The UK and Spain's flag carriers, British Airways and Iberia respectively, have entered merger negotiations. A melding of both airlines could rival global leader Air France-KLM.
British Airways and Spanish national carrier Iberia said Tuesday they are holding talks on a multi-billion-dollar merger as the aviation sector battles soaring fuel prices.
"British Airways and Iberia are holding talks with a view to an all-share merger between the two companies. The negotiations are supported unanimously by the boards of both companies," the companies said in a statement.
Shares in BA and Iberia spiked in London and Madrid in reaction to the announcement.
The two groups have a combined stock market capitalisation of about 8.6 billion dollars (5.5 billion euros) according to AFP calculations using current share price values.
A tie-up would rival Air France-KLM, the world's biggest airline that was born in 2004 after the merger of France's national carrier and Dutch peer KLM.
The dramatic merger plan comes as the world's biggest airlines face commercial headwinds from record high oil prices, which ramp up jet fuel costs, and weak consumer spending that dampens demand for air travel.
"The aviation landscape is changing and airline consolidation is long overdue," BA chief executive Willie Walsh said in the release.
"The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.
"We've had a successful relationship with Iberia for a decade and are confident that both companies' shareholders would benefit from the proposed tie-up," Walsh added.
BA, which holds 13.15 percent of Iberia, had abandoned takeover plans for the carrier in November last year after a Spanish bank built up a substantial blocking position.
Iberia, the market leader on flights between Europe and Latin America, also revealed Tuesday that it had bought a 2.99 percent holding in British Airways and has the option to buy another 6.99 percent.
"The airlines' shareholdings reinforce the mutual interest of both companies in each other," said the joint statement.
"It is expected that it will take several months to reach agreement on the terms of the merger and to finalise a joint business and integration plan for the combined group."
Under the tentative proposals, the British Airways and Iberia brands would both be retained.
Following the news, BA's share price rose 7.46 percent to 252 pence, while Iberia shares jumped 12.8 percent to 1.85 euros as trading resumed in Madrid after a temporary suspension.
"A merger would be good news for our customers and enhance our existing relationship," Iberia chairman and chief executive Fernando Conte said in the statement.
"We've worked together for nearly 10 years and a tie-up would build on that success." He added that it would also strengthen the Oneworld alliance -- a network of ten airlines working together to cut costs -- and strengthen Madrid's position as the European gateway to Latin America.
Oneworld also includes American Airlines, Cathay Pacific, Finnair, Japan Airlines, LAN, Malev, Qantas and Royal Jordanian.
Soaring fuel costs, coupled with the credit crunch, have caused the collapse of 25 carriers since the start of 2008. Only airlines owned by oil-producing Gulf states, such as Emirates, appear immune to the aviation downturn.
BA, which unveils first-quarter results on Friday, is pushing ahead with its OpenSkies transatlantic airline amid reports that it also plans to slash short-haul flights because soaring fuel costs.
OpenSkies, which was created to take advantage of more flexible rules on carriers across the Atlantic, said Monday it would launch a new daily service between Amsterdam and New York.
The carrier, a wholly-owned subsidiary of British Airways, was launched in June as a "premium" airline initially on the New York-Paris route.
OpenSkies claims to be the first airline created on the basis of the US-European Union open-skies pact that allows carriers increased access to each other's markets.
Date created : 2008-07-29