Iberia losses take the shine off BA merger

Analysts warn that British Airways pension deficit could still ruin the deal

British Airways' new merger partner, Iberia, announced miserable results for the first nine months of the year yesterday, while industry experts continued to warn that BA's mushrooming pension deficit could yet scupper the $7bn (£4bn) deal.

Just a week after BA announced its worst losses since being privatised 22 years ago, the Spanish flag carrier recorded a net loss of €182m (£163m) in the nine months to the end of September, compared with a €51.1m profit this time last year.

Worryingly for the Madrid-based airline, its load factor, a key industry measure of how well a company fills its planes, was down from 83.2 per cent to 82.1 per cent. Iberia's announcement follows BA disclosure of a £292m loss for the six months to September.

BA declined to comment on Iberia's results, but the numbers come a day after Willie Walsh, BA's chief executive, argued that the agreement would help both groups to offset structural weaknesses in the airline industry. "The merger will create a strong European airline well able to compete in the 21 century," he said.

Separately, British Airways insisted yesterday that its huge pension deficit, now thought to be in the region of £3bn, would not undermine the merger, even though the group has yet to agree the actual level of the shortfall with the fund's trustees. A triennial actuarial review of the deficit is due to be completed in the next few months.

"BA's pension deficit ... is still a controversial point and Iberia maintains a get-out clause if it is not happy with the imminent triennial review," Jonathan Jackson, the head of equities at Killik, said. "In addition, the deal is dependent on receiving anti-trust and other regulatory clearances."

Mr Walsh, who will be chief executive of the combined company, said on Thursday night that the new BA operating company would be wholly responsible for the deficit. "No, no, no," he said, when asked if Iberia shareholders would be liable for the shortfall. A source close to Iberia warned that while a deal was likely, "if BA's pension people think that they are going to get a sugar daddy coming over from Spain, they had better think again".

Scott Mueller, the director of M&A at the Cass Business School, warned that neither group can ignore the deficit. "They cannot sweep this under the carpet, which is what they appear to have done so far," he said. "It is the sort of issue that tends to come back and bite you afterwards."

The two companies said on Thursday that they expect to save as much as €400m by the fifth year of a merger. Mr Walsh did concede, however, that a number of British jobs would be lost. That is likely to anger the unions. Unite, which is already threatening industrial action over proposed changes in working practices at BA, said yesterday that it would not support the merger unless it received guarantees from both airlines that they would not impose compulsory redundancies.

Steve Turner at Unite said: "It is imperative that both companies sit down as soon as possible with the unions here and in Spain to discuss how jobs and standards can be safeguarded."

The two airlines will be operated separately under a new holding company, TopCo, which will be a Spanish incorporated entity registered in Madrid and tax resident in Spain. The operating and financial group will be based in London. The shares will also trade on the London Stock Exchange.The merger will create the world's third biggest airline by revenue, behind Air France-KLM and Lufthansa.

16

The number of months BA and Iberia have been talking about a merger.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee