More Air Mergers—Now British Air and Iberia are Talking

US-based airlines like Continental and United, Delta and Northwest, aren’t alone in seeking to join forces. In Europe, British Airways (BA) and Spain’s Iberia are holding talks about merging.

Looking at the highly successful merger of Air France and KLM in 2004, which has become the world’s largest airline, the joining of BA and Iberia would create the world’s third largest airline. BA is a strong player in traffic across the Atlantic, while Iberia dominates in movements between Europe and Latin America.

In announcing the talks, Fernando Conte, Iberia chairman and CEO claimed, “A merger would be good news for our customers and enhance our existing relationship. We’ve worked together for nearly 10 years and a tie-up would build on that success. It would also strengthen the Oneworld Alliance and further develop Madrid’s position as the European gateway to Latin America."

The two carriers have had interest in each other as evidenced by BA buying a 9% share in Iberia in 1999, then increasing that to 13.15%. For its part, Iberia has recently acquired a 2.99% share of BA with a further 6.99% of financial exposure through contracts for differences tied to BA share prices. Other than BA, major shareholders in Iberia are Caja Madrid with 22.9% and El Corte Ingles with 3.37%.

The two companies have indicated they would form a holding company, but both the BA and Iberia brands would be retained as part of that combined group. There would be a unified management structure that would include representatives from both companies.

In looking at the merger, Willie Walsh, BA CEO, observed, "The aviation landscape is changing and airline consolidation is long overdue. The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment. We've had a successful relationship with Iberia for a decade and are confident that both companies' shareholders would benefit from the proposed tie-up.”

Both carriers caution that it will take several months to reach agreement on the terms of the merger and to finalize a joint business and integration plan for the combined group. In separate statements the two also claim to be confident of securing regulatory approval since the European Union has already granted BA and Iberia approval to co-operate widely.

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