The former Aer Lingus head is settling in as chief executive of British Airways, but will he make tough decisions when the airline moves into its new terminal, asks Emmet Oliver.

Staff approaching Willie Walsh at the gigantic Waterside headquarters of British Airways are surprisingly friendly towards the former pilot, considering some of the press reports which have accompanied his arrival.

One article was headlined "Axeman Cometh", complete with a grim-looking picture of the former Aer Lingus chief.

Even a normally sober Sunday broadsheet recently said Walsh was planning "a sweeping programme of job cuts across the airline's operations".

Maybe it is in that context that the friendliness should be seen, but out and about at the headquarters near Heathrow Airport, most staff appear to appreciate Walsh's affability, with many of them stopping him along the main drag, known as "the Street", to have a chat.

Walsh has settled well into his new life and lives in the leafy suburb of Richmond. He travels back to Dublin every few weeks, but has already established good relationships in British business circles. He recently met a group of fellow FTSE 100 chief executives. In time, he is likely to add some non-executive directorships to his one existing position on the board of Fyffes, the fruit company.

Understandably, Walsh will not say how long he intends to serve at BA, but most airline sources regard five years as a nice round figure. Unlike his early period at Aer Lingus, he actually has a secretary at BA, although he eats regularly in the staff canteen and is certainly not an aloof presence.

Walsh took up residence at Waterside on May 3rd, and formally took over from Rod Eddington on October 1st.

While press coverage has been broadly favourable, albeit occasionally stark, some controversial decisions have already been remarked upon.

For example, the decision to ditch the Saatchi brothers and award BA's advertising account to a competitor was regarded as a radical move by most observers.

Walsh, while not directly involved in it, makes no apology for making decisions that may upset the likes of Maurice Saatchi. "It's received quite a lot of attention, but I think it's a positive development for British Airways," he says.

Some observers have tried to stitch an elaborate revenge motif into the story of Walsh's elevation to the top job at British Airways. According to this version of events, Walsh's decision to leave Aer Lingus will come back to haunt the Government when he buys out Aer Lingus maybe a year or so from now. Not so, says the former pilot.

"I was very clear when I was at Aer Lingus that I did not see that BA would ever be interested in buying Aer Lingus. I can now confirm that BA would not be interested in acquiring or investing in Aer Lingus. It wouldn't make sense. We are definitely not looking at that. I don't see any strategic value in either investing in or acquiring Aer Lingus," he says bluntly.

As for a sale of Aer Lingus, Walsh urges caution. "I don't see anything happening in the short term. Clearly, the market would like to see Dermot Mannion settle in to the position," he says.

"The trading environment, considering the price of fuel, has to be a factor in it. Will it be sold? I don't know. But the long-term future of Aer Lingus is better secured if it's privatised."

According to Walsh, Aer Lingus has some attractive characteristics: "Well, it's profitable. It's demonstrated that it can compete in a very competitive market. It has a good network. It has a good brand. It has a good customer base. It does a good job. The cost base is competitive.

"Clearly, it would be an attractive investment based on the financial performance of the business, but I don't see other airlines being interested in acquiring it. I never did. Certainly, BA is not looking to invest" he says.

Despite his view, Walsh wants to make it clear that BA is not Aer Lingus. "BA is predominantly a long-haul carrier. It is almost the reverse of Aer Lingus, with two-thirds of the business long-haul and one- third short-haul."

Walsh concedes that "some of the things we did at Aer Lingus wouldn't be appropriate here".

He gives an example: his decision at Aer Lingus to get rid of the premier class cabin on short-haul routes, even on Dublin-Heathrow. He accepts, however, that there is no likelihood of this happening at BA.

"That's not going to happen here because Heathrow is the home base of British Airways, and while demand for the premier product has reduced over the years, it's still a significant demand," he says.

"In fact, if you look at the recent traffic statistics, we have seen an increase in our premium traffic for September. There is a demand for that business at London, on short and long-haul. So it's part of the product that we are going to maintain."

However, Walsh says that, in others ways, the two airlines are not that different. "I think that the issues are the same. The issues that are facing BA are pretty similar to the issues facing Aer Lingus. The scale of the challenge is different."

There is a sense that there are two BAs. The first is a bloated, unwieldy monster which is finding itself squeezed by more nimble competitors.

The other BA is a company which is making slow, incremental progress towards a high-margin efficient business. Walsh believes the latter is the more accurate picture.

"If you look at the progress British Airways has made in terms of profitability over the years, it's been a steady improvement since 2001. So, in the last financial year, the operating margin was 6.9 per cent and the operating profit was at £540 million (€787 million)," he says.

"That's a good performance, but our target is to generate an operating margin of 10 per cent. It's a medium target set for the business.

"With fuel the way it is, it's a challenging target. We won't achieve that target in the current year, but what we want to do is build on the progress made over recent years."

Fewer people inevitably means conflict with unions, and Walsh has already raised some eyebrows by branding the recent industrial action, following problems at Gate Gourmet, "unofficial and unlawful". Using such blunt language unnerves some people, but it is likely that even blunter language will be needed at certain junctures over the next five years and beyond.

Rumours have spread in British newspapers about BA ditching parts of its short-haul business. But Walsh says this is not true.

The short-haul business in the last financial year made an operating loss of £26 million, although this included some exceptions. It is approaching a break even point, says Walsh, and he explains that the main problem relates to the regional routes.

Asked what is going to happen with the regional business, he says that change is on the way. "We will announce some specific plans targeting some of the commercial activities in the regional business. It will be around fare structures and route network."

He says that it is not as easy as just scrapping the unprofitable routes.

Asked about the main challenges facing him during his term, he doesn't need a second to think.

"The biggest challenge, and the biggest opportunity, I suppose, is the move into terminal five [ at Heathrow]. We move in there at the end of March 2008.

"It's such a significant move for British Airways. We are in detailed planning already for that move. It gives us an opportunity to transform the way we operate. Practices will have to change. That's an opportunity to modernise the work practices that exist in BA."

Asked will BA need less people when it moves in to terminal five, he says: "We'll definitely get efficiencies. We'll get efficiencies through economies of scale because we are combining the activities of two terminals into one, we'll get efficiencies through better use of technology, we'll get efficiencies because the infrastructure is more modern, it's an easier building to work in.

"We'll be able to eliminate a lot of activity that goes on today."