International Airlines Group (IAG) swung to a pretax loss of €997 million last year after taking a €343 million impairment charge on Iberia, its troubled Spanish subsidiary.

IAG was formed in 2011 through the merger of British Airways and Iberia and Willie Walsh, chief executive, admitted the 2012 results were “very disappointing”.

Iberia is embarking on a turnaround plan opposed by unions, but Mr Walsh insisted Iberia must “adapt to survive”.

He held out the possibility that the Spanish airline could go beyond its plan to cut 3,800 jobs and reduce capacity by 15 per cent. “If there is further capacity reduction, there well may be further job reductions.”

IAG’s €997 million loss in the year to December 31st compared with a pretax profit of €503 million in 2011.

British Airways reported an operating profit of €295 million in 2012, down from €592 million in 2011. Iberia’s operating loss widened from €61 million in 2011 to €896 milllion last year, including charges of €545 million that related to restructuring and impairment.

The €343 million impairment involves writing off all €249 million of goodwill stemming from BA’s acquisition of Iberia under accounting rules.

Iberia’s shareholders secured 44 per cent of IAG’s equity in the all-stock combination and Mr Walsh rejected suggestions that BA had in effect overpaid for the Spanish airline.

IAG’s shares rose 7.7 per cent to 238.7p after the group said that, subject to the outcome of negotiations with unions on the Iberia turnaround plan, it expected to record a better operating profit before exceptional items in 2013 than the €485 million in 2011.

Mr Walsh also said IAG was sticking to its target of generating €1.6 billion of operating profit by 2015. In November, IAG said BA would generate €1.3 billion of operating profit in 2015, implying that Iberia would contribute €300 million. – Copyright The Financial Times Limited 2013