BA/AA/CO/IB Merger/cooperation (Merged)

[martin102]

from BA press website today

British Airways is exploring opportunities for co-operation with American Airlines and Continental Airlines.
Further details will be announced when appropriate.
ends

[busmonkey]

http://www.reuters.com/article/businessNews/idUSL3075465520080430?feedType=RSS&feedName=businessNews&rpc=23&sp=true


With open skies taking affect worldwide, is this the possible future of "global mergers"?

[markrl]

"British Airways is exploring opportunities for co-operation with American Airlines and Continental Airlines. Further details will be announced when appropriate"

I suppose the translation for this is that failing British Airways PLC is now being stalked by two of its larger foreign competitors who are waiting for the opportunity to launch hostile takeover bids now that the share price has crashed following the total shambles of the Terminal 5 launch and other regretable mishaps. BA CEO Willie Walsh will be asked to stay on following the acquisition to assist with disposal of the remaining assets, handle the negative PR following the anticipated large scale redundancies and assist with the orderly transfer of the former airlines routes to American ownership. Regretfully it is not anticipated that the new owners would wish to continue with the British Airways brand which will pass into history along with the similarly branded British Leyland, British Steel Corporation, British Shipbuilders, British Railways and of course British Caledonian. Open Skies will be offered to Michael O' Leary for a nominal fee of £1.

We look forward to your future custom on American Airways Europe ;)

[clipstone1]

well can you imagine....BA's onboard service would then be almost as bad as LH, BMI, SK and all other European and US Star Alliance carriers....yippeee that'll be great :oh:

[wasaspacecadet]

http://www.guardian.co.uk/business/2008/may/01/britishairwaysbusiness.theairlineindustry

It would appear that this can only be about co-operation, as a takeover would require some major policy changes by governments on both sides of the Atlantic.

The line in the Guardian's report is, I think, the most prescient:

The deal is unlikely to involve a full merger with either carrier, which would be blocked by US and EU foreign-ownership laws. But if the three carriers can secure limited immunity from US competition laws, they will be able to offer smoother connections by coordinating schedules and route planning.

Spacey

[atmosphere]

You guys should be happy!! This means you can keep flying till your aged 99 ::}

[PAXboy]

The interesting part of this announcement is the word 'Continental'. For BA to be talking (again) with AA, it's long term partner and One World partner, is no surprise but CO???

One long held view is that the names of the major carriers that will be seen around the globe in the next decade are already known. They are:
One World
Star Alliance
Sky Team
etc.

The recession in the USA is already pushing people together (Delta + NorthWest) and so on. Anti-trust immunity follows in order to retain some kind of airline biz, even though they be international alliances. So, for CO (SkyTeam) to be talking to BA/AA (One World) is most interesting.,

[tristar500]

Heard a whisper yesterday from an LHR based captain that CO and AA were in preliminary / fact-finding talks about a possible merger... Anyone have anything further on this?

[outofsynch]

Only an announcement a couple of weeks ago, by CO saying they felt they were stronger alone, and therefore no longer considering any merger.

[Halfnut]

http://startelegram.typepad.com/sky_talk/2008/05/continental-exe.html

MAY 09, 2008

Continental execs spotted at AA HQ

We got a tip from some of our sources that top Continental Airlines executives were at American Airlines headquarters in Fort Worth today. It's definitely been an interesting couple of weeks over at Amon Carter Boulevard ... and should get even more interesting in the near future.

- Trebor Banstetter

Posted at 09:55 PM in American Airlines

[LCYslicker]

BA has said that it is in discussions with AA and CO, that's all. The media and the stock market have got very excited about this - in my view, unnecessarily. CO is the junior partner in Skyteam (AF/KL/DL/NW have provisional antitrust immunity from the US DoJ to collaborate on fares, etc), so is looking at alternatives. It tried merger discussions with UA, but walked away when it got a better look at UA's finances (it lost over $0.5bn in the March quarter alone). It is entirely logical therefore that it looks at oneworld for a future. That is what these talks are about, in my view. Remember that transatlantic mergers are still completely impossible under the current bilateral system (Chicago Convention, 1944), so BA is not merging with either AA or CO. The Open Skies deal does not (and will not in future) permit transatlantic mergers. This is about CO potentially joining oneworld - no more.

