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Are Mergers Irrevocable? (BA/IB Performance Gap)  
User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Posted (2 years 1 month 2 weeks 3 days 16 hours ago) and read 6791 times:

http://www.marketwatch.com/story/iag...economy-worsens-2012-08-03-2485442

With the Spanish economy and the wider Eurozone outlook teetering on the abyss what happens if one half of an airline grouping goes bust ?

We have to consider this under the current circumstances despite all the 'we will do everything to save the....' rhetoric.


Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
25 replies: All unread, showing first 25:
 
User currently offlinescbriml From United Kingdom, joined Jul 2003, 12566 posts, RR: 46
Reply 1, posted (2 years 1 month 2 weeks 3 days 16 hours ago) and read 6717 times:
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Well, they're not really merged airlines, are they? They are two separate airlines owned by the same holding company.


Time flies like an arrow, but fruit flies like a banana!
User currently offlinePanHAM From Germany, joined May 2005, 9381 posts, RR: 29
Reply 2, posted (2 years 1 month 2 weeks 3 days 16 hours ago) and read 6616 times:

One is always smarter when leaving city hall. Nothing is irrevocable, it just depends on the costs of reversing matters. Contracts have termination clauses.

However, the way airlines are set up these days is that they do not only serve the country they are based in but the European market at least, if not a global market. BA certaonly does and IB is strong in South America.

The goal should be to consolidate and make use of the synergies. LH is a good example, if not a role model.



E's passed on! That parrot is no more! He has ceased to be! E's expired and gone to meet 'is maker!
User currently offlineTalaier From Spain, joined May 2008, 490 posts, RR: 0
Reply 3, posted (2 years 1 month 2 weeks 3 days 15 hours ago) and read 6536 times:

I very much doubt it. In terms of IAG specifically, IB loses money in short and medium haul and BA is barely breaking even. The problem with this company is costs on the IB side, whic after the redundacies after the summer will be solved and will take the group to a break even point in Q3. Q4 should bring in profits as synergies kick in and the cost base throughout the company is reduced significantly.

User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 4, posted (2 years 1 month 2 weeks 3 days 15 hours ago) and read 6492 times:

Quoting PanHAM (Reply 2):
One is always smarter when leaving city hall. Nothing is irrevocable, it just depends on the costs of reversing matters. Contracts have termination clauses.

However, the way airlines are set up these days is that they do not only serve the country they are based in but the European market at least, if not a global market. BA certaonly does and IB is strong in South America.

Well I hope you're right ! We will have to see how the land lies whatever transpires in the coming months and when the crisis is over.

Quoting PanHAM (Reply 2):
The goal should be to consolidate and make use of the synergies. LH is a good example, if not a role model.

Yes they are an excellent example.



Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlinebestwestern From Hong Kong, joined Sep 2000, 7152 posts, RR: 57
Reply 5, posted (2 years 1 month 2 weeks 3 days 15 hours ago) and read 6482 times:

Can I start by saying that I am no fan of Iberia.


However, the damage to the Spanish economy has already taken down two major competitors in Madrid - Spanair and EasyJet. Iberia could emerge a stronger more dominant carrier at the end of the crisis. Iberia is also using the crisis to finally get their cost base in order.

Quoting PanHAM (Reply 2):
LH is a good example,

LH is a terrible example and not a role model for airline mergers. With the exception of Swiss, LH have seen a litany of poor choices in their mergers and Joint Venture decisions..

Austrian
Bmi
Jade

In comparison the AF/KL and BA/IB mergers seem more calm.

Quoting mikey72 (Thread starter):
With the Spanish economy and the wider Eurozone outlook teetering on the abyss what happens if one half of an airline grouping goes bust ?

Dont get so smug on your little island! If the Eurozone goes over the edge, it will bring the World with it - The UK economy, especially its banks, are so tied to global performance.

FInally - BA were very lucky when they walked away from Olympic.



