British Airways and Iberia are talking merger. The two airlines plan to spend several months to discuss the terms. If it happens, the new entity would become the world’s third-biggest airline, behind Air France-KLM and Lufthansa.
These two airlines have been in the preliminary stages of a partnership dance before and are already financially related through the OneWorld Alliance. But, with all of the financial industry hoopla over a proposed international merger, there is not much of a difference for passengers to look forward to — this kind of merger becomes an extension of the current alliance from their point of view.
… the two European airlines have shared ties since British Airways acquired a 9 percent stake in Iberia in 1999. But a prior effort to join the two airlines failed last November, when British Airways abandoned a plan to buy Iberia with a partner, the American private equity firm TPG.
BA Chief Executive Willie Walsh and Iberia Chairman Fernando Conte say that the two airlines would operate as different brands. It will, however, benefit from cost savings, greater buying power, and higher revenue synergies because of the larger network.
The kicker in these talks is that both of these airlines are still in ongoing talks with American Airlines about an alliance agreement. NCB’s analyst Neill Glynn thinks that the alliance would bring a three-way transatlantic agreement closer to reality.
British Airways has been pursuing a merger with Iberia for 16 months. In March 2008, Caja Madrid Savings Bank, Iberia’s biggest shareholder said no. On Tuesday, a source close to the matter said that the bank is now all for it.
BA’s Walsh said that the merger isn’t to save both airlines, but that it makes sense given the current market conditions.
“I don’t see this as a matter of survival, but as two strong companies coming together. We do not see this as the end game but as the start of a new era,” he told reporters. “The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition.”
Walsh also said that the Open Skies Pact between the European hubs and the United States prompted the deal. He says that liberalization goes hand-in-hand with consolidation.
Of course, not everyone will be happy if the deal goes through. A spokesperson for rival Virgin Atlantic says that the merger will only strengthen BA’s dominance at Heathrow, which would give them the power to “offer less choice and push up ticket prices.”
The BA/Iberia alliance would control approximately 45 percent of takeoff and landing slots at Heathrow, which is the main hub between Europe and the United States.
