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BA seals long-awaited Iberia deal
MADRID/LONDON (Reuters) – British Airways (BAY.L) and Spain’s Iberia (IBLA.MC) signed an $8 billion merger to create the world’s third-largest airline by revenue on Thursday, bringing a tie-up with American Airlines (AMR.N) a step closer.
The merger, which the pair hope to complete by December, is designed to help BA and Iberia stem over $1 billion of combined annual losses following the worst industry downturn in decades.
They hope to cut costs by 400 million euros a year and better compete with larger rivals Lufthansa (LHAG.DE) and Air France (AIRF.PA) and budget carriers such as Ryanair (RYA.I).
The combined group, to be majority owned by BA shareholders, ends the British company’s long pursuit of Iberia and positions the companies for further consolidation.
BA, Iberia and American, members of the Oneworld alliance, want to deepen the pact to take advantage of the U.S./EU “Open Skies” agreement, which liberalizes transatlantic aviation.
“The tie-up with American is the next thing on BA and Iberia’s agenda now and this agreement brings that closer but they are probably looking at European and Asian carriers too,” said Davy Stockbrokers analyst Stephen Furlong.
“There are too many airlines in the world and bigger will be better in the future. BA will hope that this is the start of many more tie-ups.”
Iberia boss Antonio Vazquez, who will chair the merged International Airlines Group, said the combined firm aimed to “participate in future industry consolidation.”
“The name itself reflects a longer term intention to add more airlines without favoring any one company,” said Societe Generale analyst Jonathan Wober.
By 1005 GMT, BA shares were flat at 238.4 pence, while Iberia shares fell 1 percent to 2.60 euros.
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The merger will combine BA’s strong position in north Atlantic traffic with Iberia’s Latin American business, which could be reinforced by the planned American Airlines alliance.
BA and Iberia’s target to save 400 million euros of annual costs by the end of the fifth year will involve cutting jobs and less profitable shorthaul flights.
BA cabin crew recently went on strike over pay and jobs, threatening the company’s future, the airline said.
“I’d imagine the 400 million euros is a low-ball figure, but with BA union action they can’t be much more aggressive at this point. The whole reason behind this merger is revenue and cost synergies,” said an analyst in Spain who asked not to be named.
When the deal is finalized BA will have a 56 percent share and Iberia 44 percent.
BA’s $5.6 billion pension deficit, which was one of the main stumbling blocks in merger talks, could still scupper the deal, after Iberia reserved the right to walk away if BA’s pension recovery plan is not satisfactory.
BA Chief Executive Willie Walsh will be CEO of the new company, to be headquartered in London with annual revenues of around $20 billion.
Each airline will appoint seven members to the board.
The pair began merger talks in July 2008 in response to slowing passenger demand but industry body IATA last week said airlines were slowly climbing out of recession.
(Editing by Elaine Hardcastle)