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BA merger faces failure over £2.6bn pensions debt
The Spanish airline Iberia could still walk away from a merger deal with British Airways to create Europe’s largest airline if the British flag carrier is unable to come to an agreement with its pension trustees over how to fund its £2.6 billion pension deficit.
The two airlines finally reached an agreement to merge yesterday after 16 months of discussions.
However, under the terms of the deal, Iberia may terminate the merger if “the outcome of the discussions between British Airways and its pension trustees is not, in Iberia's reasonable opinion, satisfactory because it is materially detrimental to the economic premises of the proposed merger”.
BA is currently valued at £2.6 billion — exactly the same value as the pension deficit.
If Iberia pulls out it will have to pay BA a break fee of €20 million (£18 million). BA and Iberia have also agreed that the Spanish flag carrier will not provide any cash or guarantees to fund the British pension schemes.
The deadline for BA’s discussions with the pension trustees is the end of June next year, although the two carriers hope to reach a definitive merger agreement in the first quarter of 2010.
A spokesperson for BA said that timescales were “still being worked out”.
Shares in BA continued to rise in early trading this morning, up 4.65 per cent at 225p, while Iberia's stock increased by 3.15 per cent to €2.29.
The deal to create Europe’s largest airline by merging the two loss-making companies is expected to set off another round of cost-cutting at both to save £360 million a year.
Willie Walsh, chief executive of BA, who will retain the same position at the merged company, admitted this morning that there would be job cuts. He has already stripped £400 million of costs from the business and 4,900 jobs will go by next March.
Jobs are likely to be lost at head offices in London and Madrid, in maintenance facilities and in the sales forces.
The combined airline will carry 62 million passengers a year, although Ryanair, the budget company, is expected to exceed that figure this year.
BA will be incorporated in Madrid and chaired by a Spaniard, Antonio Vázquez, while the headquarters and stock market listing will be in London. Martin Broughton, currently chairman of BA, will become the deputy chairman of the merged business.
BA and Iberia will continue to pay taxes to their respective Governments.
Iberia’s board of directors in Madrid agreed the terms of the deal yesterday and BA’s directors signed the deal last night, ending 16 months of talks over who should run the combined airline and how much shareholders should own. A holding company will be set up and the two airlines will continue to operate as separate entities within it.
Passengers are unlikely to notice much difference initially but integration could mean Spanish crew and pilots working on BA flights and new menus designed to appeal to Spanish and British tastes.
The most significant impact will be financial as the larger company will be able to strike better deals when buying fuel, aircraft and other supplies.
BA lost £292 million in the six months to September 30; Iberia lost £224 million in the first half of the year and today reported a further loss of €16.4 million (£14.7 million) in the third quarter.
Iberia’s operating revenues fell by 19.6 per cent in the three months to September 30. In a statement the airline said: “The airline industry in Spain is facing exceptionally difficult circumstances.”
“This is a deal that is driven by what is needed in the boardroom rather than on the runway,” Doug McVitie, the managing director of Arran Aerospace, an aviation consultancy, said. “This deal allows BA and Iberia to lean on each other’s shoulders during these tough times.”
The combined airline will also hope to generate additional revenue by offering passengers an expanded route network. BA is strong on transatlantic routes from Heathrow and on routes to Asia, while Iberia is strong on routes to Africa and South America.
BA shareholders will own 56 per cent of the new group and Iberia will have the rest.
The combined airline will be worth £4.5 billion, just behind Lufthansa, which is Europe’s most valuable airline at £4.6 billion.
Mr Walsh said: “This will be good for our passengers, as it will open 59 new destinations for BA customers and 96 new destinations for Iberia. This deal confirms BA as one of Europe’s, and the world’s, leading airlines.”
He said today: "This move is all about the future and I am absolutely delighted that we have reached this stage.
“We are creating a new, strong European airline and this is good news for BA, our customers and our shareholders. We recognise we have strong brands and these will be retained. The BA brand will continue to be a very strong brand."
Gert Zonneveld, aviation analyst at Panmure Gordon, the firm of stockbrokers, said: “Any savings produced by this merger will be welcome, even if it is just a penny. If Willie Walsh has a real go at it, there is a fair chance of getting decent savings out of this.”
Graham Brady, a Conservative member of the Treasury Select Committee, said: “The decision of an iconic British company to relocate its headquarters to Spain is a graphic illustration of how Labour’s high-tax, high-regulation regime is standing in the way of economic recovery.”
Many Spaniards see the merger as a bad move. One critic, who called himself Armageddon, wrote on the website of El Pais newspaper: “British Airways is totally ruined. Only the Titanic has more holes than the pension plan of BA.”
