Facing the headwinds

The Terminal 5 storm may have buffeted BA's chief, but he has no plans to quit, he tells Ciarán Hancock, Business Affairs Correspondent

AS A commercial airline pilot for almost two decades, Willie Walsh got used to navigating his way through turbulence.

Yet the skills he picked up flying in the colours of Aer Lingus could hardly have prepared him for the buffeting he received recently over the much-publicised botched opening of the £4.3 billion (€5.4 billion) Terminal 5 at Heathrow airport.

"To be honest, I haven't heard anybody that I would consider relevant saying anything that has upset me," the British Airways chief executive told The Irish Times during an interview at BA's head office near Heathrow.

"I don't sit down and read the newspapers and worry about what people write because it genuinely doesn't bother me. It never did when I was at Aer Lingus and it certainly doesn't here. I don't run my life to satisfy people."

The criticism of Walsh in the wake of T5's March 27th opening was, at times, vicious. Pilots' union Balpa called for his head, customers moaned, and commentators hammered the Dubliner.

Perhaps the most caustic remark was provided by food critic Michael Winner, in his Sunday Times column of April 27th. "We know Wee Willie is small, but his brain is obviously diminutive even in relation to his body."

Ouch.

Walsh leans back in his chair and dismisses the comments. "D'ya know, I never even knew who Michael Winner was," he says in a soft Dublin accent.

Really?

"Yeah, I read the sports pages and the business pages. I wouldn't read the gossip columns or whatever he contributes to. That sort of stuff I really couldn't care less about and it's not going to change the way I act."

Walsh was in flying form. Dressed in an open-necked, sky-blue shirt, navy trousers and black shoes that were so well polished you could see your reflection in them, he was relaxed and open about his travails.

To recap, Heathrow's T5 was to mark a new departure for BA, allowing it to bring all its flights under one roof at Europe's busiest airport and dramatically improving its customer service.

Instead, the opening became a fiasco. In the space of 10 days, BA cancelled 497 flights and lost 23,205 bags. As of last Friday, eight of them were still waiting to be returned to their owners.

It will cost BA at least £16 million and has done untold damage to the brand of the self-dubbed "world's favourite airline".

Walsh came out with his hands up and apologised for the mess. He told a British parliamentary committee last week that BA knew there were risks associated with the opening of T5 but decided to push ahead regardless.

The problem was down to a software glitch and difficulties with staff training, he added.

"The big mistake was that we had allowed ourselves to compromise on the testing programme in the six months that had been set aside from the 17th of September to the 27th of March," he explains. "If we were to go it again we definitely wouldn't have done that."

T5 was due to be handed over to BA last September. "There were aspects of the building work that hadn't been finished, so parts of the terminal were sectioned off where they were continuing to work away [on the construction]," he recalls.

"That led to issues in relation to familiarisation, but it also led to issues in relation to end-to-end testing. It was only late in the project that we could do end-to-end testing. We put together a new test programme and felt that it would be sufficient.

"In hindsight, I think that was the mistake we made. Had we not compromised on the testing programme, and more so on the familiarisation, it might have gone better on the day . . . it would have gone better."

So why not delay the opening?

"It's not like saying I'll wait until next week to move house. This was incredibly complex because you've got to remember that we had 40,000 people travelling on that day, expecting to travel through T5. And we had aircraft integrated in a very complex way.

"So a decision not to move forward was not without risk in its own right."

Two senior BA executives were recently relieved of their posts, but Walsh didn't offer to quit. "I didn't think I should," he says.

"I think that the people who know the business can recognise that the 27th of March was a one-day event that caused us some problems for a short period of time. Clearly it's done some damage to the brand because of the way the media has perceived it, but in the context of the business we've now got a terminal that's up and running and that's running extremely well.

"At this point, about 1.7 million people have been through T5 and the vast majority of those have loved the experience."

Luckily for Walsh, institutional shareholders have not yet sought his head, even though the share price has plunged by about 50 per cent in the past 12 months.

He has some credit in his locker. BA's pension deficit was an eye-watering £2 billion when Walsh took the controls. It has roughly halved since then.

Walsh has also successfully faced down bolshie staff and promised to lift BA's margin up to 10 per cent, something that would net him a £700,000 bonus.

Results due out today will probably show that the airline made a profit last year of £800 million but missed its margin target. Soaring oil prices and the global economic downturn should buy Walsh some time on that front.

Talk that Walsh is on his way out doesn't faze him. He claims not to buy British newspapers.

