MercoPress. South Atlantic News Agency

Air industry future is here: merger of British and Iberia

British Airways is on the verge of joining forces with Spanish carrier Iberia after revealing both companies' boards' unanimously support an all-share merger. In a statement British Airways said it was in talks with Iberia with a view to an all-share merger of the two companies.

British Airways' CEO Willie Walsh said "the aviation landscape is changing and airline consolidation is long overdue. 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". He added that a deal would be particularly attractive in the current environment, given the combined balance sheet, anticipated synergies and network fit between the airlines. Iberia's chairman and CEO Fernando Conte made a statement in similar style: "a merger would be good news for our customers and enhance our existing relationship. We've worked together for nearly 10 years and a tie-up would build on that success". British Airways acquired 9% in Iberia in 1999 and has recently increased its shareholding to 13.15%. Meanwhile Iberia revealed it has recently acquired a 2.99% stake in British Airways, adding it had financial exposure to a further 6.99% through various contracts. The airlines added it would take several months to reach agreement on the terms of the merger and to finalize a joint business and integration plan for the combined group. BA and Iberia said they were confident of securing regulatory approval, and noted the European Union had already granted them approval to co-operate widely. In the wake of the news BA's shares reversed an early loss to climb 6.9% or 16.25p, at 250.75p. Iberia's shares soared 21%. The merger would create Europe's largest airline with combined passenger numbers of more than 60 million a year, BA-Iberia would overtake Lufthansa, Air France-KLM and Ryanair. The merger would also create a carrier that is strong on the North and South Atlantic crossings alike. BA will retain its British focus and its strong transatlantic ties to the United States while Iberia will remain based in Madrid. However, there are likely to be some cuts to overlapping routes between Britain and Spain. BA may move some South American flights to Madrid and the number of direct flights to Spain could be cut. The merger has been triggered by the rapidly rising price of oil, which has put airlines around the world under severe financial pressure. BA has given warning that it may only break even this year and Iberia lost € 28.3 million in the first three months of this year as its fuel bill rocketed. By merging, the carriers would be able to gain economies of scale from bulk-buying fuel, aircraft and maintenance. The share merger would create an airline worth a combined 8.4 billion US dollars flying to over 200 destinations and which would significantly expand BA's presence in the expanding Latin American market.