BA and Iberia sign merger agreement

BA and Iberia sign merger agreement
By Mark Mulligan in Madrid and Pilita Clark in London
Copyright The Financial Times Limited 2010
Published: April 8 2010 07:28 | Last updated: April 8 2010 08:09
http://www.ft.com/cms/s/0/ec3ffa1c-42d5-11df-96c4-00144feab49a.html


British Airways and Iberia on Thursday announced a definitive merger agreement, ending nearly two years of often strained negotiations on the creation of a Europe’s third-largest airline group.


The companies, which have both been battered by competition from low-cost carriers and the global downturn in business travel, said the merged group would boast a 408-aircraft fleet and carry more than 58m passengers a year to 200 destinations.

Willie Walsh, BA’s chief executive, will take up the chief executive position at the new holding company, to be known as International Airlines Group. Antonio Vázquez, Iberia’s chairman, will take up the same post in the new organisation.

BA shareholders will hold 55 per cent of the new company, compared with 45 per cent for Iberia’s owners, but each airline would also have its own chief executive and operating company in London and Madrid to preserve both brands and existing international flying rights.

Current BA shareholders will receive one share in the new company for every one held in the UK airline, while Iberia’s shareholders will get 1.0205.

The carriers said the deal, which is expected to be completed by the end of this year, would generate synergies of about €400m (£350m) by the fifth year.

One important hurdle to the completion of the deal had been BA’s £3.7bn pension scheme deficit. As outlined under a memorandum of understanding signed last November, Iberia remains entitled to terminate the merger agreement if a pension recovery plan agreed between BA and its pension trustees proves “materially detrimental to the economic premises of the proposed merger”.

If completed, the tie-up will create Europe’s biggest airline group, after Lufthansa of Germany and Air France-KLM. It must clear competition authorities in Brussels and needs approval from each airline’s shareholders.

Crowded skies

FT interactive graphic: passenger traffic at all UK airports, and a global comparison of the busiest hubs

As part of the political and regulatory demands posed by the deal, the airlines agreed last year that the new group would have its headquarters in London but be registered and tax-resident in Spain, where it would also hold most board meetings and all shareholder meetings.

The airlines confirmed on Thursday that the holding group would have its premium listing on the London Stock Exchange, but also be traded on the Madrid Bolsa through an interconnection system known as the “Mercado Continuo”.

Complications related to the market regulators’ review of the proposed listings had made it impossible to meet a deadline that had been set for last Wednesday.

Mr Walsh said on Thursday: “The merged company will provide customers with a larger combined network. It will also have greater potential for further growth by optimising the dual hubs of London and Madrid and providing continued investment in new products and services.”

BA shares were 0.3 per cent higher at 239p in early afternoon London trading, while in Madrid Iberia stock eased 0.9 per cent to €2.60.