Negotiations between British Airways and Iberia that had been continuing since July 2008 came to a close as the merger agreement was finally signed by both the airline companies.
As per the deal, a newly formed holding company International Airlines Group (IAG) will own both airlines although the brands and their present operations would be controlled by the airlines individually. Chief Executive of BA Willie Walsh will take over the corresponding position at IAG whereas his counterpart in Iberia, Antonio Vasquez, will become the chairman of IAG. BA shareholders are entitled to one IAG share for every BA share, whereas Iberia shareholders are entitled to 1.0205 shares for every Iberia share, according to the deal. As a result, BA shareholders will own a 55 percent stake in the company with Iberia shareholders owning 45 percent. The new company will be listed in London and taxed in Spain.
The merger will help BA in becoming more competitive with other European rivals such as Air France-KLM and Lufthansa with IAG owning 408 planes with operations to 200 destinations worldwide and annual passenger traffic of 58 million. The merger will also fuel the company’s growth and enable it to invest in newer products and services. However, cost-cutting remains the main motive of the deal with the new company estimated to save 400 million Euros ($ 350 million) annually by its fifth year.
The merger has been finalized after an 18-month long negotiation over IAG’s share prices that resulted in a MoU being signed in November last year.
The deal has been cleared by authorities in civil aviation in Britain and Spain, but it awaiting clearance from competition authorities in Europe. The deal will then be put to vote in front of shareholders in Novembers and will become effective from December onwards.
The deal is important for BA’s survival in the increasingly competitive aviation industry. The airline is planning to enter into a deal with American Airlines, which is being strongly opposed by Virgin Atlantic.
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