IAG has almost completed an extensive review of its maintenance operations, aimed at cutting costs, and is turning its attention to implementing the new strategy.

Iberia chief executive Luis Gallego detailed progress on the plan during an investor presentation on 4 November.

He says that “execution is key”, adding: “Identifying is easy. The difficult thing is to do it.”

IAG maintenance operation accounted for 12% of the company’s costs in 2015, with close to half of the €2.4 billion expenditure associated with engine work.

Gallego says the operation is complex, with a significant proportion of IAG’s maintenance performed in-house, distributed between seven primary bases in the UK, Spain and Ireland.

IAG drew up a team to examine its maintenance activities. Gallego says this required an overhaul of accounts because comparing “apples to apples” has proven “very difficult”, owing to variations in the ways the maintenance divisions record cost items. The team also examined previous tenders as a reference to identify prices available in the market.

As part of the review IAG has classified activities as core and non-core. Gallego says the company has a number of non-core areas which it is “going to stop”. He adds that, if the in-house model cannot ensure competitiveness, certain activities will be outsourced.

IAG has assessed the “gap” between its operations and the best in the market for its five main work streams – heavy, line, engine and component maintenance, plus engineering – indicating that the largest gaps lie in the heavy maintenance and component sectors.

Gallego says both heavy and line maintenance are “labour intensive”, and the company is engaging with unions to look at productivity improvements.

But the company is also examining potential restructuring of its facilities, querying whether IAG’s different operating companies should have different technical capabilities, and whether the maintenance structure should reflect more closely the commonality in the IAG fleet.

Gallego says that strategies included in its plan so far, when fully developed, would achieve an 11% reduction in costs, compared with the €2.4 billion baseline in 2015.

But he adds that IAG expects to discover further sources of benefit, from areas such as consolidation, as the plans are introduced.

Gallego says any final decisions on “externalisation” will depend on the level of competitiveness which can be achieved in-house following discussions with union representatives.

Source: Cirium Dashboard