The Spanish government appears to be pursuing brinkmanship tactics with the unions in an attempt to settle the chaos surrounding troubled flag carrier Iberia.
As pilots walked away from the negotiating table at presstime, industry minister Juan Manuel Eguiagaray threatened to go ahead with 5,200 layoffs and plans to sell some of the carrier's assets, such as European low-cost subsidiary Viva.
The pilots are refusing to sign the agreement reached in early December with the two main unions, representing ground staff and cabin crew. This deal included reduced lay-offs of 3,200, an increase in productivity of 15 per cent, and average salary cuts of 8.5 per cent - ranging from 3 per cent for lower paid employees to 15 per cent for the middle management and pilots.
This deal would fall through if agreement cannot be reached with the pilots, who are only willing to accept a pay cut if a new, more drastic restructuring plan is adopted. The less drastic plan achieves annual cost cuts of Pta17 billion ($129 million), which the pilots say is not enough to save the beleaugered carrier.
Iberia's management was set to talk with all seven unions in mid-December to determine the options available and is prepared to keep negotiations open until mid-January. But with the company heading for technical bankruptcy in March, time is running out.
Agreement with the unions is vital before an official approach to Brussels for approval of Pta130 billion in state aid. However, it is questionable whether the carrier can successfully argue for a further state injection, since it received $1.2 billion in 1992 under the condition that no more aid be given until 1998.
With the European Commission's new state aid guidelines now in force, the key question will be whether the company's woes are due to 'exceptional circumstances, unforeseeable and external to the company'. A row in Brussels over the interpretation of this wording has already broken out between competition commissioner Karel van Miert, who defines exceptional as 'acts of God', and the departing Spanish transport commissioner Marcelino Oreja, who says it includes such factors as devaluation of a currency.
Iberia will hope to argue the latter in its bid for more money as the value of the peseta has dropped 20 per cent since mid-1992. 'The company hopes it can get aid, and will present its plan [to the Commission] before Oreja leaves,' says Iberia.
However one source at the Commission warns: 'Iberia's history cannot be ignored. It is not just the amount to be considered. The question must be: "Is this situation beyond the control of Iberia's management?" '.
The new guidelines were intended to give the Commission stronger teeth in future state aid cases. However, one London analyst sees the guidelines as a step back. 'To my mind the "exceptional circumstances" is a softening on the one-time, last-time,' he says. Legally, however, the Commission is unable to place a permanent ban on a return to state coffers, but the guidelines call for the imposition of 'stringent conditions'.
Despite the Commission's posturing, few believe Iberia will be refused more aid. 'I think they will get it. Having given so many billion to Air France the Commission can't say no to Iberia,' says Arjen Los, an analyst at Smith New Court.
Despite the Commission's posturing, few believe Iberia will be refused more aid. 'I think they will get it. Having given so many billion to Air France the Commission can't say no to Iberia,' says Arjen Los, an analyst at Smith New Court.
Source: Airline Business
