British Airways massive staff cuts bring fresh blow to economy

IAG SA’s plan to slash as many as 12,000 jobs at British Airways, a scale of cuts unseen since the coronavirus struck, is meeting opposition from unions and putting Prime Minister Boris Johnson in a tight spot.

The staff reductions, amounting to almost 30% of the workforce at Britain’s former state-owned airline, are part of a restructuring aimed at shrinking the group for a downturn that it reckons could last for years.

The U.K. has ruled out a broad bailout of the aviation industry, asking firms to first tap all commercial avenues to raise funds to protect taxpayer interests, with the government assisting only as a last resort. Nor has IAG sought the state-backed loans on offer to a wide range of businesses. That’s left Johnson vulnerable as the airline slashes staffing, worsening the already bleak economic outlook.

“The government should have stepped in sooner and done more to protect their jobs,” Jim McMahon, the Labour Party’s shadow transport secretary, said in a statement. “It was always clear aviation needed a sector specific deal to alleviate the immediate financial pressures that exist.”

The state has tried to stem the damage of widespread layoffs by paying part of the wages of more than 4 million workers furloughed while the country remains in lockdown. While that effort has thus far prevented mass unemployment, Britain’s economy is still seen contracting by 7.6% this year, the biggest annual drop since 1921, according to Dan Hanson of Bloomberg Economics.

Environment Secretary George Eustice said government help may be available for the airline. “The Treasury have always been clear that they stand ready to look at any other individual case,” he told Sky News on Wednesday, when asked about the job losses at BA.

British Airways has accessed the state programs that subsidize worker salaries, but IAG Chief Executive Officer Willie Walsh has echewed government funding. The carrier group opposed a rescue of defunct regional carrier Flybe, when it was ailing.

“A bailout usually comes with political interference, and Willie Walsh is an extremely straight shooter and has consistently opposed bailouts,” said John Strickland, an independent aviation consultant based in London.

British Airways was privatized in 1987, among a host of former state-owned entities ranging from utilities to manufacturers in the Thatcher era. Today the airline is owned by IAG, a Spanish-registered, U.K.-based group that also includes the formerly state-owned Spanish carrier Iberia and Irish flag carrier Aer Lingus.

In contrast to Walsh, Richard Branson has been looking to attract outside investors for teetering Virgin Atlantic Airways Ltd. after a request for some 500 million pounds ($618 million) in U.K. funding guarantees met resistance from the government.

Meantime, the U.S. and other European nations have scrambled to support their ailing airlines. France and the Netherlands agreed to provide 11 billion euros ($12 billion) of loans and guarantees to Air France-KLM. Germany and three other nations are in talks for a rescue of Deutsche Lufthansa AG.

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“Since its creation, IAG has been streets ahead of its peers like Lufthansa and Air France-KLM in terms of the way they’re run, and that’s why they have the cash and aren’t going cap in hand looking for a bailout,” Strickland said. “At the same time, I think that its going to be a slow and long recovery, and for BA to survive, they need to look carefully at where demand is going to be.”

British Airways CEO Alex Cruz, in a letter to employees, said there’s no time to lose in lowering costs and that any money the carrier borrows now won’t address the longer-term challenges it will face.

The airline, which has already placed 22,626 workers on the furlough plan, will start discussions with labor groups on the permanent reductions.

Len McCluskey, general secretary of the labor union Unite, which has put aside political differences to work with ministers from Johnson’s government to stem job losses as a result of the crisis, accused Cruz of betraying workers who risked their lives to staff repatriation flights for the airline.

“With the majority of BA’s workers on furlough, we would have expected him to work with both us and the government to honor the spirit of the government’s job retention scheme,” McCluskey said in an email. “To reject government support but then expect their own staff to pay the cost of such a misjudgment, is irresponsible, dangerous and destructive and is utterly at odds with the mood of the country at a time of crisis.”