BA-Iberia must fast-track reality flight

May 12, 2009

alex-smith— Alexander Smith is a Reuters columnist. The opinions expressed are his own —

Anglo-Spanish dealmaking has a chequered recent history — look no further than Ferrovial’s disastrous takeover of airports operator BAA. But this shouldn’t put British Airways and Iberia off fast tracking their planned tie-up to help stem losses.

Although Iberia is still making positive noises about the merger — despite giving a dire outlook for 2009 before predicting a return to profitability in 2010 — there have been dark mutterings in Madrid about any deal being postponed until September at the earliest.

Financial uncertainty, market volatility and a power struggle for control of Iberia’s biggest shareholder — Spanish savings bank Caja Madrid — are all cited as reasons for the apparent holding pattern.

It has been a lengthy courtship since the two airlines first announced they were in talks last July. Now they need to crank things up if the impact of the economic downturn is not going to cause further long-term damage to the businesses of both companies. Iberia sees a loss for the full year after reporting a worse-than-expected 147.3 million euro ($201 million) operating loss for the first half of the year.

BA’s CEO Willie Walsh said in March that the airlines had resolved issues such as BA’s pension deficit and the ownership split between them, as well as who will fill the roles of chairman and chief executive. Walsh said at the time that the main sticking point was the level of financial control to be given to the “topco” — the proposed parent company that will control the respective brands and routes.

Walsh and Iberia Chairman Fernando Conte must thrash this out quickly if they are going to put BA and Iberia in a stronger position, with a broader combined network, to benefit from any recovery in the world economy.

With an estimated 400 million pounds ($607 million) of combined cost savings up for grabs in the middle of a major economic downturn, BA and Iberia must turn their plans into reality. Otherwise they risk becoming nothing more than a flight of fantasy.

— At the time of publication Alexander Smith did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. —
(Editing by David Evans)

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