BA's £5bn Iberia merger is rubber stamped by shareholders

Published on Monday 29 November 2010 14:48

British Airways and Spain's Iberia got the shareholder green light for their $8 billion (£5bn) merger yesterday, paving the way for further deals in the airline sector.

Investors in the flag-carriers, which originally unveiled merger plans in April, backed the aviation marriage at separate meetings in London and Madrid.

BA and Iberia will become International Airlines Group when the deal is completed in late January. Shares in the new company, which will have a market value of about $9bn, will be listed in Britain and Spain from 24 January.

Willie Walsh, BA's chief executive, has said International Airlines Group was deliberately named to allow more acquisitions, and analysts said yesterday they believed Asia would be a key region for further expansion.

"I think we have a magnificent vehicle to be in the driving seat of sector consolidation," Iberia chairman Antonio Vazquez said after the Spanish group's shareholders' meeting.

But Vazquez said IAG was not in talks with potential partners. Walsh played down concerns about Spain's economic problems and highlighted the strength of Iberia's Latin American network.

Gert Zonneveld, transport analyst at broker Panmure Gordon, said: "Clearly over time BA wants to build a global business and that means partners like Qantas or a South American carrier might be of interest.

"IAG is set up in such a way that it could add a third or even fourth airline in due course. But I think we're talking years rather than months. IAG will have its hands full with getting the benefits of running the two companies under joint ownership."

Consumer groups have also welcomed the merger. Peter Smith, analyst at airline consumer group Travelsupermarket, said: "This merger is good news for passengers in the long-term.

"The network of destinations available when booking with BA will increase by around 40 per cent as Iberia's extensive Latin American, Spanish Caribbean and Spanish routes are incorporated into the overall offering."

BA's shares closed down 3.9 per cent at 261.2p, while Iberia shares were 1.5 per cent lower at €3.18 in late trading in Madrid.

Shareholder backing for the deal comes as the Unite union in Britain said BA cabin crew would be balloted on whether to hold further strikes in the long-running dispute over changes to working practice. The dispute has already cost the airline 150 million.

BA's tie-up with Iberia was virtually secured last June when the British airline agreed a recovery plan for its 3.7bn pension deficit, removing the main stumbling block to over two years of merger talks.The deal is set to produce €400m of savings within five years.

In September BA, Iberia and American Airlines signed a strategic alliance that will see them co-operate on flights between Europe and North America.