It is expected that the boards of directors of both Iberia and British Airways will approve the final plans for a merger between the two companies. If the merger goes ahead as expected it will create the third largest European airline.
Sources from both companies have indicated that once the merger plans have been ratified there is no going back. So far merger plans are on schedule following over a year and a half of negotiations between Iberia and British Airways. It is expected that the new company will come into operation on 1st January 2011.
According to the merger plans currently on the table 45% of the new company will be held by Iberia and the other 55% by British Airways. The cost of the merger will be around 350 million euros.
Antonio Vázquez will be the chairman of the merged company while Willie Walsh will act as its managing director. The current chairman of British Airways will hold the post of deputy chairman. It is expected that the operation will generate approximately 400 million euros in addition to the money obtained from the joint operation of routes between Spain and the United Kingdom.
Although the merger plans do no hold any surprises sources close to Iberia’s board of directors have indicated that some of the final details still need to be agreed. One of these could be what to do with the massive deficit in British Airways pension fund currently believed to be 3,700 million pounds (4,100 million euros).
Both companies agreed last November to a fixed penalty of 20 million euros to be included in the final merger plans if either party breaks the agreement.
The shareholders of the new company will be the current shareholders of Iberia and British Airways and the headquarters are expected to be located in Madrid with its operative and financial centre in London although once the merger is completed it is expected that finance will be dealt with in the Spanish headquarters.
The board of directors will consist of 14 – 7 from each company.
The final merger plans will need to be approved by the shareholders of each company as well as the aeronautical authorities in the United Kingdom and Spain in addition to competition organizations which need to give the green light to the admission of shares in the FTSE index.
The provisional name of the new company will be TopCo although other names such as International Airlines Group are being considered. The merged company will have a turnover of around 15,000 million euros, with a fleet of 419 planes flying to 205 destinations all over the world.
Clients of British Airways will have 54 new destinations to choose from 13 of which will be in Latin America while Iberia clients will have access to 98 new destinations.
The new company will try to optimize its ‘hubs’ in order to improve its strategic position and capacity to compete with other large Airlines thanks to the presence of British Airways in North America, Asia, the Pacífic and AfrIca and Iberia’s leadership in Latin America.