LONDON - Willie Walsh is a man of his word, as British Airways staff are finding out to their cost. The chief executive of the UK flag carrier’s parent company International Consolidated Airlines Group is axing 12,000 BA employees, a quarter of its workforce, as part of a coronavirus-driven restructuring. Though brutal, the cuts are in keeping with Walsh’s long-held opposition to state support. That he had to cut so deeply is an ominous warning to European Union taxpayers whose governments are preparing to bail out less healthy rivals.

In first-quarter results released on Tuesday, IAG admitted that government-backed job furloughs and 9.5 billion euros of cash and credit lines were not enough to weather the coronavirus storm. The damage is already extensive: The group reported a 535 million euro operating loss in the first three months, compared to a 135 million euro profit the previous year. In a letter to its 45,000 staff, BA Chief Executive Alex Cruz said that the airline could not count on taxpayers to subsidise jobs that would become redundant as airlines shrink to cope with people flying less even after lockdowns are lifted.

Unions will not be the only ones reeling. That Prime Minister Boris Johnson was unable or unwilling to stop the cuts at BA makes it much less likely he will step in to help rival Virgin Atlantic, which billionaire founder Richard Branson says will go under. Virgin’s demise via laissez-faire economics, and the resultant loss of a competitor, would be the one kind of state aid that Walsh could probably accept.

European leaders negotiating bailouts will also take note, given the clear air between BA and their own carriers’ financial performance. Last year, BA’s operating margin was 14.5%. The equivalent figure at Deutsche Lufthansa, which is negotiating a 9 billion euros of support from Berlin, was 5%. At Air France-KLM, which has just secured 7 billion euros in finance from Paris, it was 3.7%.

Lufthansa CEO Carsten Spohr admits his outfit will emerge from any rescue smaller. And Air France-KLM counterpart Ben Smith acknowledges Paris has not written a blank cheque. But their companies’ relatively weak profitability means cuts will have to go deeper than at BA if governments are to stand a chance of getting their money back any time soon. With political pressure in both capitals to link public funds to jobs, taxpayers should be bracing for a hard landing.

CONTEXT NEWS

- British Airways will cut up to 12,000 jobs, more than a quarter of its workforce, as part of a sweeping restructuring caused by the long-term impact of the coronavirus, parent company International Consolidated Airlines Group (IAG) said on April 28.

- BA Chief Executive Alex Cruz said the London-based airline was doing everything possible to conserve cash, including renegotiating contracts and looking at options for its fleet, but this was not enough.

- In a letter to staff, Cruz said there was “no government bailout standing by for BA”, adding that it was unfair for the taxpayer to continue to subsidise the wages of furloughed staff. Unions criticised the decision.

- IAG, which also owns Spain’s Iberia and Ireland’s Aer Lingus, reported an operating loss for the first quarter of 2020 of 535 million euros, compared to a profit of 135 million euros a year ago.

- IAG shares were down 4.1% at 208.9 pence by 0817 GMT on April 29.

(Editing by Neil Unmack and Karen Kwok)


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