British Airways Plc and Spain’s Iberia Lineas Aereas de Espana SA moved closer to completing a $7.5 billion merger after signing a definitive agreement on the combination.
The merger, subject to approval from European regulators and the companies’ shareholders, will probably be completed in “late 2010,” London-based British Airways said today in a statement. The two airlines will maintain their respective brands and operations under a holding company called International Consolidated Airlines Group SA.
The merger would consolidate British Airways’ rank as Europe’s third-biggest carrier, expanding its network in Latin America and allowing it to grow beyond its London Heathrow base. Iberia, the region’s fourth-biggest airline, can still pull out should British Airways fail to reach a “satisfactory” agreement to reduce its £3.7 billion ($5.6 billion) pension deficit.
“They still have to get through regulatory approval, but given the limited overlap between the two companies I don’t expect any delay,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin who has an “outperform” recommendation on the shares of both airlines.
International Airlines Group will seek listings in the UK and Spain, the carriers said. Iberia stockholders will receive 1.0205 shares in the new company for each Iberia share held, and British Airways investors will get one share for each share owned.
Following the cancellation of so-called treasury stock, British Airways investors will hold 56 per cent of the company and shareholders of Madrid-based Iberia will own 44 per cent, Iberia said. When the companies signed a memorandum of understanding in November, the ratio was 55 per cent to 45 per cent.
British Airways rose as much as 1.8 per cent in London trading and was little changed at 238.3 pence at 8:34 am local time. Iberia initially rose as much as 2 per cent after the announcement and traded little changed in Madrid at ¤2.62.
British Airways, which has been in talks on the merger since mid-2008, needs a bigger route network to match larger rivals Air France-KLM Group and Deutsche Lufthansa AG. The new group will generate annual savings of about 400 million euros ($532 million) in the fifth year, British Airways said.
Labor unions and British Airways agreed on March 16 on contribution and benefit concessions to help close the retirement funds’ deficit. Fund trustees must approve that accord by June 30.
The accord came as UAL Corp.’s United Airlines and US Airways Group Inc., both of which filed for bankruptcy in the last decade, are holding talks on a merger that would reshape the US industry, two people familiar with the matter said.
Discussions began in mid-February on the tie-up, which would help United steer travelers to international flights from US Airways’ domestic routes, said one of the people, who asked not to be identified because the negotiations are private.
The British Airways agreement with Iberia will provide a boost to Chief Executive Officer Willie Walsh after the UK airline was forced to cancel hundreds of flights last month as a result of a strike by flight attendants. The walkout, in a dispute over pay and staffing levels, cost British Airways tens of millions of pounds for rescheduling passengers and hiring crew and planes from other airlines to keep operations running.
British Airways won initial clearance from the US government in February to deepen a marketing alliance with AMR Corp’s American Airlines on North Atlantic routes. Iberia, Finnair Oyj and Royal Jordanian Airlines are also part of the agreement, which is still being evaluated by the European Union.
