive and complemented and reinforced each other .Amsterdam is the ideal place through which to flow UK provincial business to the world, leaving slot constrained/strangled Heathrow to deal primarily witn London and southern England. Heathrow and Amsterdam are only an hour apart and can function well in tandem. Almost every UK provincial airport great or small has flights to Amsterdam. Not so 2 hour distant Madrid .BA's problem of how to compete in its own country's provinces remains unsolved and is probably now unsolvable. The Gulf ,Asian and even American carriers have done it for them and walked off with the business .Newcastle-Madrid-Bangkok? A time consuming and unlikely itinerary and yet "analysts " even talked about it. Why would anyone choose to travel that way?
Despite all the urgings from the uncomprehending sidelines, BA did not have to unite or be united with anybody. With one of the most extensive route networks in the world it was and on its own would remain a successful business despite its Heathrow capacity problems.
Right now , Iberia with many of its change resistant high cost staff opposing almost any talk of diminished rewards , is going through a series of 5 day strikes "to protect jobs". Undermining the current 2013 financial results is a strange way to achieve that. Presumably they are expecting Spain's politicians to ride to their rescue. If so they have tragically underestimated Willy Walsh's resolve and they are likely to find themselves on the street faster than they can ever have believed. Even so, former BA shareholders should rue the day they allowed themselves to be persuaded to raise no objections or even queries to the takeover of their company by the new IAG. The Board must have been much relieved that BA's final AGM in London was hijacked by militant cabin crew , leaving little time or space for the much more pressing issue. The institutions whose votes would anyway have wiped out any from the AGM's floor should hang their heads at their lack of grasp of the realities.
If Iberia really can be restructured and reformed and its high costs stripped out the division could become profitable but it will be a long haul and why would a sensible investor bother ? That begs the question as to why anybody ever thought that marrying up BA to Iberia was a good idea. Former BA shareholders, especially the big ones,should ask themselves that every day.
Footnote: Always good for a rumble, Unite the union which supposedly represents the interests of its members employed in the UK by BA is today adorning its offices at Heathrow with a banner in furtherance of its war on Willie Walsh personally. As the premesis which overlook the runway are almost opposite the IAG offices, Mr Walsh will no doubt allow himself a smirk. Bête noir status isn't something to make him flinch. McClusky declares " We are all Iberia ". That has to be about the last thing most BA staff would want to be. How Unite thinks that it is looking after its members in the successful British side of the IAG business by expressing solidarity with Spanish workers striking in defence of unaffordable remuneration and outdated "terms and conditions" defies reason but when did that ever deter militants from destroying the very thing they should be striving to maintain, - the ongoing success of the company?
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