Iberia is on the offensive as the European Commission settles down to consider the submissions of third parties opposed to the request of the Spanish government to inject Pta130 billion ($1.07 billion) into its flag carrier.
Top management came to London in early June to underline the claim that the proposed injection should not be considered state aid, because the money will come directly from the profits of Teneo - the state owned parent company of Iberia. This, argues Guillermo Serrano, senior vice president corporate at Iberia, means the money will not come out of the Spanish government's budget, and therefore it is not state aid.
But a Commission source says: 'It is just playing with words. It does not matter whether the money comes from the Spanish tax payer or via a state holding company, it is to be considered a state operation.' Defining the injection as state aid or not depends on whether the Commission concludes a private investor would make such an investment, he adds.
Losses continue to mount at the flag carrier, with a net deficit of Pta41.5 billion in 1994. However, Iberia did record an operating profit of Pta5.9 billion on turnover of Pta434.1 billion. Serrano says the operating result was Pta10 billion better than expected and unit costs were down 10 per cent in 1994.
Iberia's request is accompanied by a restructuring plan which aims to reduce staff by 3,500 by the end of 1996, freezes salaries until 1996, and includes an average wage cut of 8.3 per cent for all employees. The injection would provide funds for the staff cuts programme and a recapitalisation of the airline.
Serrano argues that the previous state aid received in 1992, was used primarily for investment, and the restructuring that was done was paid for by the sale of assets. The ill-fated investments included stakes in Latin American carriers, which Iberia maintains are still 'the right thing to be doing', despite the financial difficulties at Aerolineas Argentinas and Viasa.
Iberia is challenging the state aid regulations which, in theory, prevent it from receiving a second state aid injection before the 1992 programme expires at the end of 1997, with the argument that its performance was affected by 'exceptional circumstances' both unforeseeable and beyond its control. Iberia says these include the economic recession, devaluation of the Spanish peseta and difficulties in privatising the South American subsidiaries.
The Commission's initial reply to the application expresses 'serious doubts on the validity' of the Spanish authorities justification of the circumstances, and asks for more information. At presstime the plan was being scrutinised by independent assessors, with Iberia expecting a final decision from the Commission in July.
Source: Airline Business