Jose Manuel Rita Moure, writing to the same newspaper, said: “We continue losing our principal business values. We are going to end up as doormen for the worst there is."
timesonline
BA merger faces failure over £2.6bn pensions debt
The Spanish airline Iberia could still walk away from a merger deal with British Airways to create Europe’s largest airline if the British flag carrier is unable to come to an agreement with its pension trustees over how to fund its £2.6 billion pension deficit.
The two airlines finally reached an agreement to merge yesterday after 16 months of discussions.
However, under the terms of the deal, Iberia may terminate the merger if “the outcome of the discussions between British Airways and its pension trustees is not, in Iberia's reasonable opinion, satisfactory because it is materially detrimental to the economic premises of the proposed merger”.
BA is currently valued at £2.6 billion — exactly the same value as the pension deficit.
If Iberia pulls out it will have to pay BA a break fee of €20 million (£18 million). BA and Iberia have also agreed that the Spanish flag carrier will not provide any cash or guarantees to fund the British pension schemes.
The deadline for BA’s discussions with the pension trustees is the end of June next year, although the two carriers hope to reach a definitive merger agreement in the first quarter of 2010.
A spokesperson for BA said that timescales were “still being worked out”.
Shares in BA continued to rise in early trading this morning, up 4.65 per cent at 225p, while Iberia's stock increased by 3.15 per cent to €2.29.
The deal to create Europe’s largest airline by merging the two loss-making companies is expected to set off another round of cost-cutting at both to save £360 million a year.
Willie Walsh, chief executive of BA, who will retain the same position at the merged company, admitted this morning that there would be job cuts. He has already stripped £400 million of costs from the business and 4,900 jobs will go by next March.
Jobs are likely to be lost at head offices in London and Madrid, in maintenance facilities and in the sales forces.
The combined airline will carry 62 million passengers a year, although Ryanair, the budget company, is expected to exceed that figure this year.
BA will be incorporated in Madrid and chaired by a Spaniard, Antonio Vázquez, while the headquarters and stock market listing will be in London. Martin Broughton, currently chairman of BA, will become the deputy chairman of the merged business.
BA and Iberia will continue to pay taxes to their respective Governments.
Iberia’s board of directors in Madrid agreed the terms of the deal yesterday and BA’s directors signed the deal last night, ending 16 months of talks over who should run the combined airline and how much shareholders should own. A holding company will be set up and the two airlines will continue to operate as separate entities within it.
Passengers are unlikely to notice much difference initially but integration could mean Spanish crew and pilots working on BA flights and new menus designed to appeal to Spanish and British tastes.
The most significant impact will be financial as the larger company will be able to strike better deals when buying fuel, aircraft and other supplies.
BA lost £292 million in the six months to September 30; Iberia lost £224 million in the first half of the year and today reported a further loss of €16.4 million (£14.7 million) in the third quarter.
Iberia’s operating revenues fell by 19.6 per cent in the three months to September 30. In a statement the airline said: “The airline industry in Spain is facing exceptionally difficult circumstances.”
“This is a deal that is driven by what is needed in the boardroom rather than on the runway,” Doug McVitie, the managing director of Arran Aerospace, an aviation consultancy, said. “This deal allows BA and Iberia to lean on each other’s shoulders during these tough times.”
The combined airline will also hope to generate additional revenue by offering passengers an expanded route network. BA is strong on transatlantic routes from Heathrow and on routes to Asia, while Iberia is strong on routes to Africa and South America.
BA shareholders will own 56 per cent of the new group and Iberia will have the rest.
The combined airline will be worth £4.5 billion, just behind Lufthansa, which is Europe’s most valuable airline at £4.6 billion.
Mr Walsh said: “This will be good for our passengers, as it will open 59 new destinations for BA customers and 96 new destinations for Iberia. This deal confirms BA as one of Europe’s, and the world’s, leading airlines.”
He said today: "This move is all about the future and I am absolutely delighted that we have reached this stage.
“We are creating a new, strong European airline and this is good news for BA, our customers and our shareholders. We recognise we have strong brands and these will be retained. The BA brand will continue to be a very strong brand."
Gert Zonneveld, aviation analyst at Panmure Gordon, the firm of stockbrokers, said: “Any savings produced by this merger will be welcome, even if it is just a penny. If Willie Walsh has a real go at it, there is a fair chance of getting decent savings out of this.”
Graham Brady, a Conservative member of the Treasury Select Committee, said: “The decision of an iconic British company to relocate its headquarters to Spain is a graphic illustration of how Labour’s high-tax, high-regulation regime is standing in the way of economic recovery.”
Many Spaniards see the merger as a bad move. One critic, who called himself Armageddon, wrote on the website of El Pais newspaper: “British Airways is totally ruined. Only the Titanic has more holes than the pension plan of BA.”
Jose Manuel Rita Moure, writing to the same newspaper, said: “We continue losing our principal business values. We are going to end up as doormen for the worst there is."
timesonline
