Merger To Create World's Third Largest Airline <


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Merger To Create World's Third Largest Airline

By Bill Goldston

April 9, 2010 - British Airways and Iberia have taken a further step towards creating a new leading European airline group by signing their merger agreement. The merger between the two carriers will create the world's third-largest airline in terms of revenue. The terms of the merger agreement are consistent with the binding memorandum of understanding (MOU) signed between the two airlines in November 2009.

The merger is expected to be completed in late 2010 and will benefit both airlines’ shareholders, customers and employees. The new company will be one of the world’s largest airline groups with 408 aircraft flying to 200 destinations and carrying more than 58 million passengers per year. It has been structured so that it can take advantage of further consolidation in the global aviation industry.

In March British Airways and Iberia Airlines' 5,000 pilots indicated they welcomed the merging of their two airlines but warned that they will be on their guard against one pilot group being played off against the other.

The new group will generate annual synergies of approximately €400 million by the fifth year of the merger. It will create a new holding company called International Consolidated Airlines Group SA which will be known as International Airlines Group. Both airlines will retain their current operations and operate under their individual brands – British Airways and Iberia.

As detailed in the MOU, under the terms of the proposed merger, British Airways shareholders will receive one new ordinary share in International Airlines Group for every existing British Airways ordinary share held by them and Iberia shareholders will receive 1.0205 new ordinary shares for every existing Iberia ordinary share held by them.

The treasury shares held by Iberia and the cross-shareholdings held by British Airways and Iberia in each other will not be eligible for International Airlines Group shares. As part of the transaction it is expected that the treasury shares will be cancelled and the cross share holdings will remain at a subsidiary level.

International Airlines Group will have a premium listing in the UK and its shares will be traded on the main market of the London Stock Exchange and it is envisaged they will be included in FTSE’s UK Index Series. In addition, the shares of International Airlines Group will be traded on the Spanish stock exchanges, through the Spanish Stock Exchanges Interconnection System (Mercado Continuo Español).


Since signing the MOU, the airlines have refined the synergies and confirmed the principles of how the organization will be structured. They have also received regulatory confirmation from the UK and Spanish civil aviation authorities to ensure that the ownership and governance structure of both companies would permit the retention of the existing national route licenses and traffic rights.

Antonio Vazquez, Iberia’s chairman and chief executive, said: “This is an important step in the process towards creating one of the world’s leading global airlines that will be better equipped to compete with other major airlines and participate in future industry consolidation. We look forward to concluding the deal before the year end.”

Willie Walsh, British Airways chief executive, said: “The merged company will provide customers with a larger combined network. It will also have greater potential for further growth by optimizing the dual hubs of London and Madrid and providing continued investment in new products and services.”

The completion of the merger is subject to regulatory approval from the relevant competition authorities including the European Commission and approval by both British Airways and Iberia shareholders. As announced in the MOU, Iberia will be entitled to terminate the merger agreement if the pension recovery plan agreed 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. British Airways and Iberia expect to present the transaction for shareholder approval in November 2010 with completion expected to occur approximately one month later.

The transaction will be implemented through a series of steps including a transfer of the Iberia business to a new Spanish subsidiary; the insertion of a new British Airways holding company via a UK court approved scheme of arrangement and the merger of Iberia with the new British Airways holding company. As such, the transaction will be subject to approval by both Iberia and British Airways shareholders at general meetings as well as by British Airways shareholders in relation to the scheme of arrangement. It is expected that the relevant shareholder meetings will be held in November 2010.

This announcement is for information purposes only and does not constitute, or form part of, any offer or invitation to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or issue, or any solicitation of any offer to sell, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security in the capital of British Airways, Iberia or International Consolidated Airlines Group in any jurisdiction.

Securities may not be offered or sold in the United States absent registration or an exemption from registration and any public offering of securities to be made in the United States will be made by means of a prospectus that will contain detailed information, including financial statements.

Neither this announcement nor any copy of it may be taken or transmitted, directly or indirectly, into Australia, Canada, Japan, New Zealand or the Republic of South Africa or any other jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. Any failure to comply with this restriction may constitute a violation of the securities laws of Australia, Canada, Japan, New Zealand or the Republic of South Africa. The distribution of this announcement in other jurisdictions may be restricted by law and persons into who possession this announcement comes should inform them about, and observe any such restrictions.

UBS is acting as financial adviser to British Airways and no one else in connection with the proposed merger and will not be responsible to anyone other than British Airways for providing the protections afforded to the clients of UBS nor for providing advice in relation to the proposed merger or any other matter referred to herein.

Morgan Stanley are acting as financial advisers to Iberia and no one else in connection with the proposed merger and will not be responsible to anyone other than Iberia for providing the protections afforded to the clients of Morgan Stanley nor for providing advice in relation to the proposed merger or any other matter referred to herein.

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