British Airways, Iberia sign merger agreement

Iberia Líneas Aéreas de España SA and British Airways have signed a definite merger agreement.

The merged company will be called International Airline Group (IAG). 

The deal is expected to complete by the end of this year. IAG will then be the name of the group whose shares will be traded in both London and Madrid. BA and Iberia would keep their separate brands and identities.

The deal, which would create Europe’s third-largest airline by revenue, is expected to generate annual synergies of €400 million ($534 million) starting from the end of the fifth year after the merger is finalised. However, 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 ($5.6 billion) pension deficit. Iberia has retained the right to walk away from a deal at a cost of €20 million if it feels that BA’s final plan for reducing the deficit would hurt the combined airline financially, reported Dow Jones. 

Shareholders in BA would receive one new share of (IAG) for each existing share they hold in the British carrier, while Iberia holders would get 1.0205 shares of the new holding company for each Iberia share they currently hold.

BA and Iberia are already moving towards a transatlantic tie-up with American Airlines. The three have applied for permission to share revenues, costs and co-ordinate flight schedules on transatlantic routes. 

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