BA agrees outline of deal to merge with Iberia

Published on Thursday 12 November 2009 20:16

AGREEMENT on the much anticipated merger between British Airways and Spain's Iberia was confirmed last night, the British carrier announcing that the two airlines had agreed the basis for a proposed link-up expected to be completed in late 2010.

Sources said the deal – which will create the world's third-largest airline by revenue – will give BA shareholders 55 per cent of the combined venture and would ease pressure on both airlines as they cope with one of the industry's worst-ever downturns.

BA chief executive Willie Walsh said: "The merger will create a strong European airline well able to compete in the 21st century.

"Both airlines will retain their brands and heritage while achieving significant synergies as a combined force."

BA had earlier confirmed that the two companies were involved in high-level talks, a spokesman saying: "Further to recent market speculation, British Airways confirms that the BA and Iberia boards are holding separate meetings to consider a transaction."

Iberia had also confirmed its board was discussing the merger plan while the

Spanish daily El Pais reported on its website that Iberia's board had already approved the deal, and that Iberia boss Antonio Vazquez would be chairman of the new company, which would have its headquarters in London.

Analysts were expecting BA chief executive Walsh to be the chief executive of the new company.

Shares in BA were 15p, or 7.5 per cent, up at 215p.

The deal, if approved, may prove a stepping stone to a bigger tie up with US airline American Airways.

The two carriers' combined fleet, for example, will total more than 400 aircraft.

While some argue that these mergers produce less choice for the consumer, BA and Iberia are at pains to point out the passenger benefits of a link-up.

For instance, BA has a comparatively thin presence in central and South America, flying only to Mexico City, Rio de Janeiro and Sao Paulo in Brazil and Buenos Aires in Argentina.

Iberia, on the other hand, operates numerous flights to this region so a merger allows passengers more access to South American cities.

Similarly, Iberian passengers will benefit from direct flights to areas where BA has more flights than the Spanish carrier.

The desire of airlines to herd together against the threat of predators is nothing new.

Both BA and Iberia are members of the OneWorld Alliance of 11 airlines, which includes Australian carrier Qantas and American Airlines. Carriers such as the US airline United and Air Canada are part of the Star Alliance, while another grouping – Skyteam – includes KLM and Air France and US airline Delta.

KLM and Air France have already gone through the kind of merger that BA and Iberia plan.

Like BA and Iberia are doing, KLM and Air France have kept their individual identities but are run as one company.

Such link-ups, code-shares, mergers and alliances were all the rage even before the current economic downturn.

Now, they are more important than ever, as BA's pre-tax interim losses of 292 million announced last week indicated.