(Bloomberg) -- IAG SA said 1.3 billion euros ($1.4 billion) in fuel and currency hedging writeoffs drove the airline group to a first-quarter loss, and announced a painful restructuring at flagship British Airways that will lead to as many as 12,000 job cuts, almost 30% of the unit’s work force.

• The coronavirus crisis has kept almost all of IAG’s planes on the ground this month, leading IAG, which also owns the Vueling, Aer Lingus and Level brands, to forecast a second-quarter loss that will be “significantly worse” than the 535 million-euro operating loss for the period ended March 31.
• “In the last few weeks, the outlook for the aviation industry has worsened further and we must take action now,” British Airways Chief Executive Officer Alex Cruz said in a letter to employees. “Any money we borrow now will only be short-term and will not address the longer-term challenges we will face.”

Key Insights:

• IAG doesn’t expect passenger demand to recover to 2019 levels for “several years.” With cash and undrawn credit lines totaling 9.5 billion euros, the carrier undertaking painful cuts now in order to avoid a bailout that peers Air France-KLM and Deutsche Lufthansa AG have pursued.
• BA, which has already placed 22,626 workers on a state-subsidized furlough plan, will now start discussions with labor groups on permanent reductions. The job cuts followed an announcement by SAS AB, Scandinavia’s biggest network airline, that it would eliminate as many as 5,000 jobs.
• A historic plunge in oil prices has led European airlines including Lufthansa and Ryanair Holdings Plc to warn they would lose money on hedging contracts that left them unprotected from the calamitous energy rout. Counterparts in the U.S. generally rely much less on fuel hedging.

Market Reaction:

• Shares of IAG have declined 65% so far this year.

©2020 Bloomberg L.P.