[heli_port]

British Airways is said to be close to seeking clearance from competition authorities for a three-way operational merger with American Airlines (AA) and Iberia.
The deal would allow the companies to combine nearly all aspects of their operations, including sales, purchasing and marketing, leading to lower costs and greater economies of scale. Legal sources in the United States said that a submission to the US Department of Transport was expected as soon as next week.
The operational partnership may also provide a foundation for a full merger of the carriers should foreign ownership rules in the United States and Spain change. BA said two months ago that it was in talks with AA and Continental, another American carrier, about creating an alliance, but Continental has since walked away.
BA and AA have continued their discussions and are believed to have invited Iberia - in which BA has a 13 per cent stake - to be the third member. BA said last night that its talks with AA were continuing but a decision had yet to be made.
If BA and AA do seek regulatory approval to merge their operations, it would be their third attempt, having been blocked by regulators in 1998 and 2001. The authorities in Britain and America were concerned that the
two carriers would have a dominant position on many North Atlantic routes and demanded that the airlines sell Heathrow slots to reduce their traffic.
However, sources familiar with BA's discussions said that the airline was more optimistic of gaining approval this time because of the liberalisation of air travel rules between Europe and the US. In addition, the dire state of the airline sector, which is striving to cope with high fuel prices, may force regulators to accept the deal.
AA lost $328 million (£164.7 million)and Iberia €28.3 million (£22.5 million) in the first quarter of this year. BA has given warning that it may struggle to stay profitable this year.
An analyst said: “There is a lot of pressure on BA and AA to do this deal and cut costs. It's inevitable.” Another added: “Including Iberia makes sense, as it would give the alliance a strong position across both the North and South Atlantic.”
Meanwhile, BA said yesterday that it had bought L'Avion, a French business-class only airline, for £54 million. L'Avion is the last of the survivors of the rush two years ago to launch all-business-class transatlantic services. Silverjet, MaxJet and Eos have all gone out of business.
L'Avion will be merged with BA's new OpenSkies service, which flies from Paris to New York. The purchase price includes L'Avion's £26million in cash and two Boeing 757 aircraft.


BA to seek clearance for AA and Iberia merger - Times Online (http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article4258600.ece)

[clipstone1]

so long as 51% of the ownership of IB and BA remained in the EU there's no other ownership issue only the competition issue.....obviously the other side of the pond ownership is more restrictive than that, but BA could legally merge with IB anyway so long as the competition boys and girls and share holders approved it

so what you think, American would do all transatlantic with BA/IB not flying that way any more?

[caiman27]

RNS Number : 1030A
British Airways PLC
29 July 2008

IBERIA MERGER TALKS
British Airways and Iberia are holding talks with a view to an all-share merger
between the two companies. The negotiations are supported unanimously by the
boards of both companies.


The British Airways and Iberia brands would be retained as part of a combined
group.


Iberia's chairman and chief executive, Fernando Conte, said: "A merger would be
good news for our customers and enhance our existing relationship. We've worked
together for nearly 10 years and a tie-up would build on that success. It would
also strengthen the oneworld alliance and further develop Madrid's position as
the European gateway to Latin America".


