British Airways in Tie-Up Talks With Iberia Merger Would See Individual Airline Branding Retained

By DOUGLAS HAMILTON

BRITISH Airways (BA) and Spain’s national flag carrier Iberia announced yesterday they are in talks over a potential all-share merger that has won the support of Edinburgh-based Standard Life Investments, which has an 8.4per cent stake in the UK airline.

BA and Iberia, which are long-term partners in the OneWorld alliance, said that each would retain its own branding under the tie- up.

The two companies said that the negotiations are supported unanimously by both boards, but did not disclose any financial details or possible job losses in a statement. They also said the merger would need the approval of shareholders of both airlines.

“The aviation landscape is changing and airline consolidation is long overdue, ” said British Airways chief executive Willie Walsh.

“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.”

BA already owns a 13.15per cent stake in Iberia after increasing its shareholding in recent months. The Spanish company holds 2.99per cent of British Airways.

BA and Iberia have also been in discussions for several months with American Airlines to potentially form a transatlantic joint venture, and Walsh said that the two airlines saw the merger as a positive move within those ongoing three-way talks with American.

“I have spoken with Gerard Arpey – chairman and chief executive of American and parent AMR Corporation – and he has welcomed the move and thought it was positive, ” Walsh said in Madrid.

Fernando Conte, Iberia’s chairman and chief executive, said: “A merger (with BA) 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.”

BA’s strength in North America and Asia would be complemented by Iberia’s Latin American operations, he said.

The main shareholder in Iberia, savings bank Caja Madrid, is supportive of the Spanish airline’s plan to merge with BA, a source close to the deal said. “Caja Madrid is happy, ” the source stated. The bank has a 23per cent share in Iberia.

Shares in BA soared soon after investors heard news of the merger talks. The shares later closed 14p higher at 248.5p in London dealing – a gain of 6per cent.

Stock in Iberia Lineas Aereas de Espana ended the session 34 cents, or 20.7per cent, stronger at euro1.98 in Madrid.

City analysts said that the merger deal would benefit both companies.

“There are some real revenue synergies here, ” said Gert Zonneveld, an analyst at broker Panmure Gordon.

“There will be a level of costs that can be taken out of the business anywhere from finance to human resources operations to looking at the fleet and engineering and maintenance costs.”

Edward Legget, investment director for UK equities at Standard Life Investments, described the tie-up as “a sensible deal”. He added: “If completed, it will mark another important step in the ongoing consolidation of the European airline industry.”

The two airlines said that they expect it will take “several months” to reach agreement on the terms of the merger and to finalise a joint business and integration plan for the combined group.

They added they were confident of securing regulatory approval, noting that the European Union has already granted the two carriers approval to co-operate widely. The pair have been working closely as alliance partners for more than a decade.

The carriers said a new holding company would be a member of the London Stock Exchange FTSE-100 index and would also be quoted on the Madrid Bolsa.

Record oil prices and slowing economies have prompted airlines to merge or strengthen partnerships. At least 24 carriers have stopped flying or filed for bankruptcy protection this year, according to the International Air Transport Association. The group says global airlines may lose more than a combined dollars6.1bn (GBP3bn) this year.

Madrid-based Iberia is attractive to suitors because of a route network that includes the highest density of services between European and Latin American cities such as Buenos Aires and Rio de Janeiro.

British Airways dropped a plan to bid for Iberia with US buy-out firm TPG (Texas Pacific Group) in November. Since then, speculation had been mounting in the City over BA’s plans for a closer alliance with Iberia. The airline signalled nearly five years ago that it was interested in a merger with the Spanish carrier.

Media reports earlier this month had suggested that BA, Iberia, and American Airlines, the world’s largest carrier, were close to applying for US anti-trust immunity to form a transatlantic joint venture.

BA and American have failed in the past to win an exemption from US competition laws to work more closely together because of their dominance at London’s Heathrow Airport, where the pair have more than half the capacity to and from the United States.

Originally published by Newsquest Media Group.

(c) 2008 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.