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IAG: BA restructuring may cost 12,000 jobs

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IAG: BA restructuring may cost 12,000 jobs

Old 28th Sep 2020, 22:11
  #1861 (permalink)  
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Originally Posted by FlipFlapFlop View Post
Staff are not the main cost to an airline as you well know so to cut your business by 75% would mean a reduction of 75% in the number of hulls. No way back then, so you may as well chuck the towel in now.

This is the second time I have seen this stated and I still dont understand this argument. If you are delivering a service you deliver at the level the customer demands. So if there is only a demand for 25% of current flights then airlines will reconfigure to match that demand. The idea that suddenly this becomes uneconomic and no airline will operate at that level simply does not make sense.

It may be that the industry changes to meet the new economic reality but that is what the rest of the economy is doing already.
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Old 29th Sep 2020, 07:17
  #1862 (permalink)  
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Then I suggest you read up on some basic economics. Your unit cost will increase quite steeply particularly if an airline like BA shrank to that degree. Couple that increase in costs with trying to service the unaltered debt and things get ugly pretty fast. It’s nowhere near as simple as “shrinking to meet the demand” in afraid.
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Old 29th Sep 2020, 09:02
  #1863 (permalink)  
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what you’re saying isn’t inherently wrong. If aviation was a declining industry (let’s say like Kodak film dealing with the rise of digital / phone cameras), as work dried up over time airlines would get rid of aircraft as leases came up, lay off staff etc in the same way that Kodak have closed factories, reduced output etc. While tough for all involved, it’s a part of how capitalism works. Companies, industries rise & fall along with the market.

The situation airlines have is more akin to the closure of the car plants in the 80s / 90s - the government deciding they were non viable and pulling the rug from under them (in this instance via quarantine, or state aid). Airlines are still geared for 2019 levels of output, and have no support to gracefully shrink to a more appropriate level for the market.
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Old 29th Sep 2020, 09:04
  #1864 (permalink)  
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so what is the alternative if the demand for your service is no longer there? - state bailouts?
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Old 29th Sep 2020, 09:07
  #1865 (permalink)  
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But the rest of the economy doesn't get this support to 'gracefully shrink' - you either arrange your business to meet the economic reality or you go bust - as much of the economy is doing already.
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Old 29th Sep 2020, 09:29
  #1866 (permalink)  
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Jet II

Either that or bankruptcy, yes.

(I’m not saying that BA cannot shrink, that’s what they are doing of course but it’s a law of diminishing returns. There comes a point where it’s not viable to shrink anymore, shrinking by 75% is way beyond that. Especially as they also have the slots in Heathrow to keep hold of.)

Last edited by Plastic787; 29th Sep 2020 at 09:44.
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Old 29th Sep 2020, 09:57
  #1867 (permalink)  
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Jet II

just because everyone’s in the same situation, doesn’t make it ok.

However the banks, the train operating companies, even pubs / restaurants have all had help to “meet the new economic reality” over the last 6 months. Airlines, Arts & Ents etc, not so much.

The government are picking winners. Sorry, “Viable” business (presumably as decided by “blinky” Cummings)
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Old 29th Sep 2020, 10:13
  #1868 (permalink)  
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really interesting direction this thread has taken. i hadn't considered the fact that fixed costs don't scale directly with the business size (eg finance on owned airframes where the airframes themselves have significantly devalued) which will make the business fail at a certain revenue level that would be generating good profits for a smaller business. however the slots at LHR arent part of that, if BA can't utilise them and they have to use it or lose it, then it's time to sell the slots.

(or Buy a fleet of Senecas and start up regular services to Fairoaks and White Waltham. )
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Old 29th Sep 2020, 12:45
  #1869 (permalink)  
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I just donít believe aviation is a shrinking industry the same way as Kodak or Car plants. Even with climate thoughts, the world is shrinking and global travel is key on everyoneís expenditure plans each year. Being a wet island nation I donít believe the return of the U.K. holiday will be making a long term comeback.

the only thing stopping aviation being viable is government restrictions. Just like the wedding events industry. Granted maybe they will be a cut back in business travel for a period, but even that will return. The struggle for BA et al will be their business offering. If they can make it more appealing to the holiday market maybe they can make it work still.
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Old 29th Sep 2020, 14:18
  #1870 (permalink)  
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Originally Posted by White Van Driver View Post
however the slots at LHR arent part of that, if BA can't utilise them and they have to use it or lose it, then it's time to sell the slots.
They'd have to find someone willing to buy them at anything like a value that would actually make it worthwhile to sell them. I wouldn't have thought that to be an easy task in the current climate.
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Old 29th Sep 2020, 15:31
  #1871 (permalink)  
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Nobody has mentioned the "elephant in the room".

