Just read this WSJ article that appeared in my inbox this morning.
Two major European flagship airlines agreed to merge. One, British Airways (BA), is a major global player in the industry, serving 150 destinations in some 75 countries from hubs at London’s Heathrow and Gatwick airports. The other, Iberia, is Spain’s #1 airline, flying to 100 destinations in 40 countries with a fleet of 200 aircraft. The merger talks provoked seismic headlines within the industry. The deal will surely alter the landscape of the aviation industry for years to come. So what’s my problem?
This agreement has been going on for two years now.
Look, mergers in the airline industry are agonizingly slow. Unions must be appeased, international governments assuaged. But this is getting slightly ridiculous. Both parties began initial talks to merge in July 2008. The recession slowed things down, and then they announced again in November 2009 that they would, well, merge. Now the WSJ article states that both airlines said Thursday “they have signed a definite merger agreement.”
Sigh. Why re-announce this announcement now? It must be due to the rumblings that US Airways and UAL Corporation, the parent company for United Airlines, are discussing a merger as well. Both potential deals come as airlines around the globe are looking to consolidate in the midst of one of the bleakest periods the industry has ever seen.
Mergers offer some enticing possibilities. Combining with other airlines allows carriers to achieve economies of scale, in everything from administrative costs to fuel purchasing. It also makes it more optimal to create global flight networks that are less affected by regional economic downturns — the key phrase there being less affected.
So what’s in it for BA and Iberia? Once the deal goes through (ha!) BA shareholders will own 56% and Iberia shareholders will hold 44% of the newly combined entity, a company called International Consolidated Airlines Group SA with a primary listing in London as well as in Spain. Each carrier is expected to retain its brand and hub. The new entity would join Air France-KLM and Deutsche Lufthansa AG as an operator of multiple national flag carriers, and the deal would essentially create the world’s third-largest airline by revenue.
Not bad. So it’s time to wrap this merger up, fellas. Maybe we can have this thing done by the lucrative summer vacation season?
“…the merger isn’t expected to be completed until the end of this year and could still fail because of BA’s £3.7 billion ($5.64 billion) pension deficit.”
Well, keep trying guys. The editors at Hoover’s are waiting patiently to write more about the transaction, whenever it finally occurs.