BA, Iberia say deal reached on basis for merger

By MEERA SELVA and JANE WARDELL

LONDON

British Airways PLC and Spanish airline Iberia SA announced late Thursday they have reached an agreement for a planned merger between the two companies.

Under the agreement, British Airways shareholders would hold 55 percent of the new company, referred to in a joint statement as TopCo, which would be registered in Spain but have its financial headquarters in London. Iberia's shareholders would have 45 percent.

The company would be listed on the London Stock Exchange, and may have a secondary listing in Madrid.

The two companies said in the statement that they expect the merger to produce savings of around euro400 million ($594 million) after five years.

The merger should be completed in late 2010, but would still need approval of shareholders and regulators, the carriers said.

Willie Walsh, British Airways chief executive, said: "The merger will create a strong European airline well able to compete in the 21st century. Both airlines will retain their brands and heritage while achieving significant synergies as a combined force."

The two companies last year posted revenues that together totaled around euro15 billion.

The new combined group would have 419 aircraft and fly to 205 destinations.

The announcement ended days of feverish speculation that has sent the companies' shares soaring in recent days. The pair began talks about a possible tie-up back in July 2008 in response to slowing passenger demand, but those discussions faltered over several issues including BA's large pension fund deficit and the proposed structure of a merged company.

BA, the third biggest airline in Europe, last week reported a net loss of 208 million pounds ($346 million) for the six months ending in September, its first-ever loss in the period, as revenue fell 13.7 percent.

The airline has begun a drastic cost-cutting drive, axing meal services on short-haul flights and announcing sweeping job cuts and pay curbs that have raised the threat of strike action by its 14,000 cabin crew. The airline has already slashed 2,500 positions between June 2008 and March 2009 and plans to cut another 1,700, freeze pay for current staff and offer lower wages for new employees.

Iberia, meanwhile, is also cutting costs after losing euro165.4 million in the first half of the year. Its board last month approved a plan to freeze hiring through 2012, freeze salaries for all employees in 2010 and 2011 and offer early retirement for flight attendants over the age of 55.

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Associated Press Writer Daniel Woolls in Madrid contributed to this report.