British Airways and Iberia agree merger plans

The merger has been a long time in the planning.
British Airways and Spanish airline Iberia have reached a preliminary agreement for a merger expected to be completed in late 2010.

The merger, which is expected to get regulatory backing, would create the world's third biggest airline.

Under its terms, Iberia would take a 45% stake and BA, which last week reported a six-month pre-tax loss of £292m, a 55% stake in the new company.

Iberia says it can pull out if BA fails to resolve its pension deficit problem.

'Growing dominance'
"The merger will create a strong European airline well able to compete in the 21st Century," said BA chief executive Willie Walsh.

"Both airlines will retain their brands and heritage while achieving significant synergies as a combined force."

The deal would create an airline with 419 aircraft flying to 205 separate destinations, and would save the two partners 400m euros ($594m; £358m) in costs a year, the two carriers said.

Iberia's chairman Antonio Vazquez will take the same role at the new company, while Mr Walsh will become its chief executive.

Aviation analyst Douglas McNeil of Astaire Securities said BA would be "relieved" to have finally got the merger deal in place.

"I think BA will be pleased with the deal they have got - the headquarters in London, led by Willie Walsh, and BA will be majority shareholder," he said.

Simon Calder, travel editor of the Independent, agreed that the planned merger was a good deal for BA.

"British Airways has come out of this pretty well, it will be the dominant partner," he said.

"Don't expect any great benefits [after the merger] if you are a passenger, but if you are a shareholder it could be a different story."

News of the deal did not go down well with Virgin Atlantic, one of BA's big competitors in the UK, which raised concerns about the new company's market share.

"The merger will increase BA's dominance at Heathrow with 44% of take-off and landing slots this winter. It is impossible for any other airline to replicate their scale," the airline said.

Big losses

Both BA and Iberia have been losing money during the downturn as businesses and individuals cut back on flying.

Mr Walsh has previously said a merger would help both firms cope with the recession.

The firms have considered a tie-up for a number of years and held talks on the issue in July 2008.

BA already owns 13.5% of Iberia and the two carriers have a code-sharing agreement under the One World grouping of airlines, which allows them to sell seats on each other's services.

If a merger is formalised, it would still require regulatory approval from the European Commission.

However, analysts say a deal is likely to be cleared, pointing to Air France's successful merger with Dutch airline KLM in 2004.

Financial woes
The agreement comes a week after BA said it would cut a further 1,200 jobs, as it reported a first-half loss for the first time.