British Airways and Iberia hail "fantastic" merger deal (Roundup)

Nov 13, 2009, 11:56 GMT

   London - British Airways (BA) and Spanish national carrier Iberia Friday hailed their long-awaited merger deal as a giant step forward in taking on global competition but critics said the marriage of the two loss-making airlines smacked of desperation.

   BA chief Willie Walsh, who will be chief executive of the new airline once the merger is completed by the end of 2010, said the union agreed late Thursday would enable the airlines to 'compete on a global scale.'

   It marks the first major consolidation in the European airline industry since the successful 2004 merger between Air France and KLM, the Dutch airline, on which it is modelled.

   If the deal is cleared by the competition authorities, the new airline would become the third-largest in Europe, after Air France/KLM and Germany's Lufthansa.

   Under the merger deal, both brands will remain in operation. British Airways (BA) would control 55 per cent of the combined airline with Iberia holding 45 per cent.

   BA is set to gain an additional 59 destinations, of which 13 will be in Latin America, while Iberia will fly to 98 new destinations across the BA network.

   The two airlines hope to save a combined 400 million euros (598 million dollars) annually. They would have a total of 419 aircraft serving 205 destinations. The pair had a combined 62 million passengers in 2008.

   'It is fantastic. BA was being left behind as others were consolidating,' Walsh said in a BBC interview. 'By putting these two airlines together we will be able to make savings.'

   Antonio Vazquez, chairman and chief executive of Iberia, hailed the agreement reached after 16 months of negotiations as a 'giant step' that would equip both companies to 'face future challenges.'

   However, Iberia's problems were underlined Friday by the publication of results which showed that the airline lost 182 million euros (270 million dollars) in the first nine months of this year, after making a profit of 51 million euros in the corresponding period of 2008.

   In the third quarter, however, the result improved, with the losses of 16 million euros amounting to less than in the previous quarters.

   Operating revenues slipped by nearly 20 per cent as passenger traffic declined especially in the business segment affected by the recession.

   Iberia's aircraft occupancy rate stood at 80 per cent in the first nine months. The Spanish airline remains market leader on routes linking Europe with Latin America, with a 20 per cent market share, Iberia said.

   Iberia shares went up Friday on the Madrid stock exchange, rising by about 3 per cent after trading began in the morning. However, Ibera's share price later dropped by nearly 3 per cent. In London, BA shares rose by more than 6 per cent Friday.

   BA last week announced a record half-yearly pre-tax loss of 292 million pounds (485 million dollars), following a record annual loss of 401 million pounds in the previous financial year.

   Analysts pointed out Friday that cost savings remained the main motive behind the tie-up. But they also noted that Iberia had reserved the right to terminate the agreement if BA should fail to tackle its huge pension fund deficit of 2.6 billion pounds.

   Ryanair, the Irish budget airline which has become one of BA's chief rivals in recent years, Friday said the merger smacked of desperation. Major carriers throughout Europe were 'raising the white flag because they can't compete with Ryanair's rapid growth,' said a spokesman.

   'Consolidation is the only option for these high-fares airlines. The merger of BA and Iberia is like two drunks trying to prop each other up,' said Ryanair spokesman Stephen McNamara in a statement.

   Virgin Atlantic, BA's chief rival on transatlantic routes, called on the competition authorities to examine the 'dominance' of the proposed union, which gave BA 44 per cent of take-off and landing slots at London's main Heathrow airport.

   'It is impossible for any other airline to replicate their scale,' a Virgin Atlantic spokeswoman said.

   However, analysts in London said they believed the merger would be be approved by the European Commission, following the success of the Air France/KLM tie-up.