From the Mail On Sunday
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British Airways has targeted Spain’s national airline Iberia as its preferred merger partner in Europe, a senior BA source has told Financial Mail.
Analysts say the two airlines would fit together well. They have complementary strengths, with BA holding a leading position on lucrative North Atlantic routes, while Iberia is the top European airline serving Latin America.
BA already has a 9.99% stake in Iberia and a seat on its board. Both carriers are part of Oneworld, an alliance of eight international airlines that co-ordinate their schedules and tickets.
Iberia told shareholders this month that it planned to strengthen its commercial relationship with BA, led by chief executive Rod Eddington. As a first step towards a closer relationship, the airlines are seeking permission from the EC to share routes.
The competition authorities will be concerned that the two airlines already have a market share of 27% of the air traffic between Britain and Spain. But a full merger, which on current values would create a company worth £3.3bn, must wait until changes are made to the complex rules that govern national carriers’ rights to fly to each other’s countries.
Under the current rules, a national airline is entitled to fly to other countries, but if its ownership passes to a foreign company, it loses the rights. These rules are one reason why BA pulled out of a deal with KLM last year. If the Dutch carrier had become British-owned, it would have lost its right to fly from the Netherlands to the US.
The EU’s highest court, the European Court of Justice, is expected shortly to outlaw bilateral aviation negotiations among EC states. This decision is expected to lead to Europe becoming a single air state with the EU negotiating flying rights. This would speed up the consolidation of European airlines, which, unlike their American rivals, have been unable to merge. But any rule changes are not expected for at least two years.
By: Noah - 3rd July 2002 at 12:47
RE: BA’s Preffered Merger Partner-Iberia
Sorry for the late reply, but have just discovered (and joined) this forum.
I think the proposed link-up between Iberia and BA is a very interesting development.
With the Commissioner being Spanish, I imagine the EU Transport Commission is likely to ‘smile’ on this proposed linkup in exactly the way it did not on the Alitalia/Air France deal (although after the approving the Alitalia aid package, I imagine Italy cannot really complain.
Noah
By: mongu - 18th June 2002 at 22:24
RE: BA’s Preffered Merger Partner-Iberia
BA are trying to be commercial, that’s all.
And they are being stopped because of protectionism.
If other airlines don’t want to be bought, then they should hurry up and make a profit and get some financial muscle of their own!
By: keltic - 18th June 2002 at 09:36
RE: BA’s Preffered Merger Partner-Iberia
I wouldn´t mind losing Iberia brand. There´s a long time since they are not a flag carrier anymore. They don´t serve the community over here. Only hub policies.
By: greekdude1 - 18th June 2002 at 07:55
RE: BA’s Preffered Merger Partner-Iberia
I don’t like the idea of any 2 countries’ flag carriers being merged, bought out, or otherwise. A country needs to have a flag carrier, period. Whether it’s run by the gov’t or private. It’s obviously better for it to be privatised. Just take Olympic, for example. That company has been in shambles since the gov’t took it over from Onassis. It seems to me that BA is trying to take over the world. First KLM, then AA, now IB, who’s next? They should worry about taking care of their own business before they can take care of somebody else’s. Look what happened with the AirNewZealand/Ansett marriage? That was a debacle, now Ansett is finished forever.
GD1
By: mongu - 17th June 2002 at 23:16
RE: BA’s Preffered Merger Partner-Iberia
Kabir,
BA has better access to capital markets than Iberia. It might have a weak market capitalisation right now, but it can still punch if it needs to.
Besides, you are assuming that Iberia does not want to be bought. Why?
Iberia’s goal is to maximise the returns for their shareholders. If this is achieved by being bought by BA, then so be it. There is no room for emotion or national pride when numbers are at stake!
Lots of senior IB guys will also benefit from working for a bigger airline; more prestige, more prospects…
By: KabirT - 17th June 2002 at 17:14
RE: BA’s Preffered Merger Partner-Iberia
hmm good points there mongu. Still if BA can get the minor shareholders on there side, so can Iberia if they make the right move. I dont think Iberia is that week againts BA.
By: mongu - 17th June 2002 at 17:11
RE: BA’s Preffered Merger Partner-Iberia
Kabir,
Iberia has no choice in the matter.
If BA can seduce the minority shareholders of Iberia, they will put pressure on Iberia’s management. In turn, the Spanish government will feel the pressure.