British Airways' chief executive, Willie Walsh, said: "The aviation landscape is
changing and airline consolidation is long overdue. The combined balance sheet,
anticipated synergies and network fit between the airlines make a merger an
attractive proposition, particularly in the current economic environment. We've
had a successful relationship with Iberia for a decade and are confident that
both companies' shareholders would benefit from the proposed tie-up".
British Airways acquired a nine per cent shareholding in Iberia in 1999 and has
recently increased its shareholding to 13.15 per cent. Iberia has announced
today that it has recently acquired a 2.99 per cent direct shareholding in
British Airways and financial exposure to a further 6.99 per cent through
contracts for difference linked to British Airways' share price. The airlines'
shareholdings reinforce the mutual interest of both companies in each other.
It is expected that it will take several months to reach agreement on the terms
of the merger and to finalise a joint business and integration plan for the
combined group.
Both parties are confident of securing regulatory approval. The European Union
has already granted British Airways and Iberia approval to co-operate widely.


ends
July 29, 2008 094/LG/08


Notes to Editors

1. The principal shareholders in Iberia (other than British Airways)
include Caja Madrid at 22.99 per cent of Iberia shares and El Corte Ingles at
3.37 per cent.

2. It is expected that there will be a single holding company with a
unified management structure built upon representation from both companies.

3. The existing two companies would be responsible for the day to day
running of their operations.

4. The new holding company is expected to be a member of the FTSE100
and quoted on the Madrid stock exchange.

5. A contract for difference (CFD) is an agreement to exchange the difference in
a share's value between the time a contract is opened and the time it is closed.
Holders of CFDs are financially exposed to the share price but do not own the
shares and therefore have no voting rights. The contract has no fixed expiry
date.

6 It is envisaged that a new company would acquire both British Airways
and Iberia at the same time. Based on the current market capitalisations of
British Airways and Iberia, the UK Panel on Takeovers and Mergers has agreed
that the current intended transaction is not subject to the UK Takeover Code.







This information is provided by RNS

[Spearing Britney]

So where do I find Iberia's pay scales! ;)

[ChocksAwayUK]

I believe that this will have strong repercussions for Spanish ATC and how they will manage their approach/departure priority (queue-jumping) policy.

[Max Tow]

An intriguing part of the press release is the remark that Iberia has
"financial exposure to a further 6.99 per cent" (of BA)
"through contracts for difference linked to British Airways' share price."

First time I've ever heard of a carrier (especially a cash-strapped one) using shareholders' funds for gambling on another's share price. Given the 8pc jump in BA's share price on this announcement, one assumes the bet was laid before the negotiations began (otherwise the CFD provider might be a little upset!)

Perhaps a financial whizz could explain?

Well, I guess the Spanish already have the BAA and an ever increasing proportion of the UK banking sector, so why not BA too!

[Morbid]

Don´t see the logic of it unless the forthcoming retirements of 747-400´s from BA go to IB and they maintain a two tier service level... The IB product has been reduced to that of a LO-co due to its present monopoly on many routes...

IB has sold off just about everything in recent years to make it an attractive proposition to capital venture firms. At the same time its put off fleet renewal plans, stripped out any customer service and erroded brand loyalty.

Suprising that IB is of interest to BA considering;

a) long haul and short haul fleet renewal overdue,
b) MAD-BCN under threat from the AVE high speed train (latest figures show 42% of pax now use this),
c) Spanish government plans to put high speed trains to most of the Iberian peninsula by 2015,
d) Highly unionised and militant Spanish pilots,
e) Spain having the 2nd highest number of low cost flights in Europe
f) Spanish eceonomy heading for meltdown

Theres a whole lot more that I can see thats wrong with the situation and lets be honest. Most travellers from South America only choose Iberia as the alternative is horrendous (IB´s most profitable routes behind MAD-BCN). As soon as the ME carriers expand to SA in force people won´t hub through MAD any more....

Not sure how it is with BA at the moment but IB is not an airline to want to merge with unless you´re going low cost.... Air Lingus MK2???

[Human Factor]

... or unless you want to strengthen your hold over another continent (South America) whilst at the same time reducing costs with economies of scale. Interesting times.

AA next?

[Dysag]

"Latin America is full of potential... and always will be"

[Morbid]

Economies of scale....

Manpower:
Don´t see much scope here for concessions on the Spanish side... Highly unionised. Offices in joint destinations. In Europe certainly possibilities. In SA as well although we´re talking minimal salaries.

