British Airways Wins 99% Shareholder Approval for $9 Billion Iberia Merger
British Airways Investors Approve $9 Billion Merger
Denis Doyle/Bloomberg
A British Airways and Iberia airplane sit at Barajas airport in Madrid,.
A British Airways and Iberia airplane sit at Barajas airport in Madrid,. Photographer: Denis Doyle/Bloomberg
British Airways Plc and Iberia Lineas Aereas de Espana SA shareholders gave the go ahead for a $9 billion merger that will extend the U.K. company’s dominance of lucrative trans-Atlantic routes and close the gap to European market leaders Air France-KLM Group and Deutsche Lufthansa AG.
Iberia’s owners backed the plan in Madrid and three British Airways resolutions approving the deal won support from more than 99 percent of voters in London. The U.K. carrier’s cabin- crew union marked the occasion by announcing plans for a strike ballot in a 21-month dispute over pay and staffing levels.
British Airways Chief Executive Officer Willie Walsh says he’s planning further purchases in a push to cut costs and penetrate new markets. The London-based carrier tapped a surge in demand for business flights to post its first profit in two years in the three months ended Sept. 30 after Iberia returned to profit in the second quarter, and Walsh said today that fresh walkouts by flight attendants won’t deflect from the recovery.
“The merger news means they can get on with details like coordinating flight schedules,” said John Strickland, director of the JLS aviation consultancy. “The strike threat is another aggravation and it’s hard to understand why this dispute hasn’t been resolved. BA seems to have made some kind of a compromise.”
Today’s votes pave the way for the carriers to combine under the International Consolidated Airlines Group SA holding company. The transaction is scheduled take effect on Jan. 21 after gaining U.K. High Court approval on Jan. 19, they said.
‘Active Role’
“The aviation industry is moving towards consolidation and we need to be sure we are playing an active role,” British Airways Chairman Martin Broughton said at today’s meeting in the U.K. capital. His counterpart in Madrid, Antonio Vazquez, said that Iberia needs to become “a main player within a big airline group” so as not to get left behind after mergers among rivals.
Air France became Europe’s biggest carrier in 2004 with the purchase of KLM, and last year bought a 25 percent stake in Italy’s Alitalia. Lufthansa, the region’s No. 2, acquired Swiss International Air Lines AG in 2007 and has since bought Austrian Airlines AG, U.K,-based BMI and is adding Brussels Airlines NV.
British Airways has a market value of 3.02 billion pounds ($4.7 billion) after advancing 40 percent this year, and Iberia is worth 3 billion euros ($4 billion) following a 70 percent gain. The U.K. carrier fell 3.6 percent to 262 pence today in London trading, with Iberia declining 2.5 percent.
The companies first announced that they were in talks about an all-share merger in July 2008, the month that oil prices reached a record $147 a barrel, slashing profit margins and causing some carriers to collapse.
Pension Hurdle
A tie-up was agreed in November 2009, conditional on Iberia approving British Airways plans for reducing a 3.7 billion pound pension deficit. The Spanish carrier’s board approved that strategy on Sept. 23, clearing the way to consult investors.
British Airways says the merger will generate 400 million euros of synergies in the fifth year and give it the option of adding flights in Madrid, away from London Heathrow, which as Europe’s busiest airport is afflicted by capacity constraints.
The combination will also create a more effective bulwark against discount carriers such as Ryanair Holdings Plc and EasyJet Plc and give “considerable scale” within the European market, Walsh said today.
Hit List
The CEO said in September that he intends to push on with consolidation and that British Airways and Iberia have already identified 12 other carriers which would be attractive partners.
The executive says that merger candidates are more likely to come from within the Oneworld airline alliance of which the two are members, together with carriers including AMR Corp.’s American Airlines, Cathay Pacific Airways Ltd. and Qantas Airways Ltd. British Airways has led the group’s recruitment of India’s Kingfisher Airlines, S7 Airlines of Russia and Air Berlin Plc, Germany’s biggest carrier after Lufthansa.
British Airways and American said last month that they would start sharing booking codes on more than 2,700 services, as well as adding new routes, after winning antitrust approval to extend their alliance on trans-Atlantic flights.
The Unite union will “shortly” serve notice of a ballot on renewed strike action by BA’s 12,000 cabin crew, it said today at a London press conference. The poll will be concluded in early January, joint General Secretary Tony Woodley said.
While British Airways and Unite have reached broad agreement on employment terms, the union wants concessions on the treatment of striking workers, including the immediate restoration of travel benefits suspended until 2013 and binding arbitration on all disciplinary cases related to the dispute.
‘Torn Apart’
Walsh said that in the event of a further walkouts, “we are just going to continue to run the business,” adding that factions within the union are “tearing themselves apart.”
After the last round of talks with Woodley the pair “shook hands” on a deal, only for the union leader to renege on the plan following meetings with elected officials, the CEO said.
Woodley said didn’t shake on a agreement but held “discussions,” and that the suspension of travel perks for 2 1/2 years rendered the proposals “as dead as the proverbial dodo.”
Walsh said he may main remain involved in negotiations even when he becomes CEO of the IAG holding company, at which point BA will be led by its current finance chief, Keith Williams.
“I’m very happy to remain directly involved to play whatever role Keith would like me to play,” Walsh said.
To contact the reporters on this story: Steven Rothwell in London at srothwell@bloomberg.net; Howard Mustoe in London at hmustoe@bloomberg.net
To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net
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