By: mongu - 17th June 2002 at 17:09
RE: BA’s Preffered Merger Partner-Iberia
I quite like both colours, maybe they should both be retained!
Ultimately – BA would litigate against the Spanish gov’t in Europe, and would no doubt win the case. It would be very embarrassing for Spain, so I don’t think there will be very much objection. Perhaps a few months of bluster then a quiet surrender by the Spanish government.
As I recall the KLM deal, there was not much in the way of opposition from the Dutch goverment – the main problem (apart from a clash of corporate cultures) was route licenses to the US. Not so much of an isue with BA/Iberia.
By: KabirT - 17th June 2002 at 17:07
RE: BA’s Preffered Merger Partner-Iberia
That will not be a very good move by Iberia in my opinion..if its in a good shape…why go merge with BA. Its the national airline and pride of Spain why let go of it like that, that also when its going through a good patch??
By: keltic - 17th June 2002 at 17:02
RE: BA’s Preffered Merger Partner-Iberia
Iberia figures are spectacular right now and BA are quite delicate. So why not….sunny colours on BA tails?.
By: kkbelos - 17th June 2002 at 12:56
RE: BA’s Preffered Merger Partner-Iberia
>My understanding is that the Spanish government is powerless
>to prevent a sale purely because the acquiror is foreign.
Wrong, actual Iberia owners cannot sell they shares (I mean the big owners, not the investors who have two or three shares) or take decissions about letting new investors to take part in IB without goverment permission. It´s spanish law, any change in the main owners can be refused by the gov.
>This would contravene the intra-EU principle of free
>movement of capital and the single market.
True, this law does not complain with EU laws, the Commision has bee trying to make “golden shares” disappear from countries such as France or Spain, but you know, burocracy goes very slow and in fact, it would be very difficult to achieve this with countries as France against it.
By: mongu - 17th June 2002 at 12:15
RE: BA’s Preffered Merger Partner-Iberia
My understanding is that the Spanish government is powerless to prevent a sale purely because the acquiror is foreign.
This would contravene the intra-EU principle of free movement of capital and the single market.
By: kkbelos - 17th June 2002 at 10:21
RE: BA’s Preffered Merger Partner-Iberia
I think the main problem for this merger (or takeover) is that spanish goverment holds a “golden share” in Iberia, so if BA decided to merge without the goverment permission, even if other IB owners wanted to sell they part to BA, nothing can be done. And I don´t see our gov allowing a foreign corporation owning such a important company, It would be a delicate political decission, specially with general elections in 2 years.
Anyway, the European Comission is trying to eliminate the golden share in former national corporations across Europe.
From my point of view, a merge of IB and BA would be a bad turn for Spain, althought maybe a very good thing for investers. IB maintains low-profit lines just because It´s the national carrier, but this could end if the direction went to London.
Regards
Jorge
By: mongu - 16th June 2002 at 23:29
RE: BA’s Preffered Merger Partner-Iberia
I would imagine Iberia would be rebranded along the lines of Deutsche BA (before the low cost branding).
Basically, I would say the Spanish brand element would be retained with a superficial reference to BA; maybe a BA tailfin and a styilised BA paint scheme emphasising the Spanish connection.
By: keltic - 16th June 2002 at 21:55
RE: BA’s Preffered Merger Partner-Iberia
I would accept that for Iberia but with ethnic tales again:-)
By: greekdude1 - 16th June 2002 at 21:40
RE: BA’s Preffered Merger Partner-Iberia
Does that mean IB’s planes will be repainted and the name will disappear, as well?
GD1
By: mongu - 16th June 2002 at 21:09
RE: BA’s Preffered Merger Partner-Iberia
BA already have 9.9% of Iberia, so they must be pretty sure about this.
The combination of BA’s strong North American network and Iberia’s South American network might just work.
As the article said, I would expect further acquisitions or mergers once bilateral negotiations cease.
I am wary of the term “merger” though. Under financial reporting standards, it would be an acquisition if either company transferred economic benefit to the shareholders of the other company.
In other words, unless it is exactly 50/50, then it will be one company acquiring the other.
I suspect “merger” sounds friendlier than “takeover” even though it would probably be technically incorrect.
By: keltic - 16th June 2002 at 20:31
RE: BA’s Preffered Merger Partner-Iberia
Bad couple. Different management, ideas, philosophy, functioning…..stiff BA with caotic IB. Bad idea, sure divorce. Iberia matchs much more with airlines like Air France and Alitalia.
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June 16, 2002 at 12:56 pm