The world is really getting smaller these days
User currently offlineLHRFlyer From United Kingdom, joined Apr 2010, 815 posts, RR: 1
Reply 6, posted (2 years 1 month 2 weeks 3 days 15 hours ago) and read 6389 times:

Had BA not merged with Iberia there was a very good chance that it would have been acquired by Lufthansa or Air-France KLM which would have left BA seriously isolated in Europe and oneworld weakened.

Iberia's performance is not good but remember that three years ago BA was very heavily loss-making and has turnaround, partly because of the London market but also the restruturing undertaken at BA.

Also, don't forget that although Iberia is not profitable when it joined IAG it had very little debt and a very high cash balance which has helped BA/IAG overall.


User currently offlinesabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 7, posted (2 years 1 month 2 weeks 3 days 14 hours ago) and read 6388 times:

Quoting mikey72 (Thread starter):
what happens if one half of an airline grouping goes bust ?

The other half takes a knock-out hit and goes down with it: have a look at how Sabena/swissair went down together.
The obvious reason is that merged airlines are so strongly interwoven with eachother that they are pretty much unable to shield their balance sheets from a crash of their sister airline should that ever happen, especially as they will have first propped it up further even to avoid such a crash from ever happening!

Quoting mikey72 (Thread starter):
We have to consider this under the current circumstances despite all the 'we will do everything to save the....' rhetoric.

No you don't: what's the obsession of wanting to spit everything up again as soon as their's a temporary regional problem occuring, be it an airline group or our currency union?
Folding back onto oneself simply isn't a viable solution, because the idea one is somehow living in a completely different environment unaffected by what is happening elsewhere is wrong to start with: much better to stick together no matter what so as to be stronger together, than allow yourself to be broken up into many pieces which are far more easily attacked by others one by one later and yes, that will require certain cash flows from one entity to the other: do you rather spend all of your money fighting much bigger competitors when they turn to you later?

Quoting PanHAM (Reply 2):
The goal should be to consolidate and make use of the synergies.

Indeed: splitting up isn't helping, not for the one left behind, but also not for the one walking away: both will end up weakened and decimated by competitors in no time.

Splendid isolation just isn't something of the 21st century any longer because the world has become our village and so a fire in our neigbour's house can quickly set our roof on fire too, so definitely much better to help them with putting that fire out again, rather than to just close your own windows overlooking their premisses and simply watch how their house goes up in flames: chances are that yours might not be standing for much longer either if you do that, you know?

[Edited 2012-08-03 02:09:29]

User currently offliner2rho From Germany, joined Feb 2007, 2630 posts, RR: 1
Reply 8, posted (2 years 1 month 2 weeks 3 days 14 hours ago) and read 6364 times:

Quarterly reports provide an instantaneous photo of the company financials but do not give you the big picture.
IB is currently going through a slump but was very profitable before the crisis. IB long-haul is still profitable and South America is a growth region that is little affected by the crisis. It's only short-med-haul that loses money, and this is already being adressed with IB Express in MAD and VY in BCN. Furthermore with JK bankrupt and U2 pulling out of MAD that's two competitors less to worry about. They are doing a lot of restructuring, and I believe that they will emerge much stronger in a year or two. Next year the A333's arrive to replace the A343's, and the A346's are getting a new cabin. And MAD is a world-class hub that provides plenty of opportunities for future growth. 2012 is being a big transition year for IB, don't expect profits from it.

IMO the IB-BA merger is one of the most "natural" ones that have ocurred in the airline business lately, I would start questioning other mergers before this one.


User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 9, posted (2 years 1 month 2 weeks 3 days 14 hours ago) and read 6297 times:

Quoting bestwestern (Reply 5):
Dont get so smug on your little island! If the Eurozone goes over the edge, it will bring the World with it - The UK economy, especially its banks, are so tied to global performance.

That was a bit uncalled for.

I would like to think I am credited here with enough intelligence to at least recognize that fact.

Believe me....I am all 'too' aware of it.

