Translated material
Airlines are closing ranks
The British and the Spaniards want to fly, like the French and the Dutch
Two of Europe's largest airlines - Britain's British Airways and Spain's Iberia - announced yesterday that they were negotiating a merger. Without disclosing financial details of the merger, the companies said it would be a single share deal, although both carriers would retain their current brands. The statement they published said that negotiations on the terms of the merger, the organization of a joint business and the development of work plans for the future will take several more months. The project has the unanimous support of the boards of directors of both airlines, the statement said.If British Airways and Iberia go ahead, their merger will be the biggest such transaction in the global air transport business since France's Air France and the Netherlands' KLM merged in May 2004. In both cases, air carriers were prompted to take this step by the need to reduce overhead and operating costs, which have been growing rapidly in recent years, especially due to rising prices for aviation fuel.
British Airways chief executive Willie Walsh said yesterday: “The landscape of aviation is changing and airline consolidation has long been on the agenda. The combined balance sheet, expected synergies and alignment of the airlines' route networks make the merger an attractive idea, especially in the current economic context. We have enjoyed a successful partnership with Iberia for a decade and we are confident that shareholders of both companies will benefit from the proposed combination.” Iberia Chairman and CEO Fernando Conte supported the partner, saying: “The merger will be good news for our customers and will strengthen the existing ties between us.”
Financial markets confirmed his expectations. After the announcement, British Airways shares jumped 8% on the London Stock Exchange, while Iberia shares rose 4.4% in Madrid.
British Airways has owned a 9% stake in Iberia since 1999 and recently increased its stake in the Spanish company to 13.15%. For its part, Iberia, as announced yesterday, recently acquired a 2.99% stake in British Airways and also holds derivatives linked to the value of a further 6.99% stake in the British carrier. These relatively modest stakes allow both companies to be considered major shareholders of each other. British Airways, unlike other global airlines, does not have a “master” owner, public or private. The airline's capital is dispersed among more than 250 thousand small investors. The largest shareholders of Iberia (besides British Airways) are the Spanish companies Caja Madrid (23.45%), SEPI (5.20%), El Corte Ingles (2.90%).
Having merged in 2004, Air France-KLM became one of the most profitable (in absolute terms) airlines in the world. In the financial year ending March 31, 2008, the Franco-Dutch company received 21.114 billion euros in operating income and 748 million euros in net profit. True, business difficulties haunt partners in life together in the same way as before, separately. Their net profit for 2007/08 is still 16% less than the previous reporting period.
British Airways achieved a net profit of £696 million (€883 million) in the same year ending 31 March 2008. And Iberia’s net profit in 2007 (the Spanish company sums up the results somewhat differently) amounted to 327.6 million euros. That is, simply by joining forces, they are able to leave the Franco-Dutch competitor far behind. However, according to some reports, the British and Spaniards are hatching even more ambitious plans. At the beginning of July, reports appeared in the press that British Airways, Iberia and American Airlines (the company with the largest fleet in the world) were preparing to apply to US antitrust authorities for permission to create a transatlantic joint air carrier. All three companies are members of the third largest international airline alliance, Oneworld, which also includes Canada's Canadian, Japan's JAL, Australia's Qantas, Hong Kong's Catay Pacific and three smaller carriers.
True, the outcome of applying for American antitrust permission is not obvious. In the past, in a similar situation, British Airways and American were already refused by American anti-monopoly fighters on the grounds that the two companies together control more than half of the carrying capacity on the American route from London Heathrow Airport.
As for the European antimonopoly authorities, the initiators of the British-Spanish aviation union do not foresee any difficulties. “Both parties are confident that they will receive regulatory approval. The European Union has already authorized British Airways and Iberia to establish extensive cooperation,” the two airlines said in a joint statement yesterday.