British Airways, Iberia Will Merge to Create $7 Billion Carrier

British Airways, Iberia Will Merge to Create $7 Billion Carrier


Nov. 12 (Bloomberg) -- British Airways Plc agreed to a plan for a $7 billion merger with Spanish carrier Iberia Lineas Aereas de Espana SA, ending more than a year of talks on a tie-up aimed at fighting a slump in travel and closing the gap with competitors.

Under the all-share deal, BA shareholders will get one share in the combined company for every existing share they hold in BA and Iberia investors will get 1.0205 shares in the enlarged company for every Iberia share they hold, the companies said in an e-mailed statement.

“There is a compelling strategic rationale for the transaction, which is expected to generate annual synergies of approximately 400 million euros, and benefit both companies’ shareholders, customers and employees,” the statement said.

The merger will create a global carrier better able to compete with larger rivals Air France-KLM Group and Deutsche Lufthansa AG. It will meld BA’s network of U.S. routes with Iberia’s Latin America services to extend the U.K. company’s leading position in the lucrative trans-Atlantic market and consolidate its status as Europe’s third-largest airline.

Under the agreement, British Airways investors will own about 55 percent of the business, which will be led by Willie Walsh, the U.K. carrier’s chief executive. The airline will be registered in Madrid, with its main offices in London.

The agreement is subject to regulator and shareholder approvals and Iberia will be entitled to terminate the deal “if the outcome of the discussions between British Airways and its pension trustees is not, in Iberia’s reasonable opinion, satisfactory,” the statement said. The merger is planned to be completed next year.

All-Share Merger

The two airlines said in July last year that they were in talks about an all-share merger. Negotiations have been delayed by disputes over the balance of control between the two companies and the size of BA’s pension-fund deficit.

The transaction will require regulatory approval from the European Union, which sent antitrust complaints in September to the carriers and to AMR Corp.’s American Airlines regarding a proposed three-way alliance on routes across the Atlantic.

Spending cuts from the merger may help the companies revive earnings that have been hurt by the global slide in air travel.

British Airways had a record 217 million-pound loss in the six months through September as sales slumped, and is pushing back aircraft orders and increasing job cuts to trim costs.

Job Cuts

Iberia is scheduled to report six-month figures tomorrow. Airlines may lose a combined $11 billion this year, according to the International Air Transport Association.

Air France created Europe’s biggest airline by passenger traffic with its 700 million-euro purchase of KLM Royal Dutch Airlines NV in 2004. The Paris-based company also has a 25 percent stake in Alitalia SpA, Italy’s biggest airline.

Lufthansa ranks second after growing through the purchase of smaller carriers Swiss International Air Lines, Austrian Airlines AG and the U.K.’s BMI, the second-biggest holding of takeoff slots at London Heathrow airport, the main base of British Airways. It also has a stake in Brussels Airlines, the main Belgian carrier.

British Airways, by contrast, has completed two purchases this decade. It bought L’Avion, a French business-class carrier with one route, for 54 million pounds in mid-2008 and took over franchise operator British Regional Airlines in March 2001.

The combination with Iberia is Walsh’s second attempt at merging British Airways with an overseas carrier. Talks on a tie-up with Sydney-based Qantas Airways Ltd., Australia’s largest airline, collapsed in December after the companies failed to agree on the division of control in the partnership.

British Airways, Iberia and Fort Worth, Texas-based AMR agreed in August last year to create an alliance that would allow them to operate as a single carrier on routes linking the U.S., Canada and Mexico with destinations in Europe.

The companies want antitrust clearance to coordinate prices, capacity, schedules and routes, in addition to sharing revenue on flights between Europe and North America.

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