British Airways is preparing to cut almost 30 per cent of its 42,000 workforce as the coronavirus crisis wreaks more damage on the battered aviation sector.
IAG, the airline’s parent company, warned that a return to 2019 passenger levels would take “several years” and announced plans to cut up to 12,000 jobs.
In a letter to BA staff, chief executive Alex Cruz said that “the outlook for the aviation sector has worsened further” in the past few weeks, adding: “We must take action now.”
The move comes as carriers have moved from furloughing workers to making redundancies with optimism for a fast rebound evaporating.
SAS, the Scandinavian airline, said on Tuesday that it would permanently cut about half of its workforce — up to 5,000 full-time positions — as it warned it would take “some years” for its business to go back to normal.
Lufthansa, the German airline group, is considering filing for creditor protection, according to its cabin crew union.
Norwegian Air Shuttle warned this week that the bulk of its fleet was likely to remain grounded for the next 12 months. The company warned that a full recovery would not take place until 2022, laying bare the scale of the crisis engulfing the industry.
In his letter, seen by the Financial Times, Mr Cruz wrote: “There is no government bailout standing by for BA and we cannot expect the taxpayer to offset salaries indefinitely. Any money we borrow now will only be short-term and will not address the longer-term challenges we face.”
He added that the airline did not know when countries would reopen their borders or when the lockdowns would lift.
“The scale of this challenge requires substantial change so we are in a competitive and resilient position, not just to address the immediate Covid-19 pandemic, but also to withstand any longer-term reductions in customer demand, economic shocks or other events that could affect us,” he wrote. BA will consult on the redundancies with its three unions — Balpa, Unite and GMB — over the next 45 days.
The job cuts at BA will sound alarm bells in the Treasury, as it signals that the coronavirus outbreak is likely to leave a deep scarring effect on parts of the UK economy even after lockdown restrictions are lifted.
Chancellor Rishi Sunak said last month he would contemplate offering “bespoke support as a last resort” to struggling airlines. In a letter to the aviation sector on March 24, he wrote: “Further taxpayer support would only be possible if all commercial avenues have been fully explored, including raising further capital from existing investors and discussing arrangements with financial stakeholders.”
In those circumstances terms would be “structured to protect taxpayers’ interests”, suggesting the government would take equity stakes in any company it bailed out.
Brian Strutton, general secretary at Balpa, the pilot union, called the BA move a “bolt out of the blue from an airline that said it was wealthy enough to weather the Covid storm and declined any government support”.
He added: “Balpa does not accept that a case has been made for these job losses and we will be fighting to save every single one.”
The move to cut jobs comes just weeks after BA agreed a deal with unions to slash costs that led to the furlough of just over 22,000 workers. Earlier this month IAG announced plans to ground about 90 per cent of its fleet in April and May and cancelled its proposed 2019 final dividend, worth €337m, because of the pandemic.
In its preliminary results on Tuesday, IAG said it expected its operating loss in the second quarter to be “significantly worse” than in the first quarter because of the substantial decline in passenger traffic.
The move to cut jobs came as IAG reported an operating loss before exceptional items of €535m for the first quarter, compared with a profit of €135m last year. Its pre-tax profit was hit by an exceptional charge of €1.3bn from fuel and currency hedges following the sharp fall in the oil price this year.
IAG said: “Recovery to the level of passenger demand in 2019 is expected to take several years, necessitating group-wide restructuring measures.”
It added that total cash and undrawn general and committed aircraft finance facilities amounted to €9.5bn at the end of March, including €6.95bn of cash, cash equivalents and interest-bearing deposits.
Additional reporting by Joe Miller in Frankfurt and Richard Milne in Oslo
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