British Airways Puts One-Year Limit on Pay Deal Amid Brexit

(Bloomberg) -- British Airways is refusing to offer pilots and other staff a new three-year salary package, citing an uncertain post-Brexit outlook in proposing a 12-month agreement instead.

“We can agree a one-year pay deal,” the IAG SA-owned airline said in a letter to unions obtained by Bloomberg News. “This gives certainty over pay for colleagues in what is anticipated to be an uncertain year given the current trading conditions.”

The proposal, which includes a below-inflation 2.3 percent pay increase, comes as businesses across Europe brace for the U.K.’s withdrawal from the European Union on March 29 and a lack of clarity over any economic fallout. With time running out and no divorce deal reached, companies are making contingency plans from stockpiling goods to rescheduling production lines.

"We are working closely with our unions to take a positive approach towards our ongoing pay talks,” British Airways said in a statement to Bloomberg.

The letter provides insight into British Airways’s outlook for the coming year as the aviation industry tries to understand what the U.K.’s pending exit from the European Union will mean for demand, regulation and ownership restrictions. Plans to avoid a halt to international flights to and from the country have already been laid out, but uncertainty persists about Brexit’s wider economic impact.

BA’s pilots, who took a pay cut during the financial crisis of a decade ago to help the carrier navigate the economic downturn, are frustrated that rising profit under IAG hasn’t fed into salaries, according to a letter from three unions in response to the airline. They rejected the counteroffer as “unacceptable,” and asked for a three-year deal starting with a 5 percent raise in the first year, plus profit-sharing.

“BA penalizes its staff in bonus terms for poor customer feedback scores that largely reflect the company’s own conscious lack of investment,” the unions said. Three labor groups, including Unite, GMB and the British Airline Pilots’ Association, represent cabin crew, engineers, check-in staff and aviators. The airline “is well placed to withstand the worst that might be thrown at it in terms of negative economic circumstances.”

IAG in November upgraded its five-year profit target by 11 percent to an annual average of 7.2 billion euros ($8.3 billion). Analysts are expecting operating profit last year to have gained 5.6 percent to 3.19 billion euros, with the company set to report full-year earnings on Feb. 28.

IAG Chief Executive Officer Willie Walsh said separately Friday that the group remains “very confident” that a Brexit deal covering aviation will be reached, adding that he doesn’t expect any impact on passenger numbers.

BA’s parent company is also facing potential problems with Spain-based carriers Iberia and Vueling as they need to be mostly owned by EU investors after the U.K. leaves the bloc.

IAG recently submitted a plan to the Spanish authorities and it’s working on changes on its ownership to comply with the regulation, Spanish minister of Public Works Jose Luis Abalos said on Thursday. IAG’s CEO declined to comment on the plan.

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