Aviation News

April 8, 2010

British Airways and Iberia Have the Urge to Merge

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By: Matt Molnar
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A 13-year love affair between two of Europe’s largest flag carriers was finally consumated today, as British Airways and Iberia signed a formal deal to combine their businesses.

A new holding company called International Airlines Group, to be headquartered in London, will house the business operations of both airlines. 55% of the company will belong to BA, with the remaining 45% going to IB. Shareholders of BA will receive one share of the new company for each share that they own, while IB owners will receive 1.0205 shares.

BA and Iberia will maintain their existing brands, with their respective hubs continuing to operate out of London Heathrow and Madrid. BA CEO Willie Walsh will serve as IAG’s CEO, and the chairman’s seat will be held by Iberia Chairman Antonio Vasquez.

The goal of the merged operation is to reduce costs in backend areas such as IT, in addition to gaining buying power when it comes to fuel and aircraft purchases. Analysts estimate the savings could be as much as €550 million annually through 2015.

Aside from flights between the UK and Spain, virtually none of the routes to their 200 total destinations overlap. Each airline has strengths, i.e. BA’s leading Europe-North America and Asia routes and Iberia’s Europe-South America services. The combined carriers will be the third largest operator in the world by revenue, and the second largest in Europe by passenger kilometers flown.

IAG will operate a fleet of 408 aircraft, with a total of 60 Boeing and Airbus jets on order.

Today’s merger is the culmination of a process that began in 1997, when British Airways and Iberia signed a cooperation pact, mainly in regard to codeshares and routes. A year later, BA and American Airlines purchased stakes in Iberia, and over the following decade or so, talks to form greater alliances and/or mergers flashed on and off.