Monday 6 September 2010

British Airways (Leyland?) goes global

This story has caught my eye, I know it is a day late, but this proposal for the new BA-Iberia airline to go on an acquisition spree is hilarious. OK, so Willie Walsh is a good and tough CEO and no one questions Iberia either - a well run business. However, the airlines are in terrible trouble with their unions, stuck in an unending series of strikes.

Not only that, but BA's pension fund deficit is enormous and the world stock markets have not helped it of late. The company has cash, but this is earmarked for fleet replacement.

Thus the idea that these two companies are well placed to acquire others around the world, like Tony Fernades's AirAsia must be well off the wall. This would as the headline suggests be akin the the 1970's idea of  putting all the UK failed car manufacturers together in the hope that a sustainable business emerged.

Not only that, but no one has ever run such a complex services business on a truly global scale before - I really wonder whether it would be possible given the political nature of airline businesses.

Perhaps really this is the last story of the silly season instead.


roym said...

I thought consolidation where politically expedient is the future of the global airline industry?
Air France-KLM & Delta say?

Mind you, isn't it time Sir Fred wrote his memoirs? perhaps warning his peers on the perils of being overly acquisitive?

Steven_L said...

Aren't the DB pension deficits getting worse because of crappy bond yields and the glut of folk about to retire?

Most LA deficits have been uprated by as much as 50% since last year, the stock market is way up since then.

Don't worry, we've got them on the Chinese prices index now, maybe a little re-jig of the purchasing methodology to take into account the increasing about of people substituting to Tesco and Poundland given the lack of consumer confidence is in order?

Richard Elliot said...

I recently flew BA from London to Sydney in economy and it reminded me not to. The service has been pared back to the bone and lags well behind other airlines. They are a company trading off a name, but that can only last so long.

I can't remember the original rationale for the deal. If Iberia are well run, why would they want to merge with BA?

Perhaps BAs idea is to dilute unionised staff through as manager mergers as possible?!?

Sebastian Weetabix said...

"Willie Walsh is a good and tough CEO" - hmmm. As a long suffering victim of BA - I mean passenger - I can only say the service is getting worse and worse, the airline is losing money like hell, and he hasn't sorted out the union problems. But he does write a lovely page on green issues in BA highlife every month.

In the meantime they are losing business. I fly to LAX every month in business. BA: >£7 grand, usually late, hatchet faced queens who clearly hate the customers dispensing largesse when they feel like it, vast queues in immigration and a baggage shambles. Air New Zealand: circa £3.5 grand, flys to LAX T2, no queues or baggage shambles, always on time, smiling pleasant service. I used to fly BA to Asia until I discovered that Singapore Airlines were cheaper, more reliable & had a better service.

None of this indicates a fantastic CEO. It suggests an organisation with low morale which has lost its way & has an incompetent in charge.

Alex said...

Iberia is *not* well run. Been there, dealt with the board. Iberia survived because of state ownership until 2001, and still has 60% of the slots at Barajas. How they will do outside the Spanish speaking world is a moot point.

Walsh is also a disaster for BA. Given flag carriers ast Aer Lingus and BA he has run them into the ground by trying to compete alongside low cost carriers rather than offering a distinctive service.

His predecessors were able to handle staff negotations and grow the business organically.

Walsh is only able to grow the business by asking shareholders to buy into businesses in parts of the world where he has no expertise. If Walsh can't even run a service from London to Dublin, why should he do any better in Bangalore, Sao Paulo or Shanghai?

Budgie said...

"... akin the the 1970's idea of putting all the UK failed car manufacturers together in the hope that a sustainable business emerged."

Aaaaarrrrggghhhhhhhhhh!!!!! This really, really annoys me (grates teeth). Sorry, CU.

The reality is that politicians fiddle with something until it breaks then blame the 'something' for its own failure (see the banks). Labour is particularly prone to this. The politicos then ensure the blame gets into the national conciousness and - hey presto - 40 years down the line it is the accepted wisdom.

Essentially in the 1950s and 1960s UK government used the car industry as its economic regulator - the infamous "stop-go" policy. Result? Ford and Vauxhall effectively moved to Germany. The constituent parts of BL, starved of cash for investment in new models and production equipment, went to the wall.

CityUnslicker said...

All my own comments have disappeared, very annoying.

I like the comments here. Re Willie Walsh, the true villian is Rod Eddington. He was the one who put off the inevitable fight with the unions whilst the low cost carriers ate up market share. Willie came in to do an undoable job. I think he has done well, the unions are insane.

Iberia - Well, we will have to disagree Alex, I met the mgt there a few years ago and thought it a very well run business - most airlines suffered in 2001. The US ones all went bust and got $15 billion bailouts.

Budgie - apols re leyland, 70's before my time - but even your truthful version still works, botched privatisation, union problems - not working after years, try a big merger for success

Anonymous said...

Swissair Mk 2

They even tied up with Sabena (Such A Bad Experience Never Again) FFS

Wonder if Clive Sinclair will bring out his wee electric car mk 2

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