British Airways, Iberia approve preliminary merger deal

London – British Airways and Iberia of Spain approved Thursday a preliminary agreement on a merger that would create a European aviation giant, the airlines said.

The new airline would have 419 aircraft and fly to 205 destinations, with the merger expected to be finalised by the end of 2010, the airlines said in a joint statement.

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

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

The announcement comes after both airlines held separate board meeting talks throughout Thursday on a possible merger that would create a European aviation giant to rival Air France-KLM and Lufthansa.

A merger would create Europe’s second biggest airline by stock market capitalisation, and third biggest by income, with around 60 million passengers per year and combined synergies of EUR 400 million (GBP 358 million).

British Airways will hold 55 percent of the new company, while Iberia will hold 45 per cent, with the headquarters based in London, the statement said.

Walsh will be chief executive of the company, and Iberia chairman Antonio Vazquez will be chairman, the statement said.

Vazquez hailed the agreement, saying they were "laying the foundations of what will be one of the most important airlines in the world, a real global airline."

"It has been a long process where many people, both at British Airways and Iberia, have worked very hard to reach this agreement. But in the end it was worth it," he said.

"I believe that, thanks to this transaction, which is the most important in the European airline industry in recent years, we are more prepared than ever to face future challenges."

Both airlines have suffered heavy losses because of plunging demand for air travel in the fierce global economic downturn — but it was unclear whether a merger would remedy the situation, analysts have said.

The pair announced in July 2008 that they were in talks for an all-share merger. But discussions have bogged down in differences over the balance of control and the size of BA’s pension-fund deficit.

Iberia has the right to back out of the deal if the outcome of negotiations between BA and the administrators of its pension deficit is not "in Iberia’s reasonable opinion, satisfactory," the statement said.

The two airlines are seeking to merge at a time when the industry has been badly hit by a slump in passenger and cargo traffic.

BA last week announced more job cuts and posted a loss of GBP 217 million in the six months to 30 September, compared with a loss of GBP 49 million during the same period of 2008.

Iberia, meanwhile, plunged into the red in the second quarter with a loss of EUR 72.8 million against a EUR-21.2-million profit in the second quarter of 2008. The Spanish carrier releases third-quarter earnings on Friday.

AFP / Expatica