The long-awaited merger of British Airways and Iberia moved a step closer today as the airlines signed a formal agreement to amalgamate their operations. Under the terms of the agreement, the UK and Spanish flag-carriers would be combined into a new company called International Airlines Group, although both would keep operating under their own brands. International Airlines Group will own 408 aircraft, fly to 200 destinations, and carry more than 58 million passengers a year. The company's shares would be traded on the London Stock Exchange, and would be worth almost €5.7bn at current stock market prices.
BA and Iberia agreed to merge last November, after lengthy negotiations. Today, Willie Walsh, BA's chief executive, said the deal would be good for passengers. "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," said Walsh, who is likely to run the new company. Antonio Vazquez, Iberia's chairman and chief executive, said the merger will create one of the world's leading global airlines.
Both companies' shareholders are due to vote on the merger in November, with the deal scheduled for completion the following month. But even once the merger agreement has been signed, Iberia has the right to walk away if it believes BA's plan to address its €3.4bn pension deficit is not satisfactory. Combining the companies will yield cost savings of €400m a year within five years. This has alarmed unions, who are already engaged in a bitter industrial dispute with BA that could already have cost the company €51m. The damage caused by the recession is forcing the airline industry into widespread consolidation. Last night, it emerged that United Airlines and US Airways have been discussing a merger.
Dr Ashley Steel, global chair for transport and infrastructure at KPMG, welcomed the BA-Iberia merger: "It makes huge sense for passengers and airlines alike. It will allow participating airlines to spread their cost base, something they desperately need to do in this challenging environment." Bob Atkinson of travelsupermarket.com said that the number of destinations available from BA would increase by 40% when the deal is completed. Iberia has a much stronger presence in Latin America and some parts of the Caribbean than BA, which is stronger in North America.
However, he questioned whether the deal would deliver cheaper flights in the near term: "Any cost-saving benefits will only be felt by passengers if the businesses integrate quickly. But forcing through structural change and efficiency savings is exactly the challenge that has brought BA head-to-head with its staff and Unite in the current dispute; and the situation has the potential to be just as sticky in Spain."