"I don't buy them," he says. "I buy The Irish Times on a Saturday and I buy the Sunday Independent on a Sunday, obviously. The only time I really get to read the newspapers is at the weekend."

What about the effect on his family?

"My daughter laughs at me now and then because when she goes into school her mates and sometimes her teachers comment on the fact that I was on the television again, but it goes over her head to be honest."

Walsh also says he hasn't tried Terminal Panic, an online game where the BA chief executive has to sort through heaps of luggage. More than 35,000 people are said to have played it since the T5 opening. "I don't have time to be playing computer games," says Walsh with a smile.

Walsh probably has little spare time on his hands given the challenges facing BA.

His pilots are threatening industrial action if the airline proceeds with the launch of a new subsidiary called Open Skies.

The operation will fly between Paris and New York and is aimed at cashing in on the liberalisation of routes between Europe and the US. Balpa claims that pilots with the new airline will have lesser terms and conditions compared to those with BA.

Walsh says they will be "different", not necessarily lesser.

Open Skies received its airline operator's certificate last week and is due to take off in June, and Walsh describes the threat of strike action scuppering those plans as "zero".

"We already have another subsidiary airline that flies out of London City [Airport] on different terms and conditions and we've had it for years and it's never been an issue. When you point this out to them [Balpa] you get silence in return because clearly the logic doesn't stack up."

BA is also planning to launch a business-only, 32-seat, twice-daily service between London City Airport and New York next year.

Fuel restrictions at London City Airport mean the aircraft will have to stop en route to New York to replenish its tanks. Shannon is favourite to land the role.

"One of the reasons we are attracted to Shannon is that they are working to get customs and immigration clearance," says Walsh. "So you could do customs and immigration before flying into the US and that would allow us to fly into a domestic terminal or a domestic airport in the US rather than into an international gateway."

Another big challenge is the price of oil, which has soared this year to record levels and is heading for $200 a barrel, according to some experts.

Today's results will show that BA's fuel bill was more than £2 billion last year - the first time it has hit that level. It now accounts for about 30 per cent of the airline's expenses - it was 12-15 per cent when Walsh joined BA in 2005. "It's going to put a lot of airlines out of business," he predicts.

But can BA weather the storm?

"Oh yeah, financially we're in a great position relative to other people out there. We've a very strong balance sheet and a very strong cash position."

Airline consolidation is a hot topic, with Delta and Northwest recently merging their operations in the US to become the world's biggest carrier.

Having courted Spanish airline Iberia without success, Walsh says BA is in the market for a deal.

"There's no shortage of airlines out there that you could acquire, but very few of them make sense. Iberia did make sense to us. We had a strong relationship with them but it didn't succeed. I would never say never [to restarting talks with Iberia] but we're not interested in any hostile activity."

Walsh says BA is in talks with US airlines Continental and American about possible co-operation. "I would describe them as no more than discussions at this point to see if there is an opportunity to co-operate."

He is not interested in buying Aer Lingus, he says.

And with that, it's time to wind up. I ask him if his daughter has any interest in following in his footsteps. "None whatsoever," he says with a broad grin. "I don't know what she's going to do, but she's made it clear to me that the airline industry is not one that she has any interest in.

"From time to time she asks me why I don't get a proper job."

On the record

WILLIE WALSH began his career in aviation in 1979 as a 17-year-old trainee pilot with Aer Lingus. He was flying 737s before he had a licence to drive.

With an MBA under his belt, the Dubliner made it into the Aer Lingus boardroom.

He was chief executive of the former Aer Lingus subsidiary, Futura, between 1998 and 2000 before being appointed chief operations officer.

Walsh became chief executive one month after the 9/11 attacks in 2001, when Aer Lingus was in danger of going bust. Within three years, he had restructured Aer Lingus as a low-cost carrier, cut thousands of jobs and restored it to profitability. In mid-2004, he tabled a management buyout proposal that was rejected by the government. He resigned on November 16th.

In May 2005, he joined BA, taking over as chief executive in October.

Walsh (46) lives in Twickenham with his wife and daughter but rarely gets back to Ireland. "I've always felt that at some stage I'd like to move back to Ireland so I still have my house in Dublin," he says.

He has no regrets about his time at Aer Lingus. "When I left I felt I had given probably as much as I could," he says.

"I would have loved to have seen it privatised. I think it's wrong that the Government has retained any sort of a shareholding, but I left when I was happy. If I'd stayed on it may not have gone as well.

"I've no regrets and I love working over here."