Fleet:
Long haul: BA Boeing IB Airbus
Short haul: BA Airbus IB Airbus & MD... possibilities here

SA:
South America... not exactly the continent one would go after if your model is business pax. Look at the number of frequencies weekly between the two.. Not many and not many business pax. Its a very cost sensitive market and very much a Y class operation.


Indeed it is interesting times... I think maybe BA has come to the party late and if you look around Europe any carriers worth merging with, of comparable size, are few and far between.

[Max Tow]

Dysag...I think you're referring to Charles de Gaulle's comment about Brazil?
That old (& doubtless justified) view of S America has been somewhat overtaken by events, I'd suggest. Brazil's GDP alone is now forecast to be 3x that of UK by 2050 (PWc report). In 2007 BA were outcarried by IB in the Europe/Brazil market by over 3 to 1 and have very little presence elsewhere in the continent so the network fit makes sense. Product and culture are something else.
I see that QF's new boss Alan Joyce claims to have made the tea for WW when both were at EI - now there would be an interesting reunion...

[Seat62K]

After two instances of particularly awful customer service from Iberia - including their cancellation of a reservation without any attempt to inform me:eek: - I have a particularly low opinion of Iberia and question the wisdom of BA doing this.

[Max Tow]

Last to the altar gets the ugly sister? Don't despair chaps, it could have been Alitalia!

[Skylion]

............and the fate of the pension schemes??

[WHBM]

Claims for maintaining two separate brands might last for a year or two, then all bets would be off.

Two different mindsets of the investors.

Iberia investors want a huge nationwide operation which sees off all competition, burning through company cash regardless as they do so. They think they are still in the 1960s and that's the way to greatness. Merging with BA allows a greater pile of funds for such empire building, based on Madrid.

BA investors want anything that allows them to sell out to Iberia, or anyone, provided they make 10% on the deal. All the M&A advisers in the City of London will absorb another 10% of the BA value and thus be right behind this. Willie can take a huge payoff and go home to succeed Michael O'Leary, right on plan.

[curi]

Morbid (http://www.pprune.org/forums/members/135068-morbid)
Economies of scale....

Manpower:
Don´t see much scope here for concessions on the Spanish side... Highly unionised. Offices in joint destinations. In Europe certainly possibilities. In SA as well although we´re talking minimal salaries.

Fleet:
Long haul: BA Boeing IB Airbus
Short haul: BA Airbus IB Airbus & MD... possibilities here

SA:
South America... not exactly the continent one would go after if your model is business pax. Look at the number of frequencies weekly between the two.. Not many and not many business pax. Its a very cost sensitive market and very much a Y class operation.


Indeed it is interesting times... I think maybe BA has come to the party late and if you look around Europe any carriers worth merging with, of comparable size, are few and far between.


Iberia, in this moment don´t operate MDs... Now only Airbus fleet.

Good notices of this merge, Iberia don´t find a Asian & African rentable routes and need create new markets... British, will increase his representation in South American.

I compare with Air France & KLM alliance
KLM: 112 planes
Cityhopper: 55 planes
Air France: 256 planes

British Airways: 236 planes
Iberia 126 planes
Air Nostrum (Iberia Reg.) 63 planes
And don´t count the Clickair & Vueling merge, Iberia, will go a great part of control of this...

[Morbid]

Curi,

For IB its a great merger... for BA... not so sure. Realistically BA should be taking over IB BUT Zapatero would step in in the same way as the Endesa fiasco.

IB= Winner
BA= Remains to be seen but I don´t see it too positively...

IB MD80´s ... I can see three on the remote stands at T4 from my office and they´re different from those that were there at the begining of the day.

IF everything goes through I hate to think what the reaction will be from the first BA Executive accounts that use Iberia business class intercontinental or pan european.

