British Airways Investors Approve $9 Billion Merger With Iberia



By Steve Rothwell and Manuel Baigorri - Nov 29, 2010 5:30 AM MT
British Airways Plc and Iberia Lineas Aereas de Espana SA shareholders gave the go ahead for a $9 billion merger that will extend the U.K. company’s dominance of lucrative trans-Atlantic routes and close the gap to European market leaders Air France-KLM Group and Deutsche Lufthansa AG.


Three resolutions approving the deal won support from more than 99 percent of voters at a British Airways investor meeting in London. Iberia’s owners also backed the plan in Madrid, paving the way for the pair to combine under the International Consolidated Airlines Group SA holding company in late January.


British Airways Chief Executive Officer Willie Walsh says he’ll use the new structure as a basis for further purchases in the push to cut costs and penetrate new markets. The London- based carrier tapped a surge in demand for business flights to post its first profit in two years in the three months ended Sept. 30 after Iberia returned to profit in the second quarter.
“The aviation industry is moving towards consolidation and we need to be sure we are playing an active role,” British Airways Chairman Martin Broughton said at today’s meeting in the U.K. capital. His counterpart in Madrid, Antonio Vazquez, said that Iberia needs to become “a main player within a big airline group” so as not to get left behind after mergers among rivals.


Surging Shares
The U.K. carrier has a market value of 3.13 billion pounds ($4.9 billion) after advancing 45 percent this year, and Iberia is worth 3.1 billion euros ($4 billion) following a 70 percent gain. Both traded little changed in the wake of today’s votes.

The companies first announced that they were in talks about an all-share merger in July 2008, the month that oil prices reached a record $147 a barrel, slashing profit margins and causing some carriers to collapse.

A tie-up was agreed in November 2009, conditional on Iberia approving British Airways plans for reducing a 3.7 billion pound pension deficit. The Spanish carrier’s board approved that strategy on Sept. 23, clearing the way to consult investors.

Following today’s ballots the transaction will require U.K. High Court approval on Jan. 19 before it can take effect on Jan. 21.


British Airways says the merger will generate 400 million euros of synergies in the fifth year and give it the option of adding flights in Madrid, away from London Heathrow, which as Europe’s busiest airport is afflicted by capacity constraints.


The combination will also create a more effective bulwark against discount carriers such as Ryanair Holdings Plc and EasyJet Plc and give “considerable scale” within the European market, Walsh said today.

Hit List


The CEO said in September that he intends to push on with consolidation and that British Airways and Iberia have already identified 12 other carriers which would be attractive partners.


The executive says that merger candidates are more likely to come from within the Oneworld airline alliance of which the two are members, together with carriers including AMR Corp.’s American Airlines, Cathay Pacific Airways Ltd. and Qantas Airways Ltd. British Airways has led the group’s recruitment of India’s Kingfisher Airlines, S7 Airlines of Russia and Air Berlin Plc, Germany’s biggest carrier after Lufthansa.

British Airways and American said last month that they would start sharing booking codes on more than 2,700 services, as well as adding new routes, after winning antitrust approval to extend their alliance on trans-Atlantic flights.

‘Torn Apart’

Walsh said that in the event of a further strike by the airline’s 12,000 cabin crew “we are just going to continue to run the business,” adding that factions within the Unite union are “tearing themselves apart” over the 21-month dispute.


After the last round of talks with Tony Woodley, Unite’s joint general secretary, the pair shook hands on a prospective deal, the CEO said. Woodley later decided not to recommend the settlement following meetings with his elected officials.

Walsh said he may main remain involved in negotiations even when he becomes CEO of the IAG holding company, at which point BA will be led by its current finance chief, Keith Williams.


“I’m very happy to remain directly involved to play whatever role Keith would like me to play,” Walsh said.

Unite will hold a briefing on developments in the crew dispute at 2 p.m. in London today, it said in an e-mail.


To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net






To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Angela Cullen at acullen8@bloomberg.net