British Airways, Iberia Holding Discussions on Merger (Update2)
By Tracy Alloway
July 29 (Bloomberg) -- British Airways Plc, Europe's third- biggest carrier, started talks to merge with Spain's Iberia Lineas Aereas de Espana SA to lower expenses as slower economies and higher fuel costs wipe out earnings.
The airlines want to conduct an ``all-share merger,'' and planes would still fly using the two names, London-based British Airways said today in a statement. Iberia rose 4.3 percent in Madrid before trading was halted, giving the carrier a market value of 1.63 billion euros ($2.6 billion). British Airways, at more than double Iberia's value, climbed 7.5 percent in London.
British Airways said two weeks ago it will cut passenger capacity and stop hiring as it struggles to make a profit. The U.K. carrier said it recently increased its stake in Iberia to 13.15 percent from 9 percent, with Spanish bank Caja Madrid holding 22.99 percent. Iberia said today it has bought 2.99 percent of British Airways and holds a further 6.99 percent in contracts linked to BA's share price.
``The aviation landscape is changing and airline consolidation is long overdue,'' British Airways Chief Executive Officer Willie Walsh said in the statement. ``The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.''
Mergers, Partnerships
Record oil prices and slowing economies have prompted airlines to merge or strengthen partnerships. Madrid-based Iberia is attractive to suitors because of a route network that includes the highest density of services between European and Latin American cities such as Buenos Aires and Rio de Janeiro.
``There are some real revenue synergies here,'' said Gert Zonneveld, a London-based analyst at Panmure Gordon. ``There will be a level of costs that can be taken out of the business anywhere from finance to HR operation to looking at the fleet and engineering and maintenance costs.''
Zonneveld said a merger also ``makes sense'' because of Iberia's Latin American network.
British Airways gained as much as 21.5 pence, or 9.2 percent, to 256 pence in London trading. The stock was at 252 pence at 12:23 p.m.
The U.K. airline in November dropped a plan to bid for Iberia with U.S. buyout firm TPG after banks including Caja Madrid built up stakes in the Spanish airline.
OneWorld Alliance
``A merger would be good news for our customers and enhance our existing relationship,'' Iberia Chairman Fernando Conte said in the statement. ``It would also strengthen the OneWorld Alliance and further develop Madrid's position as the European gateway to Latin America.''
British Airways and Iberia are both members of the OneWorld Alliance. The U.K. carrier has been in talks with AMR Corp's American Airlines, also a OneWorld member, about deeper cooperation on trans-Atlantic routes.
At least 24 carriers have stopped flying or filed for bankruptcy protection this year, according to the International Air Transport Association. The group says global airlines may lose more than a combined $6.1 billion this year.
Record oil prices have made jet fuel the airline industry's single biggest expense. Crude oil traded in New York has advanced 63 percent in 12 months, crimping airline earnings and causing many carriers, including British Airways, to increase fuel surcharges on flights.
Holding Company
A new holding company would be created for the two airlines and be quoted on the Madrid Stock Exchange, British Airways said.
Credit-default swaps on British Airways fell 51 basis points to 357, according to CMA Datavision prices at 11:55 a.m. in London.
A basis point on a credit-default swap contract protecting 10 million euros ($15.7 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.
To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.net
Last Updated: July 29, 2008 07:41 EDT
By Tracy Alloway
July 29 (Bloomberg) -- British Airways Plc, Europe's third- biggest carrier, started talks to merge with Spain's Iberia Lineas Aereas de Espana SA to lower expenses as slower economies and higher fuel costs wipe out earnings.
The airlines want to conduct an ``all-share merger,'' and planes would still fly using the two names, London-based British Airways said today in a statement. Iberia rose 4.3 percent in Madrid before trading was halted, giving the carrier a market value of 1.63 billion euros ($2.6 billion). British Airways, at more than double Iberia's value, climbed 7.5 percent in London.
British Airways said two weeks ago it will cut passenger capacity and stop hiring as it struggles to make a profit. The U.K. carrier said it recently increased its stake in Iberia to 13.15 percent from 9 percent, with Spanish bank Caja Madrid holding 22.99 percent. Iberia said today it has bought 2.99 percent of British Airways and holds a further 6.99 percent in contracts linked to BA's share price.
``The aviation landscape is changing and airline consolidation is long overdue,'' British Airways Chief Executive Officer Willie Walsh said in the statement. ``The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.''
Mergers, Partnerships
Record oil prices and slowing economies have prompted airlines to merge or strengthen partnerships. Madrid-based Iberia is attractive to suitors because of a route network that includes the highest density of services between European and Latin American cities such as Buenos Aires and Rio de Janeiro.
``There are some real revenue synergies here,'' said Gert Zonneveld, a London-based analyst at Panmure Gordon. ``There will be a level of costs that can be taken out of the business anywhere from finance to HR operation to looking at the fleet and engineering and maintenance costs.''
Zonneveld said a merger also ``makes sense'' because of Iberia's Latin American network.
British Airways gained as much as 21.5 pence, or 9.2 percent, to 256 pence in London trading. The stock was at 252 pence at 12:23 p.m.
The U.K. airline in November dropped a plan to bid for Iberia with U.S. buyout firm TPG after banks including Caja Madrid built up stakes in the Spanish airline.
OneWorld Alliance
``A merger would be good news for our customers and enhance our existing relationship,'' Iberia Chairman Fernando Conte said in the statement. ``It would also strengthen the OneWorld Alliance and further develop Madrid's position as the European gateway to Latin America.''
British Airways and Iberia are both members of the OneWorld Alliance. The U.K. carrier has been in talks with AMR Corp's American Airlines, also a OneWorld member, about deeper cooperation on trans-Atlantic routes.
At least 24 carriers have stopped flying or filed for bankruptcy protection this year, according to the International Air Transport Association. The group says global airlines may lose more than a combined $6.1 billion this year.
Record oil prices have made jet fuel the airline industry's single biggest expense. Crude oil traded in New York has advanced 63 percent in 12 months, crimping airline earnings and causing many carriers, including British Airways, to increase fuel surcharges on flights.
Holding Company
A new holding company would be created for the two airlines and be quoted on the Madrid Stock Exchange, British Airways said.
Credit-default swaps on British Airways fell 51 basis points to 357, according to CMA Datavision prices at 11:55 a.m. in London.
A basis point on a credit-default swap contract protecting 10 million euros ($15.7 million) of debt from default for five years is equivalent to 1,000 euros a year.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.
To contact the reporter on this story: Tracy Alloway in London at talloway@bloomberg.net
Last Updated: July 29, 2008 07:41 EDT
