Mon, Nov 29, 2010 page10

• BA, Iberia face last hurdle over landmark deal

  • AFP, LONDON
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  Shareholders in British Airways (BA) and Iberia vote today on whether to approve a multi-billion euro merger creating Europe’s -second-biggest airline as the sector recovers after a severe economic downturn.

  Investors in London and Madrid are widely expected to back the tie-up that will value the pair of companies at a combined 6.6 billion euros (US$8.7 billion), after the share prices of BA and Iberia have spiked by about 40 percent and 70 percent respectively this year.

  The boards of the British and Spanish airlines agreed a deal in April, while EU competition regulators have also given the green light for a full alliance.

  “The BA/Iberia merger allows the two carriers to ‘catch up’ to rival groupings such as Air France KLM and Lufthansa,” independent aviation analyst John Strickland said.

  “It provides a wider overall network, with Iberia bringing its Latin American presence to the table and BA its strength across the North Atlantic and to the Middle East and Asia,” he said.

  A tie-up, on schedule to be completed in January, would create Europe’s second-biggest airline by market capitalization after Germany’s Lufthansa, and fly 60 million passengers a year.

  BA and Iberia sought to merge as the global economic downturn and the rise of low-cost airlines resulted in steep losses for traditional carriers.

  However, since the tie-up announcement, the pair have -overcome travel chaos due to strikes and the volcanic ash cloud from Iceland’s Eyjafjallajokull volcano to post healthy returns to profit, indicating that the sector is on a path to recovery after the deep recession.

  The landmark Anglo-Spanish deal would create annual savings of around 400 million euros by the fifth year of the merger, which would see the creation of a new holding company with a primary shares listing in London.

  BA would hold 55 percent of the new capital and Iberia 45 percent.

  “There will be opportunities for increased efficiencies over time — such as in fleet purchasing and operating plans and in joint marketing and sales,” Strickland said.

  “Nevertheless, the management will have to work hard to integrate the two companies given their different geographic locations and different national cultures,” he added.

  As part of new holding company International Consolidated Airlines Group, BA and Iberia would each retain their current operations and individual brands.

  Current BA chief executive Willie Walsh would become chief executive of the new group and Iberia chairman Antonio Vazquez would be chairman.

  The merger cleared a significant hurdle when Iberia said it had decided not to exercise its right to cancel the deal over a BA employees’ pensions deficit of ￡3.7 billion (US$5.8 billion).

  Awaiting finalization of the merger, BA recently launched a transatlantic alliance with Iberia and American Airlines, pledging cheaper fares and more travel choice.

  BA rebounded to a net profit of ￡107 million in the second and third quarters, its first interim profit for two years, while the first-half earnings compared with a net loss of ￡217 million a year earlier.

  Iberia posted profit after tax of 53 million euros for the nine months to September, recovering from a loss of 182 million euros a year earlier.

  The healthy results were the latest evidence of a strengthening recovery in the airline industry which was savaged by the worldwide economic slump that hammered demand for air travel.
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