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James Brockett

James Brockett

15 Feb 2010 | 15:29

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Welcome to my new blog , in which I take a look at the business and the HR facts and figures behind the FTSE -100 companies making the news.

Soon after 22 February’s ballot for industrial action closes, we’ll learn the outcome of the latest chapter in the saga that is the BA dispute. Cabin crews affiliated to Unite are voting on whether they should walk out in protest at job cuts and changes to working practices. Considering that the previous ballot – albeit one that was spoiled because some ineligible people voted – recorded 92 per cent in favour of a strike on an 80 per cent turnout, it would be surprising if the result were anything other than a repeated mandate for action. BA’s plans to keep services going during the disruption, including bringing back departed staff and training ground crews as substitutes, only show how worried the company is at the prospect.

The public is unsure about where its sympathies should lie – many customers are simply wondering whether they’ll still be able to get to Tenerife for their Easter getaway, of course – but any objective analysis must focus on the state of the company’s finances. The chief executive, Willie Walsh, has said that BA is in a “fight for survival” and sacrifices must be made, but the union has pointed to the latest results – a relatively trifling £50 million loss for the quarter – as a sign that the situation is not as bad as all that. So who is right?

Whichever way you look at it, BA is in dire straits. The latest quarterly loss might have been less than what most analysts were predicting, but the firm has still shed £342 million in the first nine months of the 2009-10 financial year after posting a £401 million total loss in 2008-09. The airline has a cash balance of about £2 billion so, while it’s not about to go under, it can’t afford too many years like this one. And that’s before you consider the biggest millstone around the company’s neck: its pension scheme. This is showing a deficit of £3.7 billion – well over the company’s market value of £2.38 billion. (The old joke is that BA is a pension company that also runs a few jets.) The deficit is so large that a proposed merger with Iberia, which might still make sense, is on ice because the Spanish company is insisting that BA sorts it out first. The management team is committed to paying an extra £131 million a year towards filling the hole and, even if radical action is taken, this is going to be a drain on resources for many years yet.

Reducing costs seems the only option, but where to make the cuts? Cutting staff from 15 to 14 on each long-haul flight (one of the most controversial issues in the dispute) is predicted to save BA about £140 million annually and would lead to 1,000 redundancies among BA’s 12,000 cabin crew members. It’s not a palatable option for the workforce, but neither is the alternative of across-the-board pay cuts. Softer options such as voluntary leave, periods of unpaid work etc have been tried without conspicuous success. When left with a choice of equally painful options, a union’s default position can be to resist everything. Given that a strike would itself cost the airline an estimated £25 million a day, BA’s overall position is going to be made even worse by such resistance.

While the biggest factors behind the current problems – high fuel costs, intense competition and fewer business travellers – are industry-wide, BA is being hit hardest because of its historically high staff costs. The airline’s troubles are sad but inevitable. Whatever the outcome, I’m not sure that the union can win. Either the company succeeds in forcing through cuts and culture changes or a prolonged industrial battle becomes another dead weight to bring the airline down.
 
 

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About the editors

Claire Churchard

Claire Churchard

News and features writer on People Management

Claire Warren

Claire Warren

The deputy editor at People Management, looking after the features section

James Brockett

James Brockett

News editor at People Management

Jill Evans

Jill Evans

Legal editor on People Management

Rob MacLachlan

Rob MacLachlan

Editor of People Management

Tim Smedley

Tim Smedley

Features writer on People Management.

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