British Airways needs to merge with Spanish carrier Iberia to retain its global ranking and avoid being sidelined as crisis drives airline tie-ups and cost cuts, its chief executive said today.
The deal will create a huge group, since Iberia is rich in routes to Latin America where several economies have strong emerging market status.
British Airways CEO Willie Walsh said today that his company did not want to be 'left behind' after a series of crucial industry alliances from fierce European rivals Air France-KLM and Lufthansa.
BA and Iberia sealed a deal last night on a €4.5 billion merger to create one of the world's biggest airlines, as the two groups grapple with huge losses. BA would be the dominant partner, with 55% of the group.
'This will create a much stronger entity. The concern has been that BA was being left behind as other airlines were starting to consolidate around us,' Willie Walsh said.
'Exceptionally difficult' quarter for Iberia
Meanwhile, Iberia today announced that it had suffered third-quarter losses of €16.4m as more customers shunned air travel. The airline said the sector in Spain was facing 'exceptionally difficult' conditions amid the economic crisis and competition from high-speed rail.
Iberia had plunged into the red in the second quarter of 2009, recording a net loss of €72.8m.
Last week, BA said that its net losses quadrupled to £217m sterling in the six months to September. BA also said it would cut an extra 1,200 jobs, taking the total planned reduction to 4,900 by 2010
'This is about taking the best out of both and creating a new group of airlines that can compete on a truly global scale,' said Walsh, who will also become chief executive of the new company.
The European airline sector has already witnessed the takeover of Dutch carrier KLM by Air France in 2003 and a series of major takeovers by Germany's Lufthansa.
'BA staff recognise that the industry is consolidating around us, they've witnessed Air France/KLM get together, they've witnessed Lufthansa acquire Swiss, Austria, Brussels Airlines,' added Walsh.
Under the merger agreement, BA will have the upper hand and hold 55% of the new company, while Iberia will hold 45%. The pair aim to complete the merger by the end of the year but it needs European regulatory approval.
Under the merger deal, Iberia chairman Antonio Vazquez will become chairman of the new company. Both airlines will retain their brands, while the new group will be based in London and listed on the London Stock Exchange.
BA-Iberia will have 419 aircraft and fly to 205 destinations. he deal will create Europe's second biggest airline by stock market capitalisation, and third biggest by income, with around 60 million passengers a year.
BA and Iberia had announced in July 2008 that they were in talks for an all-share merger. But discussions had stalled on differences over the balance of control and the size of BA's pension-fund deficit.
Iberia reserves the right to back out of the merger deal if the pension deficit issue is not resolved.
Lufthansa, meanwhile, has been steadily acquiring other European airlines, starting with Swiss in 2005, and has added Austrian Airlines and British Midland (bmi) since June. The German carrier also has taken a 45% holding in Brussels Airlines, and has an option to buy the remaining 55%.
After initially soaring on the news, BA shares ended just under 1% higher at 217p in London.