It is a fact however that the UK is not a member of the Eurozone and can set its own agenda with regard to interest rates etc etc

Quoting r2rho (Reply 8):
IB is currently going through a slump but was very profitable before the crisis. IB long-haul is still profitable and South America is a growth region that is little affected by the crisis
Quoting LHRFlyer (Reply 6):
Iberia's performance is not good but remember that three years ago BA was very heavily loss-making and has turnaround, partly because of the London market but also the restruturing undertaken at BA.

I agree with these comments and others like them but I am increasingly getting the feeling that our beloved 'big 3' are operating in economic times about as stable as a house of cards.

Spain and France are on the brink and Germany is either going to pull out or get stung with the biggest after party bill in history.....and yes the UK is the ship at the end of the anchor chain.

(Maybe we'll all just disappear down the plughole and everyone else will just carry on like we never existed.....if it wasn't so tragic I'd put in a 'rotfl' )

[Edited 2012-08-03 02:54:40]


Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 10, posted (2 years 1 month 2 weeks 3 days 14 hours ago) and read 6229 times:

Quoting sabenapilot (Reply 7):
a temporary regional problem occuring,

I am quite literally speechless at that description of what is now engulfing us.



Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlinesabenapilot From Belgium, joined Feb 2000, 2714 posts, RR: 46
Reply 11, posted (2 years 1 month 2 weeks 3 days 13 hours ago) and read 6188 times:

That remark was in reference to IB's current result.

The fact you understood it differently is because you seem to be very eager to drag another topic into this discussion which you know very well is embargoed: just reading your posts so far again shows you are not really talking about BA/IB at all, but all rhe more about the euro, including your opening post and the quote. Or can you show me a reference to any IAG member ever having said something along the lines about their company?

Otherwise, I will have to suggest deletion of this topic.


User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 12, posted (2 years 1 month 2 weeks 3 days 13 hours ago) and read 6153 times:

Quoting sabenapilot (Reply 11):
The fact you understood it differently is because you seem to be very eager to drag another topic into this discussion which you know very well is embargoed: just reading your posts so far again shows you are not really talking about BA/IB at all, but all rhe more about the euro, including your opening post and the quote. Or can you show me a reference to any IAG member ever having said something along the lines about their company?

We see this time and time again here.

You cannot ignore what is going on in the greater world and make like an ostrich !

I want to know what people think will happen to an airline grouping if one half goes under.

It has never happened before with groupings of this size.

I'm not just asking out of curiosity but because what is happening in Europe makes it a real possibility. Whether you like it or not it IS connected.

Now deal with it.

Even if one half doesn't go bust completely at what point does the imbalance become unacceptable to the other member/s ?

[Edited 2012-08-03 03:20:41]


Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlineJJJ From Spain, joined May 2006, 1835 posts, RR: 1
Reply 13, posted (2 years 1 month 2 weeks 3 days 13 hours ago) and read 6086 times:

Quoting LHRFlyer (Reply 6):
Also, don't forget that although Iberia is not profitable when it joined IAG it had very little debt and a very high cash balance which has helped BA/IAG overall.

That's the key. BA has greatly profited post-merger from IB's huge cash bag, and IB has extremely profitable long-haul MAD-LatAm routes which are an strategic long-term asset.

IB needs to put some order on their domestic and short/med haul operations, but long term prospects are good.


User currently offlinePPVRA From Brazil, joined Nov 2004, 8964 posts, RR: 39
Reply 14, posted (2 years 1 month 2 weeks 3 days 11 hours ago) and read 5783 times:

A merger is not merely a contractual relationship, so the term irrevocable doesn't make sense. Both airlines are actually owned by the same people.

Of course IAG can always "spin off" IB or BA if it decides.



"If goods do not cross borders, soldiers will" - Frederic Bastiat
User currently offlinesumma767 From United Kingdom, joined Mar 2004, 2561 posts, RR: 6
Reply 15, posted (2 years 1 month 2 weeks 3 days 10 hours ago) and read 5134 times:

Quoting PPVRA (Reply 14):
A merger is not merely a contractual relationship, so the term irrevocable doesn't make sense. Both airlines are actually owned by the same people.

Of course IAG can always "spin off" IB or BA if it decides.

