* Iberia's capacity to be cut by 15 percent
* IAG's 9-month operating profit down 96 pct
* Expects 120 mln euro full-year operating loss
* Spanish unions reject plan, threaten strike action
By Tracy Rucinski and Rhys Jones
MADRID/LONDON, Nov 9 (Reuters) - Spanish airline Iberia is to axe almost a quarter of its workforce and rationalise its network under a restructuring plan launched on Friday by its parent International Airlines Group, the owner of British Airways.
Iberia, Europe's biggest carrier to Latin America, has been battling competition from low-cost airlines and high-speed trains, labour disputes and Spain's deep economic crisis and bleeding cash as revenue fails to cover high operating costs.
"Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future," IAG's chief executive Willie Walsh said.
IAG's plans got an angry response in Spain, where pilots' union SEPLA and the two biggest general unions, the UGT and CCOO, immediately threatened strike action.
IAG, which was formed by the 2011 merger of BA and Iberia, said it hopes the restructuring plan will improve profits by at least 600 million euros ($764 million) in the next three years.
The group posted a 96 percent fall in nine-month operating profits on Friday, to 17 million euros, pulled lower by high fuel costs and a 262 m i llion-euro operating loss at Iberia.
British Airways, meanwhile, posted a nine-month operating profit of 286 million euros.
In addition to the job losses, IAG said it will cut capacity in the airline's network by 15 percent in 2013, focusing on profitable routes and downsizing its fleet by 25 aircraft.
"Although radical changes are proposed at Iberia, this reflects the scale and extent of the problems there," Espirito Santo analyst Gerald Khoo said.
"The problems are systemic and pre-date the current economic crisis, and we continue to believe the market has underestimated the scale and nature of the challenge faced by Iberia."
IAG said it expects to make an operating loss of about 120 million euros in 2012, after trading losses related to its bmi subsidiary, which it bought this year, and exceptional items.
The group's share price, which has dropped 40 percent since the merger, was up 2.4 percent for the day on Friday at 172 pence.
IAG held simultaneous meetings on Friday to present its new viability plan: one with investors in London and another with unions in Madrid, where Friday was a bank holiday.
Unions attacked the plan to cut Iberia's 21,000-strong workforce by 4,500 and discontinue parts of its maintenance and handling business.
"This plan completely depletes Iberia. If this is a consolidated group, why are all the sacrifices being made in Spain?," SEPLA representative Justo Peral said.
SEPLA, along with the UGT and CCOO unions, issued a statement threatening to strike, though Peral said that any action would be weighed carefully because of the ongoing arbitration process between IAG and the pilots' union.
IAG has been in conflict with SEPLA over pay and conditions for the past year. Tensions heightened after Iberia created low-cost carrier Iberia Express in March to compete with budget rivals such as Ryanair and easyJet on shorter routes.
The Spanish government appointed an arbitrator but the situation has yet to be resolved.
This has resulted in uncertainty over IAG's ability to continue to grow Iberia Express and may have prompted IAG's decision on Thursday to launch a bid to buy the rest of low-cost airline Vueling.
IAG said it would present information on the takeover at the end of November, and that it did not intend to merge Vueling with Iberia Express.
IAG also plans to cut pay for Iberia's remaining 15,000 workers by between 25 and 35 percent, the company confirmed in a conference call with Spanish reporters.
Unemployment in Spain has reached a record high of 25 percent as large companies such as Telefonica make drastic job cuts as they grapple with the country's prolonged recession.
IAG has set a January 31 deadline to reach an agreement with the unions over the Iberia job cuts, aiming to finish the process by the summer 2013 tourist season.
"We are trying to give Iberia a future. We have the cash to make these changes now and cannot delay this any further," Iberia chief executive Rafael Sanchez-Lozano told investors.