British Airways and Spain's -Iberia are in talks about a merger that would create Europe's third-biggest airline and give the UK flag carrier the size to play a leading role in eventual global airline consolidation.
The two carriers, ranked fourth and sixth in Europe by market capitalisation, said they were negotiating an all-share merger aimed at producing a European carrier to rival industry leaders, Air France-KLM and Lufthansa.
The announcement, backed by both boards, comes amid mounting pressure on airlines to seek mergers as the sector confronts the burden of high fuel costs - the biggest single expense for most airlines - and a worsening economic outlook. More than 25 carriers have fallen into bankruptcy since late last year and many plan to reduce capacity sharply in the coming winter.
In the US, Delta Air Lines and Northwest Airlines aim to complete a merger by the end of the year, and United Airlines and Continental Airlines have applied for regulatory approval to form an alliance.
In a joint statement, BA and Iberia said they expected it would take months to reach agreement on terms and to finalise a joint business and integration plan for the combined group.
They said they were confident of securing regulatory approval. Both the BA and Iberia brands would be retained as part of a combined group, which would have stock market listings in London and Madrid.
BA has a market capitalisation of £2.9bn, compared with Iberia's €1.6bn (£1.26bn), giving the UK carrier the upper hand.
BA shares rose as much as 9 per cent after the announcement before closing up 6 per cent at 248½p. Iberia ended 21 per cent higher at €1.98.
Willie Walsh, BA chief executive, said the aviation landscape was changing; consolidation was 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."
The airlines said it was expected that a single holding company would be created with a unified management structure with representation from both. The existing companies would be responsible for the day-to-day running of their operations.
BA already has a 13.15 per cent stake in Iberia and has long been regarded as most likely to take over the Spanish carrier as the industry consolidates.
Iberia said yesterday it had bought a 2.99 per cent direct stake in BA and had exposure to 6.99 per cent more through derivatives contracts. It had no intention of going beyond a stake of 9.99 per cent.
BA and Iberia were already in talks with American Airlines, their Oneworld alliance partner, about applying for antitrust immunity for a three-way joint venture on transatlantic routes.
Source:
FT.com