BA and Iberia announce merger talks

British Airways has unexpectedly announced it is seeking a €5bn merger with Iberia that would create one of Europe’s largest airlines.

BA attempted to buy the Spanish airline last year but the deal fell through. However with the subsequent spiralling fuel costs and deteriorating economic outlook, consolidation within the aviation industry looks increasingly on the cards.
The combination of BA and Iberia would create a carrier that is dominant on routes to both North and Latin America. BA has traditionally been strong on routes from Heathrow to the US while Iberia has strong links with South America.

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

“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.”

Iberia said today that it had acquired 2.99 per cent of BA and had “financial exposure” to a further 6.99 per cent, although it did not explain how these shares were held.

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BA acquired a nine per cent shareholding in Iberia in 1999 and has recently increased its shareholding to 13.15 per cent.

The markets welcomed the announcement with BA shares rising over 7 per cent. Regulatory approval seems on the cards as the European Union have already given both airlines the nod to co-operate widely.

BA is set to announce its first-quarter results on Friday. Martin Broughton, chairman of BA, gave warning two weeks ago that the carrier would struggle to make a profit as high oil prices have eroded margins.

The first quarter may look particularly bad as oil hit a record high during the period and BA will also have to factor in additional costs from its move to Heathrow’s Terminal 5.
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