[AnthonyDunn]

@ BigDog. – 10/05/2013 18:20 GMT

I didn’t hear the Jeremy Vine programme but I was struck by the former head of Risk at HBOS (I think it was) who was sacked by the now disgraced former CEO for pointing out what the reckless lending to the commercial property sector was doing. He made much the same points that the personal traits of many of those in senior leadership positions across sector leading businesses, including financial institutions, were – at best – undesirable or – at worst – rendered them positively unfit to hold the positions they held!

I am constrained by libel laws from stating who I would put in such a category.

[BigDog.]

Well Anthony, FDOS, AOTG – an unexpected admission by Walsh. Not sure if wily Willie is showing genuine remorse and will learn from the experience (an atypical character trait?) or if he is admitting the error of his ways to merely placate/deflect his critics and buy himself a little more time.

(Or maybe he wants to win some plaudits on the BT forum when Walsh and the IAG board decamp en-masse to the forthcoming Taste of London event to take their next stategic briefing from Krughandles!)

http://www.telegraph.co.uk/finance/newsbysector/transport/10050107/BA-should-have-put-Iberia-merger-on-hold-Walsh-admits.html

Although he now admits that the merger should have been delayed, there is no apology to BA shareholders who were royally fleeced by the outrageous terms/valuation of IB.

Good to see that what should be an anomaly, the original BA shareholder discount, is still maintained at least as somewhat of a sop.

Frankly, hindsight was not needed – all the indicators to the merger being at the wrong time, with the wrong valuation, wrong terms (pre-requisites), were already well known, he just chose to ignore them.

[VintageKrug]

IAG up 66% in past year. ‘Nuff said.

[BigDog.]

Good to see some recovery. Walsh only needs now to merely double IAG’s current value to just regain the original position it was at when his initiatives should have been yielding a positive outcome – then avoid trashing the value a second time around, as happened before.

And lets forget about the market lagging dividends, or lack of them shall we.

[VintageKrug]

66% share price increase in the current environment is a terrific achievement IAG and its management can be proud of.

[edit: it’s now a 73% increase, since I last checked]

http://uk.finance.yahoo.com/echarts?s=IAG.L#symbol=iag.l;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Another validation of Walsh’s long term strategy.

[LuganoPirate]

A 66% (or even 73%) increase from what? If you take the share price from it’s highs of over £5 then it’s not an increase. Taken from the lows of around a pound it obviously is. YOY it’s actually up 61% today.

Then it has to be taken into account the fact it’s not paid a dividend in over 10 years. Compound an average 3% and then deduct that from the increase and suddenly the return is a lot less compelling.

Take a look at the directors shareholdings, WW has less than 300,000. Baroness Kingsmill has just 2,000 and Luis Gallego has the grand total of 100!!! What confidence they have in the company!

Institutional investment is less than 25% with the majority being held by Banco Financiero y de Ahorros who are there for historical (Iberia) reasons.

A great share to trade but for long term investors I’d avoid it like the plague.

[VintageKrug]

I would certainly avoid airline stocks; they are volatile in the extreme.

However, the £5 you quote was a level reached – for less than a couple of weeks – by Willie Walsh’s management team, just prior to the Crash of 2008/9. It had risen from 330p (around the same levels as seen today) the year prior to that.

Choosing to take an exceptional, pre-crisis long term high as the benchmark doesn’t really help shore up an argument.

You can hardly criticise a pretty impressive turnaround from an almost bankrupt entity at the time of the cabin crew strikes.

Alongside the profitable performance of BA, the purchase of bmi, vueling and interest in flybe are all compelling reasons for a positive view of IAG.

The huge potential of the basket case that is Iberia coupled with IAG management’s track record of turning round failing airlines like BA and recent evidence of its abilities at the much smaller bmi, suggest that Iberia will deliver the expected profits in the long term.

IAG is hardly responsible for the poor performance of the Spanish economy, and indeed getting Iberia right will deliver much needed economic stimulus to the whole region and prove a test-case for the reforms much of Spanish economy needs to become lean and profitable once again, after years of EU-induced malaise.

