Iberia seals union deal for new low-cost carrier

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Spanish airline Iberia has reached a deal with unions which opens the way to the creation of a new low-cost carrier to handle its short and medium-haul routes, it said on Friday.

The collective agreement, signed with the two main unions, the CCOO and the UGT, covers 14,750 employees, or 70 percent of its work force, and will remain in place until December 2012, it said in a statement.

It includes wage increases and "a guarantee of employment" for workers once the new carrier is established.

Iberia announced in October 2009 that it plans to set up a budget airline to handle its short- and medium-haul routes, where it faces fierce competition, to allow it to focus more on more profitable services between Europe and Latin America where it is the market leader.

But unions reacted coolly to the plan. They have since been in negotiations with management on a new collective agreement covering the new airline.

Iberia faces growing competition from low-cost airlines like Ryanair and easyJet which keep adding new routes within Spain as well as to other European countries.

In the domestic market, the carrier faces added competition from the expansion of Spain's high-speed rail network.

The airline signed a merger deal with British Airways on April 8 to compete more effectively in the fast-consolidating aviation sector.

The tie-up would create Europe's second-biggest airline by market value after Lufthansa, combining Iberia's strong position in Latin America with BA's presence in Africa, Asia and North America.

The European Commission gave the green light to the deal on July 14, and the two groups are to make a definitive announcement in November.

Iberia posted net profits of 31 million euros (44 million dollars) in the second quarter, ending six consecutive quarters of losses.

© 2010 AFP

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