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IAG bids on Vueling Airlines takeover, job losses expected

Vueling Airlines planeInternational Airlines Group (IAG), British Airways’ and Iberia’s parent company, has made a bid to takeover Spanish budget carrier Vueling Airlines.  The group already controls nearly 46% of the airline’s shares through Iberia and has now offered to buy the remaining shares for €113 million.

IAG says that the deal could be completed in the spring of next year if the shareholders accept the offer.  It will allow the smaller addition to be managed as a separate operating business, and its chief executive would report to IAG chief executive Willie Walsh.  The group also maintains that the acquisition won’t need regulatory approval from the European Commission.

Walsh says that Vueling Airlines has a lot to offer IAG due to its low cost base, growth strategy in Europe and leading position in Barcelona.  Capacity has significantly increased at the carrier, and its profitability has been maintained despite the slow economy in Spain.  Additionally, the airline has extensive commercial agreements with Iberia already.  He noted that they plan to keep the company’s current management team as well.

Walsh added that this will be good news for Vueling Airlines, as there are several advantages in this deal for the carrier.  It will benefit from the bigger airline group’s financial strength, which will allow it to better compete with other carriers and invest in new products and services for its customers.  Vueling will also be able to generate some revenue and cost synergies as part of the group – mostly through joint procurement and financing.

Meanwhile, the IAG boss has been trying to force cost-cutting measures at Iberia, which has become a heavily loss-making airline.  The airline reported €59 million in pre-tax profits for the first nine months of the year, as well as total assets amounting to €805 million.  Walsh’s efforts include creating short-haul budget subsidiary Iberia Express, which has struggled due to industrial disputes.  Analysts say that IAG will gain more options with the Vueling Airline takeover while it battles to impose new working conditions on pilots in Spain.

The group released its October passenger figures on Wednesday, showing a 3.2% increase in traffic and a rise in load factor to 80.5%.  However, this increase was because of improvements at British Airways, which reported a 6.2% jump in traffic.  Iberia, on the other hand, reported a 3.7% drop in traffic.  Union bosses have warned that up to 7,000 of the loss-making carrier’s staff will be axed.  A CTA union spokesman said that they have been called to a meeting for Friday (today), and the only thing they expect from it is being told about a huge number of layoffs.  At the time of writing, IAG hadn’t made a comment on the issue.

Analysts say that IAG’s management team has been working on contingency plans based on previously considered restructuring options that were discarded in favour of launching budget airline Iberia Express.  One alternative was using Vueling Airlines to feed traffic into Iberia’s long-haul services.  This takeover would offer a way for Iberia’s short-haul operations to be overhauled while avoiding how the arbitration process for Iberia Express will go ahead.

However, other analysts say Vueling Airlines is an attractive carrier, but they don’t see how the takeover would be beneficial to the company.  They believe IAG is simply diverting attention from the problems it’s having with restructuring Iberia.

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