The turnaround programme at Iberia is only just beginning and is already reducing costs for the Group.

[LuganoPirate]

It wasn’t meant to be critical, just pointing out the facts from an investment perspective. All shares go through peaks and troughs and if you take the price of 330 some 5 years ago, then compared to other companies who also got hit BA (IAG) has not made a good recovery, compounded as I mentioned by a lack of any dividend.

[VintageKrug]

Good point, and I appreciate you don’t have a history of having an axe to grind.

There have certainly been challenges; however these are not really of Walsh’s making – at a time of increasing fuel costs, BA was hit with a series of external shocks, from the closure of airspace which disproportionately affected UK/transatlantic ops, relentless APD increases, failure of BAA to properly manage Heathrow during snow events, delays in delivery of new aircraft which pushed up fuel bills and restricted expansion plans as well as the need to acquire Iberia at a difficult time to shore up BA’s cash position, despite the disadvantages in the short term, and more recently the need to acquire bmi when there was little money in the pot to do so.

Whatever you believe was the cause, the cabin crew dispute affected profits at a very sensitive time. My position is that the Unions failed to negotiate and ended up with a worse deal for the airline and its members, while destabilising the firm for a year or so, others will disagree but I have my oft rehearsed position and know it to be correct.

When you compare with AF and Lufty, BA is in lockstep with Lufty, and slightly behind AF. However, BA always suffers in a downturn and surges during an upturn as its products are primarily business focussed, and that’s where it makes its margins:

http://uk.finance.yahoo.com/echarts?s=IAG.L#symbol=iag.l;range=1y;compare=lha.de+af.pa;indicator=;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

I do see some really positive upside in Iberia, and IAG as a whole; if the mooted Qatar tie up happens I would expect more resolve in dealing with Iberia quickly and that would give further confidence.

[SimonS1]

Easyjet is up 122% in the last year. That would have been a good buy.

[VintageKrug]

BA is a legacy international longhaul airline conglomerate; it is not reasonable to use EasyJet as a comparator, as it’s a different type of business.

I am sure BA could have delivered incrased profits if its cabin crew contracts were all made at the same levels seen at EasyJet…….would you be in favour of that?

You can’t have it both ways.

[londonlad]

Bigdog

For someone who claims to have no links to BA you are very pro legacy cabin crew, and very anti pilot. Hmmmm…

Actually Easyjet pilots are pretty well paid, not the contract one’s of course. I know two pilots based at European bases who earn well into 6 figures (£)

[SimonS1]

VK

As an investor (which I’m not) – I would be in favour of any measures necessary to deliver profitability. If that means changing contracts then so be it. Plenty of employees around the country have seen their remuneration adjust as a result of the economic climate.

As a customer (which I am occasionally) – I would be quite happy to see the Easyjet model adopted. Allocated seats, fairly new aircraft, ability to change return flight if I finish early. In fact only this morning I have booked a business trip to Geneva next week on EZY for that reason.

[LuganoPirate]

Again, from an investor point of view, Easyjet have performed brilliantly, as Simon points out up 122% this year. Even during the 2008/9 crash they performed reasonably and have continued from around 350p then to 1150 today.

Another plus point is they now pay a dividend yielding about 2%.

Just a thought here. What if IAG sold off BA’s European routes with a feeder agreement to it’s long haul flights in place. I wonder if Easyjet would be a willing buyer?

Or perhaps Easyjet simply don’t need to!!!

[VintageKrug]

EasyJet has done well, but then one would expect a Low Cost Carrier to profit during a downturn.

BA owns a 15% stake in flybe, and with the vueling acquisition is now much better constituted to reduce cyclical issues.

The fact that IAG has made a 70%+ increase over the same period DESPITE all the legacy baggage, and BA is profitable, points to a very strong underlying business.

With many of the legacy issues addressed at BA, and being aggressively addressed at Iberia, I would expect some very strong resurgence once broader economic indicators have returned to sustained periods of growth.

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