[Taildragger67]

Max Tow,

It's called a hedge, not a 'bet'. You can use Contracts for differences (CfD's) to bet (ie. a spread bet) but in this case, Iberia want to lock in a price for that part of the BA stake:

- BA shares price goes up, the CfD goes up, they make money on the CfD which covers the higher price of acquiring the underlying shares;
- BA share price goes down, CfD goes down, loss offsets better purchase price of underlying shares.

Either way you've locked in your effective price.

Indeed it might've been structured with downside protection, but that carries an implicit cost.

One benefit is that there is no stamp duty on the CfD hence if it falls through (eg. due regulatory or shareholder block), they only have to settle the CfD and walk away; so you're getting the economic exposure without the other frictional costs.

Agree with others that BA service sh!ts from a great height on IB. Most BA CC actually appear to give a damn whereas to the bulk of IB CC I've had the misfortune to be on an aircraft with, us paying punters are clearly a nuisance to be dealt with in between chats in the galley...

[Seat62K]

BA customer contact service standards might be better than Iberia's but in my experience BA's service recovery standards can be as abysmal as those of Iberia. For example, both carriers have failed to respond to complaints I put to them.

[curi]

Morbid (http://www.pprune.org/forums/members/135068-morbid);

Iberia will quit MD fleet all in october, for the moment don´t are nothing flying to BCN and in my last visit to la Muñoza was retired 6 MD´s and 3 for Spanair

[point8six]

I blame Basil Fawlty!

[blanza]

the question its not if was going to hapen, the question was when, few months ago tpg, british and other spanish hedge fund tried to buy it but the operation was blockedby a bank, which is one of the share holders of iberia, by the way, will be one of the refence ownwer of the new coorporation,
the first feeling is that can be good for both, we (iberia ) are leader in south america, and still have a great potencial, but have few in the usa and nothig in asia, so probably there are complementary companys, the markets have receive the operation with a 20% increase just today, sure will see further increases, so, good for the company, good for investors. my worries are for the workers, specialy, of course, the pilots, will be good for us...:bored::bored::bored:

[keel beam]

How slots does IB have at LHR?

I am sure there are many combinations of flights/routes that can be mustered with the extra slots.

[Seat62K]

I wonder if BA-Iberia will now have to re-think locating all LHR-Spain flights in Terminal 3.

[SR71]

BA only want IB to trade for bmi when LH acquire them in Dec.

:ok:

[Seat62K]

I heard an amusing item on BBC Radio 4 yesterday: if BA and Iberia merge, when BA loses (sorry, "temporarily misplaces") baggage all you'll get is "manana" (mind you, the last time this happened to me on BA this is exactly what I got).
On a serious note, the "PM" programme also interviewed WW. I got the distinct impression that BA is not currently in negotiations with any other airline. If I understood this correctly (I wasn't really paying much attention!) does this mean the three-way BA/Iberia/American merger is now on the back burner? Does anyone know?

[Muizenberg]

Despite the fact that UA-CO-US-AF-SK-BD-OS-TP-LH; and
NW-DL-AF-KL would have unfair transatlantic market share in FRA, CDG, AMS, CPH...the obsession with LHR continues. Believe the proposed Star anti-immunity trust would encompass over 85% over transatlantic departures from FRA...

Now BA-AA-IB would have nowwhere near that at LHR, but parties on both sides of the atlantic deem it necessary to put restrictions on LHR and not other European hubs.

Maybe AA has been taken out of the equation for the time being (as well as their financial position being less than favourable).

Maybe Finnair will be the new partner in the threesome?? Stranger things have happened.

[Skipness One Echo]

I wonder if BA-Iberia will now have to re-think locating all LHR-Spain flights in Terminal 3.

One has to wonder if this was always the plan, with the B757s concerned earmarked for the astonishing triumph that will be "Open Skies" *cough*.

[apaddyinuk]

I am rather amazed at some of the negative comments being made in here. As an employee of BA I am no less cynical then anyone else about management decisions but I must admit that as a business graduate I think it is a perfect fit.

