David Prosser: BA and Iberia still face turbulence - Business Comment - Business - The Independent

David Prosser: BA and Iberia still face turbulence


Outlook Let us hope this is not a taste of what is to come from a merged British Airways and Iberia. When the agreement between the two finally touched down yesterday it was more than a week late, with the airlines having originally set 31 March as the deadline for signing the deal.

This time BA cannot blame its truculent staff and their trades unions for the setback (complications over the detail of listings on the London and Madrid exchanges were apparently responsible). Indeed, the unions have bent over backwards to help management to overcome the biggest single obstacle to the merger, signing up to BA's proposals to deal with its £3.7bn pension deficit.

At first, one might wonder why. The big benefit in this alliance is the cost synergies it will deliver – BA and Iberia promise these will reach £350m within five years – which hardly bodes well for job security.

Still, BA's staff are not dim: they know all about the headwinds their industry faces. Talk of another airline merger has resurfaced this week, with speculation that United Airlines and US Airways have been forced, by the crushing economics of this business, back into negotiations that have failed once already.

And, on paper, BA and Iberia's deal makes good sense. Those synergies will help the two to climb above the horrendous financial pressure that will see the airline industry lose almost $3bn this year alone. according to Iata. Their route footprints, meanwhile, are a good fit, and both sides are clear that they are structuring this merger so as to maximise their chances of capitalising on further consolidation opportunities as and when they emerge.

Still, this is a merger that has yet to take flight. Iberia can still walk away if BA's pension scheme trustees or the Pensions Regulator do not back the deal agreed with unions. Dealing with these parties, BA's chief executive, Willie Walsh, will not be able to rely on the combativity he has employed with cabin crew staff.

In addition, BA and Iberia also still have to secure the agreement of shareholders and the regulatory authorities. Neither should be taken for granted.

These hurdles aside, there will be much work to do post-completion. We know all about BA's industrial relations difficulties, but Iberia has form of its own on this issue. Delivering those synergies may prove more challenging than expected. The new entity will also have to negotiate its way round a complicated structure – a joint holding company, but separate brands and boards in each country – that looks cumbersome.

You might sum up like this. This is a deal that is now taxiing away from the stands but awaiting final clearance for take-off. Even assuming that is forthcoming, there may not be time to enjoy the in-flight entertainment.

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