Iberia to return to profit in 2014-IAG boss Walsh

* Parent company has spent 700 mln euros on Iberia revamp

* Airline now well on path to recovery-Walsh

By Rhys Jones

LONDON, Oct (KOSDAQ: 039200.KQ - news) 22 (Reuters) - Recovering Spanish carrier Iberia will return to profit next year for the first time since 2010, the chief executive of its parent International Airlines Group said.

The Spanish airline became unprofitable in all markets, including long-haul, following its merger with British Airways in 2011. It was hit by competition from low-cost rivals and high-speed trains, labour disputes and a recession that has left a quarter of Spaniards out of work.

IAG has spent around 700 million euros on restructuring Iberia, which reduced losses for the first time in almost three years in the three months to the end of June.

"Iberia was in a significant crisis but is well on the path to recovery. Iberia will be profitable next year, like British Airways (BA) and Vueling already are," IAG boss Willie Walsh said at the Airport Operators Association annual conference in London on Tuesday.

IAG, Europe's third-biggest airline group by market value, owns Iberia, Barcelona-based budget carrier Vueling, which it bought earlier this year, and BA.

Earlier this year Walsh said Iberia, Europe's biggest carrier to Latin America, would return to profit at some point in 2015.

"Iberia is still loss making at the moment but we will bring them back to profitability next year," said Walsh, without specifying which measure of profit.

IAG has cut 1,700 jobs at the Madrid-based carrier and aims to take that figure to 3,000 by 2014 as part of plans to focus on long-haul routes which it believes can become profitable.

Many full-service carriers such as BA have slashed jobs and shelved growth plans as they grapple with high fuel prices and a weak economy and fight to defend market share against nimbler low-cost rivals such as Ryanair and easyJet.

Lufthansa (Xetra: 823212 - news) , itself in the middle of a deep revamp, on Tuesday issued 2013 profit guidance that fell short of expectations, driving its shares lower.

Walsh also said that IAG would look at its legal options over Italy's rescue of struggling carrier Alitalia, which he says constitutes state aid which is prohibited under European Commission rules.

Italy has patched together an emergency 500 million euro bailout of near-bankrupt Alitalia, including the state-owned post office and banks Intesa Sanpaolo (Milan: ISP.MI - news) and Unicredit (Milan: UCG.MI - news) .

"We're going to look at it (legal options) carefully because it is blatant state aid and we're opposed to it. Europe has got to stand up and implement the rules that exist," said Walsh.