That answers the OP question well. Though I understand that this particular merger can also be "untied" at the behest of the individual airlines.
Another matter if, of course, whether there would be any gain in "revoking" the merger. Whereas IB is indeed losing a lot of money, it still has the opportunities that MAD offers as a hub to a growing region as is Latin America, and most of the synergies are yet to be harvested.

As others have said, IB express is dealing with the short haul issues that are hindering Iberia. The A330s will also bring efficiencies in the long haul. I do think that there is scope to grow in the future.

The current economic circumstances in Europe and particularly in Spain, make turning a profit for IB a hard task, but barring a Euro explosion, I trust that IB can at least break even in 2013. BA should have a better last half of this year, continuing next. Indeed, with the new long haul airplanes coming, BA is well positioned to grow, helped by the slots gained from bmi. But for the future, it will be the turn of Iberia and Madrid to be the focus of growth. Before that there is some structural problems to address given the challenging circumstances.


User currently offlinesteve6666 From United Kingdom, joined Sep 2003, 411 posts, RR: 0
Reply 16, posted (2 years 1 month 2 weeks 3 days 9 hours ago) and read 4888 times:

Quoting PPVRA (Reply 14):
Of course IAG can always "spin off" IB or BA if it decides.

As Summa767 says, this is a very good very quick answer to the OP. There have been a couple of demergers of businesses listed in London in the last few years that I know of - see Fiberweb out of BBA and EnQuest, which was a demerger of two businesses from Lundin and Petrofac and subsequent merger.

How easy or difficult this is to do will depend on the contracts between the two, but will generally involve a lot of work for lawyers.

In any case, I suspect we are a number of years from breaking point - Willie will do his damndest to restructure Iberia and (I haven't looked) it would be interesting to see what BA's results were, excluding the one-off BMI acquisition and restructuring costs.



eu nasci ha dez mil anos atras, e nao tem nada nesse mundo que eu nao saiba demais
User currently offlineacidradio From United States of America, joined Mar 2001, 1874 posts, RR: 10
Reply 17, posted (2 years 1 month 2 weeks 3 days 8 hours ago) and read 4547 times:
AIRLINERS.NET CREW
FORUM MODERATOR

I just wanted to jump in really quickly and thank everyone for sticking to the topic - the risk of fallout in airline mergers due to economic instability in the EU! Please stay aimed at this. If you want to make direct comparisons to non-airline mergers or entities that's fine, but make sure you keep the topic airline-related. We had concerns that this was going to become a general discussion about EU market and financial instability which is out of the scope of the Civil Aviation forum but I think everything will work out just fine. Thanks!


Ich haben zwei Platzspielen und ein Microphone
User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 18, posted (2 years 1 month 2 weeks 3 days 8 hours ago) and read 4424 times:

Quoting JJJ (Reply 13):
That's the key. BA has greatly profited post-merger from IB's huge cash bag, and IB has extremely profitable long-haul MAD-LatAm routes which are an strategic long-term asset.

Good point.

IB, BA, KL, AF, LH and Swiss all can be proftable companies in the long term with the efficiency programs being put into place but........

Are the relationships between these carriers fluid enough to morph into whatever the pretty bleak 'short to mid term' future may require and are they strong enough to weather the storm ?

Apart from Swiss they are based in countries inextricably linked together and dependent on the survival of the Euro.

http://www.telegraph.co.uk/finance/n...or-Spanish-exit-from-eurozone.html




Mr Walsh said he would be “surprised” if other major companies with operations in Europe hadn’t drawn up similar contingency plans given the deterioration of conditions on the Continent.

Mmm
[Edited 2012-08-03 08:57:01]


[Edited 2012-08-03 08:59:38]


Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlinebestwestern From Hong Kong, joined Sep 2000, 7152 posts, RR: 57
Reply 19, posted (2 years 1 month 2 weeks 3 days 7 hours ago) and read 4308 times:

Quoting mikey72 (Reply 18):


Apart from Swiss they are based in countries inextricably linked together and dependent on the survival of the Euro.

