Darkening skies
FT.com
More airlines have gone bust this year than after 9/11. International passenger growth keeps slowing, according to figures from Iata, the airlines’ association, although it has not plunged to the negative growth seen after the terrorist attacks – yet. The falling oil price, despite the strengthening dollar, provides the only consolation for an industry bracing itself for hard months ahead.
The spillover from the financial crisis is altering the landscape. Just look at British Airways: when its all-share merger with Spain’s Iberia was announced at the end of July, the expectation was that the Spanish would get around 33 per cent of the new entity. That was a reflection of both market capitalisation and traffic and revenue. But the crisis is shifting the balance of power. The premium passenger traffic that BA has been banking on fell 8.6 per cent in September and the forecast for the next few months is gloomy. Add to this BA’s massive pension deficit, which has been widening by the day and affects its valuation. BA’s woes have emboldened the Spanish. Caja Madrid, Iberia’s largest investor, is pushing for a 40 per cent stake in the new entity. A few weeks down the line, it could well demand a better ratio, even a merger of equals. BA’s shares have been falling considerably faster than Iberia’s, pushing the two companies’ market capitalisations towards convergence.
The Spanish airline has taken advantage of the low price to more than double its stake in BA to 7.3 per cent and is poised to increase it further. The positive view is that Iberia is buying BA shares to underline its commitment to the merger. Another is that Iberia might be sharpening its knives to launch a takeover of BA itself. Iata insists that mergers are the way forward in a difficult market. But it seems that as far as BA and Iberia is concerned, take-off is delayed.