MADRID: Spanish airline Iberia said on Tuesday it would make cost cuts after posting a first-quarter loss of 92.6 million euros (126 million dollars) as the global economic crisis caused demand to slump.

The company, which is discussing a tie-up with British Airways, posted a 0.4 million loss during the same time last year.

The cost-cutting plan, which will be applied immediately, will enable the airline to cut losses by between 110-125 million euros and it foresees a drop in investment spending of between 80-90 million euros, it said in a statement.

"The plan slashes capacity, payrolls, purchases and external costs, and calls for a review of scheduled investments," it said. Temporary hiring contracts will not be renewed and all new hiring will be frozen while a moratorium on pay rises and a freeze of executive salaries is under study.

The company will also withdraw five Airbus A320s from service and postpone the delivery of new aircraft.

Iberia Chief Financial Officer Enrique Dupuy said the planned tie-up with BA would take "more time" than previously expected because of the volatility of financial markets and the "difficulty in the sector overall".

The airline is "mainly focused" on its contingency plan to cut costs and adjust its offer, but remains positive about a future tie-up with BA, he added.

Iberia and BA last year agreed to merge in a planned all-share transaction which would create the world's third-biggest airline by revenue.

Revenues fell nearly 16 percent during the first quarter over the same time last year to 1.01 billion euros as demand fell quicker than the airline's capacity adjustments, particularly in the recession-battered domestic market.

Iberia said revenue passenger kilometres -- a key measure of traffic on its flights -- fell 9.5 percent during the first three months of the year due to weak ticket sales in most markets.

"This was aggravated by a steep decline in business travel, and strong downward pressure on fares," it said in a statement. The passenger load factor fell in the first quarter from the average during the same time last year by 2.9 percentage points to 76.5 percent.

Last month Iberia said it expected to record a net loss for 2009 if the current "exceptionally difficult" market conditions persisted. It posted a net profit of 32 million euros in 2008, a 90.3-percent drop on the previous year.