BA and Iberia agree merger at last as airlines fight for survival
Both companies will keep own brands but stand to save €400m in annual costs
Friday 09 April 2010
British Airways and Iberia have finally signed the long-awaited merger agreement the two flag carriers have been negotiating since July 2008.
The deal is critical to BA's efforts to compete with larger European rivals and will create a combined group with 408 planes flying to 200 destinations and carrying more than 58 million passengers every year.
The two airlines will retain their existing operations and their individual brands, but both will be owned by a new holding company called International Airlines Group (IAG).
BA's chief executive Willie Walsh will be the chief executive of the new group. Antonio Vazquez, his opposite number at Iberia, will become IAG's first chairman.
BA shareholders will receive one ordinary IAG share for each BA share, while Spanish investors will receive 1.0205 shares for every Iberia share. The arrangement leaves BA's stockholders with 55 per cent of the new company, Iberia's with 45 per cent. IAG will be listed in London, but it will be taxed in Spain and its shares will be traded in both countries.
Mr Walsh yesterday stressed the benefits of the deal to passengers. "The merged company will provide customers with a larger combined network," he said. "It will also have greater potential for further growth by optimising the dual hubs of London and Madrid and providing continued investment in new products and services."
But its central aim is to cut costs, and the merged company is aiming for annual savings of up to €400m (£350m) by its fifth year. Mr Vazquez said: "This is an important step in creating one of the world's leading global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation."
Negotiations over the merger dragged on for nearly 18 months before a memorandum of understanding was finally signed last November. Part of the problem was a protracted wrangle over the two companies' respective shares of the new organisation, as BA's profits tumbled, its share price dived, and its pension deficit ballooned in the second half of 2008.
The vast pension deficit soon became an obstacle in its own right. By December 2009, the black hole stood at a whopping £3.7bn. And the merger agreement makes the specific point that Iberia retains the right to terminate the deal if the pension recovery plan agreed between BA and its pension trustees is not satisfactory, "in Iberia's reasonable opinion".
Civil aviation authorities in both Britain and Spain have signed off the deal, but it still needs to be cleared by Europe's competition authorities. If all goes according to plan, the deal will be put to a shareholder vote in November and will take effect one month later.
The merger is vital if BA is to catch up with the rash of consolidation as major European rivals fight to survive in the intensely competitive global aviation industry. Without Iberia, the company cannot maintain its position as a major player, according to James Halstead, an independent aviation expert.
"BA's unique position at Heathrow could help it survive for a short while, but in the long run it needs more than just Heathrow," he said. "The main point of the Iberia deal is to be able to cut costs and put the combined company in the position that Air France-KLM and Lufthansa are already in."
The next step is BA's planned tie-up with American Airlines, which is under review by competition watchdogs on both sides of the Atlantic and facing bitter opposition from Virgin Atlantic.
- 1 Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
- 2 Greece debt crisis explained: A history of just how the country landed itself in such a mess
- 3 People all over the world are getting semicolon tattoos to draw attention to mental health
- 4 Greek debt crisis: Yanis Varoufakis's funniest (and most memorable) quotes
- 5 Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
Autistic teenager beaten up by bullies makes them watch 20-minute video about autism
Greece debt crisis explained: A history of just how the country landed itself in such a mess
German conservatives are destroying Europe with austerity, says economist Thomas Piketty
Man dies instantly after shooting firework from top of his head
Isis schoolgirl Amira Abase who fled London to join terrorists in Syria mocks victims of Tunisia massacre
More Britons believe that multiculturalism makes the country worse - not better, says poll
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...
competitive: SThree: Are you passionate about sales?Do you have a keen interes...
£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...