BA and Iberia to mergeApril 8th, 2010 by H&R | Categories: tourism
British Airways, one of the biggest carriers of business and leisure travellers to Southern Africa, and Iberia, a Spanish airline, have signed a deal to merge and create one of the world’s biggest airline groups.
The BBC reported today that the merger, which was provisionally agreed in November last year, is expected to be completed by the end of the year.
In a statement the two companies said the merger would benefit shareholders, employees and customers. It is expected to save the airlines 400m euros a year.
The new company will be called International Airlines Group, but the BA and Iberia brands will continue to operate as normal. It will its headquarters in London, with BA shareholders retaining 55% ownership of the company.
The group will operate 408 aircraft and carry more than 58-million passengers a year, the two companies said.
BA chief executive Willie Walsh said the merger would be good for customers. “The merged company will provide customers with a larger combined network.”
Iberia chairman and chief executive Antonio Vazquez said the merger was important for the future of the airline industry. “This is an important step in the process towards creating one of the world’s leading global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation,” he said.
The merger will create opportunities for the two airlines to cut costs following two tough years for the airline industry. The BBC reports that both BA and Iberia are expected to report heavy losses this year, with BA predicted to announce its biggest annual loss since privatisation.
The airlines are also regarded as a good match, having few overlapping routes. The merger will also allow the company to compete more effectively with other European giants including Air France-KLM and Germany’s Lufthansa, other major carriers to Southern Africa.
The merger is subject to approval from regulators and shareholders, but this is expected to be a formality. One stumbling block could be BA’s pension problems. Its two final-salary pension schemes have a combined deficit of 3.7bn, which it needs to cut, but there will be an army of advisors helping the airline to avoid meeting its commitments. Already the airline has agreed plans with unions to increase pension contributions to close the deficit.
But Iberia still has the option to call off the merger if it decides that the plans are not satisfactory.
Plans for a merger between BA and Iberia have been on the table for years. The two airlines first began working together in 1999 following the privatisation of the Spanish flag-carrier.