Should You Buy International Consolidated Airlines Today?

LONDON -- I am backing International Consolidated Airlines Group (LSE: IAG  ) to take off in coming years as its transformation plan in Spain begins to bear fruit. The company was formed after the merger of British Airways and Iberia in January 2011 and is one of the world's largest airline-operators, carrying more than 60 million passengers per year to more than 200 destinations across the globe.

Spanish restructuring plan starts to take hold
IAG swung to an operating loss of 23 million euros in 2012 before Iberia's restructuring and 68 million euros post-restructuring. This compares with an operating profit of 485 million euros in the previous year.

Indeed, performance in the Spanish division has placed a lead weight on the group's performance over the past year. Although British Airways remains resilient and generated an operating profit of 347 million euros last year before exceptionals, Iberia posted a huge 351 million euro operating loss.

However, in January Iberia's unions agreed to enter discussions over the firm's comprehensive restructuring plan, and in recent weeks a deal was struck to cut 3,100 jobs at the airline. IAG's board has retained a strict tone with the restructuring of the Spanish arm, and I expect an improvement from Iberia to kick off in the near future and drive the group back to growth. Further, IAG is also extending its presence in the lucrative low-cost carrier space by acquiring Spanish airline Vueling, in which it already holds more than 45%. The budget airline's board approved IAG's latest 9.25 euro per-share bid yesterday, and the deal has already been approved by Spain's market regulator.

In other positive news, the airline inked a $4 billion deal with Boeing earlier this month to convert options into the delivery of 18 of the plane builder's 787 Dreamliner airplanes. The new hardware will be used to replace some of British Airways' 747 aircraft between 2017 and 2021, and IAG said it may place firm orders for its Iberia arm once the division's restructuring plan and cost base reductions have materialized.

Earnings growth expected to snap back sharply
Investec expects earnings per share to come in at 12.2 pence in 2013, swinging back from losses per share of 13.1 pence in the previous 12-month period. The broker then expects EPS to explode 124% in 2014 to 27.3 pence.

IAG currently trades on a P/E rating of 20.1 for 2013, but that's predicted to collapse to nine in the following year. I believe these readings provide excellent value prospects in comparison with a forward earnings multiple of 17.1 for the wider travel and leisure sector.

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