Tourism Industry News

BA and Iberia merger talks are idling on the tarmac

01/04/2009 13:37

planeMerger talks between British Airways and Iberia, the Spanish flag carrier, are making little progress, despite recent assurances from both sides that a deal was imminent.


Deal insiders in both London and Madrid have confirmed that momentum has all but stalled and at least a dozen problems remain to be solved. The airlines started merger talks last August in response to a severe reduction in passenger numbers.


Further evidence of this downturn emerged over the weekend when BA confirmed that it had parked two Boeing 747 jets at Cardiff airport. The jumbos, worth more than £140 million each, have had their engines covered and doors sealed as the airline awaits for passenger numbers to pick up.


BA and Iberia are unlikely to agree a deal soon and one insider suggested that it might take until the summer. The lack of progress is at odds with public statements made by the companies. Fernando Conte, the chief executive of Iberia, said recently that this month would be decisive for the merger and many analysts had expected the Iberia board to agree terms last week. This did not happen.


Willie Walsh, the chief executive of BA, told investors at the start of the month that the one remaining sticking point was determining financial control of the parent company. Management positions, the location of the company's headquarters, BA's pension fund deficit and the ownership split between the two sets of shareholders had all been agreed, BA said.


However, people close to the talks insist that the outstanding problems are far more numerous than Mr Walsh and Mr Conte have revealed so far. There are understood to be at least a dozen issues to be resolved, including BA's £2.1 billion pension deficit and the ownership split.


When the deal was announced, BA's shareholders would have owned nearly 70 per cent of the combined group, based on the respective market capitalisations of the airlines.


This has fallen substantially as BA's share price has collapsed and speculation in Spain has suggested that the deal will be done at a split of 55-45 in BA's favour.


BA, which declined to comment yesterday on the progress of its talks with Iberia, added that it had parked the 747s at Cardiff because that was where its maintenance and repair facility is located. This will allow the aircraft to be brought back into service quickly when needed.


Regional airports in the UK have become temporary homes to numerous parked aircraft in recent months as airlines have cut capacity or gone out of business. Aircraft belonging to XL, the charter airline that went bust last year, were parked for months at Gatwick and other airports until they were sold.


Most European-owned aircraft that are taken out of service for a long period are taken to Spain or Portugal because the arid climate there does less damage to the airframes. Extremely long storage is done at desert graveyards in the United States.


The International Bureau of Aviation, a consultancy firm, said that the number of parked single-aisle airliners had increased by nearly 500 since last year. It estimates that 1,867 narrow-body and 514 widebody jets have been mothballed.


Resting in peace

Business is booming for aircraft graveyards in the United States. Some facilities have reported a 25 per cent increase in the number of mothballed airliners since the start of the year and they expect a further 25 per cent rise by summer. The biggest jump in such aircraft has been in the 121 to 200-seat category. Typically, the “boneyards” are located in dry areas where the climate will not eat away at airframes. Arizona and California have the largest such facilities in the world, but Morocco is said to be looking at opening a site to cater to European airlines that want to park aircraft closer to home.






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