As Spain assumes the presidency of the European Union, Iberia's management has taken a new tack in trying to convince the European Commission and industry critics that it should receive its controversial Pta130 billion ($1.07 billion) in state aid.
Having blamed the recession, devaluation of the pesata, competition and bad investments in Latin America, Iberia is now trying to convince the world that it is a financially viable entity, with a valid restructuring plan.
In fact, says senior management, the carrier is doing better than some of its European rivals. 'We are making money this year, which is more than Alitalia or Air France - both showing operating losses for [the beginning of] this year,' says a senior Iberia source.
He says Iberia made an operating profit of Pta6 billion in the first half, and is forecasting a Pta20 billion operating profit for the year. 'This atmosphere that tells the industry that Iberia is going to fail is unfair,' he says. 'Iberia is a viable company right now.'
For good measure, the source claims that the amount of money being injected should be considered, not the 'one time, last time aid' concept. Iberia is understood to be arguing to the Commission that so far Olympic has received 7.5 times as much state aid per employee than Iberia, and that Air France has received three times as much. Adding in the present capital injection request still leaves Iberia with one and a half times less per employee than Air France's record request of FFr20 billion ($4.1 billion).
The Commission has decided to hold off making its decision until after the August holiday. 'Neil Kinnock is aware of how closely this case is being scrutinised. Such an important decision cannot be taken in the holiday months,' says a Commission source.
Spain's presidency is unlikely to exert too much influence as prime minister Felipe Gonzalez is expected to have enough difficulty coping with crumbling political support at home. While the Commission source acknowledges there may be some political influence, he says it would be difficult for Spain to have too much sway without an outcry from other member states.
In early July rumours abounded that the Commission was considering authorising only the Pta32 billion ($260 million) necessary to fund Iberia's proposed redundancy package. This would be in accordance with the document produced by the Commission last year, The Way Forward for Civil Aviation in Europe, which states that the Commission will 'look sympathetically at aids intended to serve directly the purpose of assisting airline employees' adaptation.'
A Brussels consultant says awarding only partial aid would be a step forward for the Commission's image. 'That would be a great victory for DGVII [transport directorate] in terms of rebuilding its credibility,' he says.
But Iberia is adamant about the amount it needs to restructure. 'The main objective is to reach the solution of Pta130 billion. It is not a magic figure, but it is what is necessary to provide the right restructuring for Iberia,' says the Iberia source.
Still, many observers believe that the Commission can posture and threaten all it likes, but the reality remains that Iberia will get its money. 'The fact that they are managing the European Union is not relevant. The Spanish government will not allow the European Commission or anyone else to shut down Iberia Airlines. The government will find other ways to pay Iberia,' says an Amsterdam analyst.
Asset sales could make up any shortfall, and would probably be encouraged, if not insisted upon, by the Commission. Unlike Air France's Meridien hotels, however, Iberia insists its assets are not so easily liquified. 'We can't dispose of core assets and so how we get to [130 billion] is to be discussed,' says the Iberia source.
The question still remains, however, where the state aid would really end up. The 1992 injection of Pta120 billion quickly fell into the black - or rather red - hole of Iberia's Latin America investments. And there are few signs that the effect of the South American investments is lessening on the Spaniards' bottom line. Last year Iberia reported an operating profit of $44 million on revenue of $3 billion, but ended up with a net loss of $310 million.
Aerolineas Argentinas, in which Iberia has an 83 per cent shareholding, lost $293 million in the year to June 1994. Viasa, in which Iberia may increase its 45 per cent stake, reportedly lost $58 million in 1994. Ladeco, of which Iberia owns 38 per cent, increased its 1994 losses by $5 million to $8.4 million.
Source: Airline Business
