Is British Airways Really Such a Big Disgrace?

(Bloomberg Opinion) -- When times are tough at the airlines Willie Walsh oversees, the corporate art collection is one of the first things to go. Walsh cashed in on Aer Lingus’s artwork when he restructured the Irish carrier almost two decades ago. Now it’s the turn of British Airways to sell its canvases. Like Aer Lingus, BA is part of International Consolidated Airlines Group SA, which is battling to preserve cash after the Covid-19 epidemic grounded most of its fleet.

Politicians and trade unions won’t shed tears for the Damien Hirsts that adorn the company’s offices and executive lounges, but they’re exceedingly peeved about the 12,000 jobs that BA plans to axe — almost 30% of its workforce. Members of the U.K. Parliament have branded the airline a “national disgrace” and accused it of a “calculated attempt to take advantage of the pandemic to cut jobs and weaken the terms and conditions of its remaining employees.”

On Monday, Walsh, who will retire as IAG’s chief executive officer in September, shot back: “This is not a disgrace. Lying down and surrendering without a fight would be a disgrace and we will not do that.”

Criticizing BA is a national pastime for Brits, and the attacks are often deserved. For example, IT problems have inconvenienced passengers, who complain that the “world’s favorite airline” isn’t what it was. But blasting the company for trying to prevent its own collapse is unfair. It’s burning through about 600 million pounds ($759 million) of cash every month. That isn’t sustainable. 

BA has tapped 300 million pounds of U.K. government-backed loans, and receives wage subsidies from Britain’s job retention program. Meanwhile, IAG’s Spanish units have benefited from about 1 billion euros ($1.1 billion) of state-backed loans. But that’s peanuts compared to the billions that the U.S., German and French governments have showered on their carriers.

Walsh didn’t protest partly for philosophical reasons but also because his company’s cash reserves are pretty decent. Instead of applauding the company for not depending on handouts, politicians have made its life harder: First, by bungling the initial coronavirus response, and then by imposing a misguided 14-day quarantine on passengers arriving in the U.K. 

Compared to budget carriers such as Ryanair Holdings Plc and Wizz Air Holdings Plc, BA is more reliant on business travel, which will take longer to recover. But most airlines will have to downsize. While bailouts and wage subsidies buy you time, they don’t change the economics. Regrettably, job cuts are inevitable. In the U.S., the terms of government assistance prohibit layoffs until Oct. 1, but employees face a bleak period thereafter.

Any downsizing needs to be handled sensitively — a quality that Walsh, who once earned the nickname “Slasher” for his cost-cutting zeal, isn’t renowned for. The unions say BA is trying to tear up the gold-plated employment contracts of long-serving staff via a “fire and rehire” strategy. No wonder the atmosphere has become toxic.

There are echoes of the crisis that  U.S. carmakers faced before the last recession, when management and unions clashed over generous pay and massive healthcare liabilities that had made the industry uncompetitive. Ultimately General Motors Co. and Chrysler filed for bankruptcy to jettison some of those obligations and start afresh. There’s a long history of U.S airlines availing themselves of Chapter 11 proceedings to do similar. To its credit, BA is determined to avoid such a fate. 

Until recently, BA was very profitable — it achieved a 14.5% operating profit margin last year. Suddenly, though, the stakes are as serious for the airlines as they were for Detroit in 2008. The fight over BA’s job cuts won’t be the last. The airline must tread carefully, but politicians shouldn’t attack it for trying to keep the lights on.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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