BA & Iberia synergies could save millions 16 NOV 2009: British Airways and Spain’s Iberia announced Friday that they have reached a preliminary agreement for a merger. British Airways will have 55% of the new company, with Iberia at 45% and the companies believe that merger would create synergies worth an approximate €400 ($628.6) million. BA chief executive Willie Walsh will head the merged airline as CEO. Iberia’s current chairman Antonio Vazquez will be chairman.
However, the millions saved could also result in thousands of job losses at both carriers, which are likely to create industrial unrest at Iberia – which has already been the target of strikes, as well as at BA, where cabin crew vote today on possible strike action.
Most of the 'synergy' savings however, will be achieved by combining back-office, IT, fleet and maintenance functions. Other savings will be revenue related and include joint selling, network and revenue management benefits.
Both carriers have been severely hit by the recession, reporting heavy losses and drastic cost-cutting measures.
The new airline group will have 419 aircraft and operate to 205 destinations. In 2008, the two airlines carried 62 milllion passengers and, in their last financial years, joint revenues were approximately €15 ($23.6) billion.
Iberia customers will benefit from BA’s strong presence in North America, Asia Pacific and Africa. BA clients get the advantage of Iberia’s market-leading Latin American presence.
BA already owns 13.5% of Iberia, and the two carriers have a code-sharing agreement under the Oneworld Alliance, which allows them to sell seats on each other’s services.
The merger requires regulatory approval from the European Commission but following Air France’s successful merger with KLM in 2004 that is not likely to be an issue.
The deal is expected to be finalized by the year end 2010, but despite Walsh’s announcement that BA planned to ring-fence* the liability for its pension deficit in the BA operating company that would then be a subsidiary below the merged top company, Iberia insisted on a get-out clause that allows it to can walk away from the deal if BA doesn’t come to satisfactory terms over its £2.6 (4$) billion pension deficit.
BA has just announced a pre-tax loss of £292 ($512.5) million in the six months to the end of September. Iberia’s most recent results showed a loss of €72.8 (114.4) million between April and June.
Both carriers have been severely hit by the recession, reporting heavy losses which have resulted in drastic cost-cutting measures.
The merger itself will cost about €350 (4549.8) million and will create a Spanish holding company called TopCo that will own both the existing airlines.
Walsh said, “The merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force.”
*To ring fence is to set aside a sum of money for a specific project, or to allow one company within a group to go into liquidation without affecting the viability of the group as a whole or any other company within it
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