BA, Iberia merger would create world's third-largest airline

British Airways (BA) and Iberia have made a preliminary agreement to merge. The agreement comes after more than a year of negotiations and is expected to be completed in late 2010.

The merger, if it is completed, will create the world's third-biggest carrier, with 419 aircraft flying to 205 destinations.

Under the terms of the deal, the Spanish airline will take a 45 per cent stake and British Airways a 55 per cent stake in the new company.

British Airways and Iberia will be operated separately, just as Air France and KLM retained their separate identities following their merger in 2004. A holding company will be based in Madrid but the headquarters will be in London. Willie Walsh, CEO of BA, will remain as chief executive of the merged airline while Antonio Vazquez, Chairman and CEO of Iberia, will become chairman of the company.

The deal is expected to save £400 million by the fifth year of operations. With BA strong on flights to North America and Asia and Iberia a leading operator of flights to South America, savings would come from joint selling of flights, combining the computer systems and aircraft as well as maintenance of the fleet. However, a number of job losses are expected in due course.

Mr Walsh, speaking last night, quoted by The Independent, said: "This is a merger of equals and BA is very pleased that the group will be headquartered and listed in London.

"The merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force." 

The road to merger is unlikely to be an easy one however. Iberia could call off the deal if British Airways fails to resolve its pension deficit problems. Rival carrier Virgin said in a statement that regulators need to be alert to BA's "growing dominance". The deal will also need approval from the European Commission.

Michael O'Leary, Ryanair's ebullient CEO, poured cold water on the proposed merger. In an interview, quoted by Bloomberg, he said: "It reminds me of two drunks leaning on each other.”

“If you put one high-fare, loss-making airline together with another high-fare, loss-making airline, you will get an airline with higher fares making much bigger losses.”

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