BA makes Spanish eyes at Iberia

BA could merge with Iberia, as the two airlines look to ride out the storm engulfing the industry...

Last Updated: 31 Aug 2010

UK airline BA and smaller Spanish rival Iberia said this morning that they were in talks about an all-share merger, as both companies look at ways to cut costs amid soaring jet fuel prices. ‘The aviation landscape is changing and airline consolidation is long overdue’, said BA boss Willie Walsh today. ‘The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment’.

However, both parties stressed that they planned to keep the two airline brands separate – so if you’re worried about the prospect of British-Iberian Airways, or a few splashes of yellow paint appearing on BA’s famous red, white and blue tail-fins, it appears that you have no cause for alarm. Or at least, that’s their story – and for the time being, they’re sticking to it…

Although this would be a big move for both airlines, they do already have a long-term relationship. As fellow members of the Oneworld alliance, they’ve been co-operating for the best part of a decade, so the respective management teams should know each other pretty well. They also have financial interests in each other – BA said today that it recently raised its stake in Iberia from 9% to 13.5%, while Iberia said today that it’s recently bought a 3% stake in BA, plus a further 7% exposure via a derivatives contract.

If a merger does happen, it won’t happen quickly: there’ll be all sorts of regulatory hoops to jump through first (although the two airlines stressed today that they already had the go-ahead for close co-operation, so they don’t expect any problems), while it will also take ‘several months’ to hammer out the small print and ‘finalise a joint business and integration plan for the combined group’. There’s also the possibility that the Spanish government could throw a spanner in the works – it remains to be seen how it’ll feel about its flagship carrier joining the FTSE 100 (though the combined group will be listed in Madrid too).

Still, the market certainly seems to like the idea: after falling all week, BA shares promptly jumped about 8%. For BA, joining forces with Iberia would be much less complicated than a tie-up with American Airlines (in fact Iberia’s so much smaller that BA had to confirm today that it wasn’t considered a takeover by the UK Panel). And its strengths should complement BA's current weaknesses, for example in Central and South America.

Let’s just hope the Spanish aren’t encouraged to bring their organisational skills to T5, if Ferrovial-owned BAA is anything to go by...

In today's bulletin:
BA makes Spanish eyes at Iberia
Crosby gives little solace to house buyers 
BP under pressure as profits rocket 
Is Cuil the next Google? 
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