The $8 billion merger proposal between Iberia and British Airways has finally gotten the thumbs up from regulators. Regulatory approval was the only thing standing in the way of the deal. The approval however comes after the Spanish airline, Iberia, approved a fresh funding arrangement for British Airway’s multibillion-pound pension deficit.
Under the terms of the agreement, Iberia had the right to walk away from the deal. The merger arrangement is expected to result in the third biggest airline. The right to walk away would have seen Iberia leave if didn’t like the terms of the overhaul that British Airways reached with trustees of the pension scheme in June. However, the Spanish firm undertook its decision after a board meeting in Madrid.
The decision was immediately welcomed by British Airways. The UK carrier has witnessed endless industrial unrest after it announced it will be cutting jobs and reforming working practices. A British Airways spokesman said the merger plan is now firmly underway. The deal will be completed by the end of the year, with shareholder approval expected in November.
When the deal is completed, British Airways investors will control 56% of the combined entity, named International Airlines Group (IAG), whilst Iberia shareholders will control 44% of the merged entity. BA’s chief executive, Willie Walsh earlier this month revealed he had drawn up a list of 12 airlines for potential acquisition once the merger is concluded. The acquisition spree is meant to expand BA’s offering in Europe, as the aviation industry witnesses continued consolidation.
The twelve potential acquisition targets are a result of talks between Walsh and his Iberia counterpart, Antonio Vazquez. The two firms are keen on ensuring International Airlines Group is at the forefront of the next round of industry consolidation. The takeover targets include Qantas, South African Airways, Finnair and at least one low cost operator.
If all goes to plan, Walsh will become chief executive of IAG and Vazquez is to be chairman. According to Walsh, the two firms’ want to be attractive to like-minded airlines, especially those that believe in the global consolidation.
He dismissed concern that global consolidation would be bad for the travelling public, saying that the various mergers that have taken place to date have not hurt competition. The Unite trade union has threatened to escalate the cabin crew dispute at BA to a company-wide confrontation by consulting 30,000 BA staff over a “co-ordinated response” to allegations of union-busting.