It's all well and good making 12,000 staff redundant to save money, even though I vehemently disagree with it , but then there also is the gigantic pension deficit that has been accrued. That should be more of a concern. If staff over 55 are forced into CR it will be chaos unless IAG has a moneytree growing at Waterworld.
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Old 29th Sep 2020, 16:22
  #1872 (permalink)  
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Ex Cargo is spot on.

BA always was a little airline with a huge pension deficit.
It is now even smaller, and has a bigger deficit.

I wonder who is managing the Pension Black hole at BA??
How on Earth will they afford to make the agreed special contributions? Not to mention the new special contributions which will be required.

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Old 29th Sep 2020, 16:36
  #1873 (permalink)  
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Johnny tax payer to the rescue? https://www.ppf.co.uk
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Old 29th Sep 2020, 20:46
  #1874 (permalink)  
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Whilst the pension payments are not insignificant, they are a pretty small part of the company’s cash burn at the moment.
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Old 29th Sep 2020, 21:13
  #1875 (permalink)  
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Ex Cargo Clown

I don't know the conditions of the BA pension scheme, but, on the basis of other large public companies, find it very unlikely that pensions could be drawn before retirement age ( usually 65 ), and if so, see no difference if CR happens. No doubt someone will inform me if I am wrong.
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Old 29th Sep 2020, 22:24
  #1876 (permalink)  
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Pensions can be drawn up to ten years prior to the individual’s state retirement age. Someone drawing their pension early makes no difference to the fund’s liabilities though, so I am unsure why redundancies would alter those liabilities. I suspect we will actually see the fund’s liabilities reduce in size at the next triannual valuation because the life expectancy figures will have come down considerably.
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Old 29th Sep 2020, 23:02
  #1877 (permalink)  
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The pension fund needs money but can survive until the Aviation business is back up and running.

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Old 30th Sep 2020, 08:36
  #1878 (permalink)  
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Although NAPS has a large deficit it is being managed, early retirements will have to be funded in the sense that a VR, who will only be going with a pension, will need the scheme to crystallise this money internally This means BA will have to fund any outstanding deficit pertaining to that person now.
This may have been a factor during the past negotiation
The CR people were junior and would not have been a cost as they would have been in money purchased schemes.
Of course any future retrenchments may drag in more senior CR/VR NAPS members, and could be a major cost
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Old 30th Sep 2020, 10:33
  #1879 (permalink)  
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Tartiflette Fan

A company/private pension can be drawn without penalty at age 55. NAPS and APS are now deferred pension schemes. yes, they are in deficit but they are no longer linked to final salary. They are essentially a finite cost . That's why they have been closed.
What is interesting is the size of the CETV currently being offered. Well in excess of the actual individual fund 'values'. This suggests to me that the fund owners are trying to rid themselves of liabilities. IE Current staff.
What is a real fear (to me at least) is that if BA cannot access their biggest market very soon, they will not survive and my pension will be reduced to 80% of its current value when it's picked up by the PPF.
Even those who are currently employed and not in immediate danger of redundancy are looking at drawing their pension just to protect it if BA actually go to the wall.
Waiting time for pension packs and CETV estimates is currently 3 months!!
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Old 30th Sep 2020, 11:16
  #1880 (permalink)  
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I am no finacial adviser and pensions are a minefield so would suggest that everyone takes individual advice.

However, my own experience is as follows:1) CETV will be large - it is typically around 20 times pension value -
2) I don't believe you can draw down a defined benefit pension (ie final salary) - only a defined contribution (ie money goes into stock market)
3) Transferring out of a DB scheme is not straight forward - you need to get a quote (official CETV) - then you need to get advice which will be paid for. Advice will almost certainly tell you that it's not a good idea to transfer your DB pension out. You can appeal on the grounds that it's what you want to do and it's your pension (and YOUR money) but the Ombudsman thinks people are stupid and also likely to decline your appeal. No financial advisor is likely to tell you it is a good idea to transfer and the govt has massively increased fines for bad advice which means financial advisors can't afford the risk (and can no longer get risk insurance) and a lot have stopped advising on pension transfers.

Personally, I think it's scandalous that you can't transfer a defined benefit pension (or at least it's near impossible). After the TATA pension debacle where so many were advised to transfer out of their DB pension and got ripped off and ended up with little or no pension the Govt has basically made it impossible to do otherwise (ie transfer). BUT, it is your money , your pension so for Govt to make it impossible via regulation to transfer is not on and you should complain to your MP.

BTW - Something else I consider scandalous - if you die (prior to taking your pension) current legislation allows you to pass on your pension pot as part of your estate. This can be a lot of money. However, DB funds will typically only return PREMIUMS paid into the scheme and NOT its value. So, if your CETV is 200K then you may only have paid 30K of premiums and that's all you get back. If 200K was in a defined contribution scheme then you could pass on all of that.

As per my opening comment - the above is just my experience, I am not a financial advisor so you should take independent advice. I do have a DB pension (but I am not retired so it is deferred) so have done a lot of investigation into what I can do with it hence the post above.
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