British Airways Pares Fleet Plan, Seeks Job Cuts on Brexit Hit

(Bloomberg) -- British Airways owner IAG SA said it’s reviewing outstanding orders for the latest Boeing Co. and Airbus Group SE wide-body jets while keeping older planes for longer and adding more seats to others in a bid to pare spending as overcapacity and the U.K.’s Brexit vote weigh on earnings.

Plans to take 38 Airbus A350s and Boeing 787s are “under review” for deferral, IAG told investors Friday. It will retain four more aging 747 jumbos than planned and an extra seat will be added to each economy-class row on 25 777s based at London Gatwick, creating 52 new berths per plane from 2018.

The changes, which also envisage a fleet of 362 Airbus A320-series short-haul jets, 34 fewer than previously planned, will cut capital spending by 1.4 billion euros ($1.6 billion) through 2020. Chief Financial Officer Enrique Dupuy said the rethink is “about delays, not about cancellations,” and that IAG, which also owns Ireland’s Aer Lingus and Iberia and Vueling of Spain, is confident of renegotiating delivery schedules with Airbus and Boeing.

IAG’s capacity growth will now be limited to 3 percent through 2020 as a seating glut weighs on fares and the U.K. vote to exit the European Union creates uncertainty and threatens to crimp spending among Britons. Alex Cruz, who runs the BA unit, said voluntary departures are being sought among back-office staff and cabin crew that more IT work will be outsourced.

While London-based IAG will retain more 747s -- for a total of 23 by 2020 -- it will get rid of four smaller A340s, which like the jumbo is a venerable four-engine jet that’s less efficient than current models, paring the fleet to seven. The delivery of a sole A330 wide-body has also been deferred.

Earnings Downgrade

At the same time IAG will devote 400 million euros more to Aer Lingus as it seeks to switch to longer-range variants of the single-aisle A321, reducing the net capital saving to 1 billion euros. A320s operating for Iberia and at the London Heathrow hub of BA will get 12 more seats, while Heathrow’s A321s will get 13 more. The number of smaller A319s at BA will drop to 26 from 44.

IAG also cut its long-term profit target as sterling’s decline hurts revenue when translated into euros, in which it reports. Earnings before interest, tax, depreciation, amortization and aircraft rental will now average 5.3 billion euros in the 2016 to 2020 period, down from a previously estimated 5.6 billion euros.

Charges this quarter against the British Airways redundancies could match the third-quarter’s 62 million pounds ($78 million), though the bulk will come next year, IAG said, adding that benefits of as much as 400 million euros will take about 18 months to accrue. The plans require consultation with unions.

Cruz said BA also aims to reduce maintenance fees and handling costs as it works to slim expenses while pressing home a margin advantage over U.S. rivals from sterling’s devaluation versus against the dollar.

The higher-density 777s will provide a cost advantage over Norwegian Air Shuttle ASA, which has begun trans-Atlantic flights from Gatwick. BA has announced plans for new routes including Gatwick-Fort Lauderdale, where it will go to toe-to-toe with the Scandinavian carrier.