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British Airways and Iberia Propose “Merger Between Equals”

5 August 2008 - Markets - Editor

British Airways and Iberia Airlines have plans to enter into an all-share merger agreement which will form the third-largest carrier group in terms of revenue, while at the same time allowing each brand to maintain its individual identity. Should the merger be successfully concluded, a new holding company will be formed that will acquire both British Airways and Iberia Airlines, with both companies exchanging their shares for shares in the new parent company.

Currently British Airways (BA) is listed on the London Stock Exchange (LSE: BAY) and Iberia Airlines is listed on the Madrid Stock Exchange (BMAD: IBLA). No indication has been given with regard to which stock exchange will list the new holding company for the merged airlines. Although many are comparing the proposed BA-Iberia merger to the recent Air France-KLM Alliance, they are similar only in that each company will maintain its identity. In the Air France-KLM merger, Air France increased its capital to facilitate the integration of KLM, but BA and Iberia consider their deal to be a “merger between equals”.

The combined fleet of the merged company will total 443 aircraft, with approximately 65 million passengers and close on 65,000 employees. It is estimated that this will put the BA-Iberia parent company in the top three carrier groups, based on revenue, along with France-KLM and Lufthansa. British Airways currently serves 140 destinations with its fleet of 245 aircraft, carrying out about 760 daily flights. Iberia is the largest airline in Spain serving 109 destinations with its fleet of 198 aircraft, undertaking more than 1,000 flights per day.

Taking into account that BA is already sharing revenues and profits on Iberian routes from Heathrow Airport and both airlines own stakes in one another, they are confident that the merger will be endorsed by the European Union. The details of issues such as distribution of shares, location of headquarters and senior appointments still need to be ironed out in the coming months.

The deal has drawn positive responses from most of the market with the general opinion being that it will be good for the industry. The one fly in the ointment seems to be low-cost airline, Virgin Atlantic, who has voiced concerns that the proposed merger would lead to a monopoly that could dictate fares, and is therefore not in the interests of fair competition. Virgin have, as yet, not lodged a formal objection. As is the case with any proposed merger, these issues will be investigated and decided upon by the relevant authorities and antitrust agencies before the merger is permitted to go forward.

 


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