Consolidation is going to happen one way or the other however I do not believe it is the answer to the current obstacles facing the industry at the moment. However BA and IBERIA are a perfect fit. They have similiar fleet sizes, similiar passenger levels and both are profitable. However BA have North America and Asia nailed whereas Iberia have South America nailed. Also both are perfectly placed to operate a more robust network of hubs then even KLM and AF.

I personally hope that this does not spell the end of BA's relatively large presense at its current African destinations (although not too bothered about south America). I feel the greatest problem with this merger would what I personally consider the great difference in customer service. I have flown IB countless times throughout the years and although consistent, they are consistent at the negatives rather then the positives. At least with BA you know where you stand! LOL!

[BAFQTV]

I can only agree with apaddyinuk regarding service levels. IB have been pushing their product downmarket for years and this may not fit well with BA's model. However their product is undoubtably succesful and at times like these, that is what matters.

[Globaliser]

I feel the greatest problem with this merger would what I personally consider the great difference in customer service.This is what I find most baffling about this as well. However much BA tries to keep the IB brand separate, ownership will inevitably link IB to BA. At present, you can look at IB service levels, shrug your shoulders, and write it off as an exception to the quality generally found across oneworld. After the merger, it really won't be that easy.

[raffele]

From the BBC (http://news.bbc.co.uk/1/hi/business/7539554.stm):


"BA close to American alliance

BA says talks with American Airlines are nearing a conclusion. British Airways says it is hopeful of agreeing a tie-up with its largest US rival American Airlines within weeks.

The talks are taking place alongside negotiations between BA and the Spanish airline Iberia about a possible merger.

With aviation fuel prices at record levels and spending on air travel slowing, airlines are looking for ways to cut costs.

BA suffered an 88% drop in profits between April and June and said the industry faced its worst ever period.

It also said it would cut 3% of flights this winter to reduce overheads.
British Airways and American Airlines already work together as partners in the One World alliance which lets member airlines share flight capacity and airport facilities.

But it is understood that, if agreed, a new deal would see them work much more closely to try to cut costs in areas such as technology, ticketing and administration.

According to the BBC's business reporter Joe Lynam, British Airways is also hoping to secure its status as a global airline well into the future.

Any deal between BA and AA would be subject to regulatory scrutiny.

The two airlines have failed in the past to gain immunity from US competition laws for a tie-up, but British Airways believes that relaxations in regulations under the Open Skies agreement may make this more likely.

Rival Virgin Atlantic has said it would oppose any joint venture between the two transatlantic carriers, saying it would create "a dominant mega-power" on routes between Europe and the United States."

[411A]

Rival Virgin Atlantic has said it would oppose any joint venture between the two transatlantic carriers, saying it would create "a dominant mega-power" on routes between Europe and the United States."

Rather than 'oppose', perhaps the bearded one had better get cracking and find an alliance of his own, for Virgin...:rolleyes:

[Dan Air 87]

Oh great. Haven't we been down this road before? If it was to come off wouldn't it enable BA/AA/IB to charge what they like on their routes and sod the passenger?

I'm going to defect and ask my travel team if I can start using Lufthansa!

[AirLCY]

Why should BA/IB/AA tie up be any different to AF/KL/DL/NW??

It's all Europe and American tie ups, so BA/AA/IB should be allowed to do this if all carriers are to be treated the same.

[BerksFlyer]

Dan Air 87,

BA/IB/AA would have less of a majority over major routes than AF/KL/NW/DL. I don't see the problem with this merger, the latter was approved and if it's blocked then there is a serious issue with fairness of competition.

As for Lufthansa, they have a much bigger majority at Frankfurt than BA do at LHR, yet of course only BA shall be criticised so that point is invalid.

When Richard Branson starts throwing his toys out of the pram, he will be shunned because he hasn't got a foot to stand on anymore with the revelation of open skies.

[keel beam]

"I believe that this will have strong repercussions for Spanish ATC and how they will manage their approach/departure priority (queue-jumping) policy."

Perhaps BA should take over Alitalia as well:eek: