The owner of British Airways was dragged to a loss of €1 billion today amid the costly battle to revive Spain's flagship carrier Iberia.

International Airlines Group (IAG), which was created from the merger of the two airlines in 2011, took hefty charges from restructuring and the write-down of Iberia's assets as it slumped to losses of €997m.

British Airways made an operating profit of €347m in a year when it bought and integrated regional carrier BMI, but Iberia made a loss of €351m.

IAG chief executive Willie Walsh said the results emphasised that Iberia "must adapt to survive".

But despite three months of negotiations, no agreement on a way forward has been reached between the airline and its trade unions.

It means that IAG will proceed with a 15% reduction in capacity, pay cuts and a redundancy programme that will affect 3,807 Iberia jobs.

"It must stem its cash losses and adjust its cost base permanently if it is to compete with other airlines in all its strategic markets and lay the foundations for profitable growth in the future,'' Mr Walsh said.

He added that BA was seeing the benefit of structural change as it achieved a "solid" financial performance in 2012, helped by a strong London market.

Stripping out the Iberia restructuring costs, IAG's operating losses of €68m were better than its guidance of €120m in November.

BA's passenger revenues grew by almost 9% last year, despite some weakness over the Olympic and Paralympic Games period. Across the group, fuel costs rose 20% to €6.1 billion.