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British Airways, Iberia agree merger

London: British Airways and Spain's largest airline Iberia agreed to a merger forming the world's third-biggest airline, the companies announced. The merger, which was agreed after 16 months of negotiations, is to be completed by the end of 2010, keeping both brands in operation. British Airways (BA) would control 55 per cent of the combined airline with Iberia holding 45 per cent. The link-up would be the biggest consolidation in the European airline industry since the 2004 merger of French carrier Air France and KLM, the Dutch airline, on which it is modelled. The two sides hope to save a combined 400 million euros ($598 million) annually. They would have a total of 419 aircraft serving 205 destinations. The pair had a combined 62 million passengers in 2008. A joint statement late Thursday said the airlines believe "there is a compelling strategic rationale for the transaction, which is expected to generate annual synergies of approximately 400 million euros ($598 million) and benefit both companies' shareholders, customers and employees". The new airline will be the third-biggest in the world after Air France/KLM and Germany's Lufthansa. BA and Iberia, which are both loss-making, have said the tie-up will give them the strength to survive and withstand the current economic downturn. Both carriers are members of the One World alliance, which already allows them to sell seats on each other's flights. Iberia president Antonio Vazquez will chair the company, which will be headquartered in London, while BA's Willie Walsh will become chief executive of the group. Ahead of the agreement, shares in Iberia soared by more than 12 per cent on the Madrid stock exchange. In London, BA shares rose by around eight per cent. The companies have been considering a merger since the summer of 2008. BA last week announced a record half-yearly pre-tax loss of 292 million pounds ($485 million), following a record annual loss of 401 million pounds in the previous financial year. Iberia's recent results showed losses of 165 million euros ($247 million) for the first half of 2009. In October, the Spanish airline presented a cost-cutting programme including job cuts and salary freezes over the next two years. Iberia cabin crew staffers are staging pay strikes from October to December, which caused nearly 400 flights to be cancelled Tuesday and Wednesday. Iberia has announced the creation of a new subsidiary focusing on local and continental flights, allowing the mother company to put more emphasis on Latin American destinations. Iberia, which was privatised in 2001, has a fleet of more than 200 aircraft flying to about 200 destinations in 46 countries. The airline schedules about 1,000 flights daily. Iberia transported more than 33 million passengers in 2008, down seven million from the previous year. The two airlines have negotiated "agreed spheres of interest", with Iberia concentrating on services to Latin America and Africa while BA would focus on routes to the Middle East and Far East. Under the proposals, BA will gain an additional 59 destinations, of which 13 will be in Latin America, while Iberia will fly to 98 new destinations across the BA network. The link-up will require regulatory approval from the European Commission, but experts believe that is likely to be granted following the success of the Air France/KLM merger.

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