Again - Switzerland and the UK will go down if the Euro does. But don't worry - your beloved British Airways is safe.

Quoting mikey72 (Reply 18):
Are the relationships between these carriers fluid enough to morph into whatever the pretty bleak 'short to mid term' future may require and are they strong enough to weather the storm ?

Yes. If the depressing worst case scenario (and your arguements always take extreme cases) picture you are discussing comes to fruituon. who would buy an airline at a fair price anyway?

Anyway, we are going around in circles here.



The world is really getting smaller these days
User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 20, posted (2 years 1 month 2 weeks 3 days 7 hours ago) and read 4240 times:

Quoting bestwestern (Reply 19):
Yes. If the depressing worst case scenario (and your arguements always take extreme cases) picture you are discussing comes to fruituon.

?

Depressing it maybe but like the report in the Telegraph today says...it's best to be prepared.

Please don't shoot the messenger...it's not my fault.

Quoting bestwestern (Reply 19):
your beloved British Airways is safe.

Oh for heavens sake !!



Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
User currently offlinebestwestern From Hong Kong, joined Sep 2000, 7152 posts, RR: 57
Reply 21, posted (2 years 1 month 2 weeks 3 days 7 hours ago) and read 4097 times:

Quoting mikey72 (Reply 20):
but like the report in the Telegraph today says

Just like all the other 'end is near' headlines screaming from the press.

I love the Matt cartoons in the Telegraph - the issue of the day in one graphic.



telegraph.co.uk/matt


The article is discussing prepardeness for the worst case scenario - just like safety belts in the car. The Telegraph is also rather eurosceptic too.

Quoting mikey72 (Reply 20):
Oh for heavens sake !!

As a shareholder, I firmly believe that BA, and IAG are safe.



The world is really getting smaller these days
User currently offlinePHX787 From Japan, joined Mar 2012, 7560 posts, RR: 18
Reply 22, posted (2 years 1 month 2 weeks 3 days 7 hours ago) and read 3983 times:

Quoting scbriml (Reply 1):
Well, they're not really merged airlines, are they? They are two separate airlines owned by the same holding company.

In that case, couldn't IAG just spin off IB?

Quoting mikey72 (Reply 18):
Are the relationships between these carriers fluid enough to morph into whatever the pretty bleak 'short to mid term' future may require and are they strong enough to weather the storm ?

I honestly think that if one airline is breaking even though it can more or less support the other one via the holding company, right?



次は、渋谷、渋谷。出口は、右側です。電車とホームの間は広く開いておりますので、足元に注意下さい。
User currently offlinescbriml From United Kingdom, joined Jul 2003, 12566 posts, RR: 46
Reply 23, posted (2 years 1 month 2 weeks 3 days 6 hours ago) and read 3888 times:
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Quoting PHX787 (Reply 22):
In that case, couldn't IAG just spin off IB?

I believe there's no reason IAG couldn't sell IB if they wanted to.



Time flies like an arrow, but fruit flies like a banana!
User currently offlinePHX787 From Japan, joined Mar 2012, 7560 posts, RR: 18
Reply 24, posted (2 years 1 month 2 weeks 3 days 6 hours ago) and read 3835 times:

Quoting scbriml (Reply 23):
I believe there's no reason IAG couldn't sell IB if they wanted to.

But how much is IB owned by the spanish government? I'm not familiar with IAG or IB at all but however IMHO such a spinoff would require the spanish government to have a stake claim in IB on top of the spanish government collapsing. What happens next would be chaos for BCN and MAD (both for the airport and the society there)


I'm surprised that Aegeon and Olympic are surviving given their climate but aren't those two privatized?



次は、渋谷、渋谷。出口は、右側です。電車とホームの間は広く開いておりますので、足元に注意下さい。
User currently offlinemikey72 From United Kingdom, joined Oct 2009, 1780 posts, RR: 2
Reply 25, posted (2 years 1 month 2 weeks 3 days 4 hours ago) and read 3300 times:

Quoting PHX787 (Reply 24):
What happens next would be chaos for BCN and MAD (both for the airport and the society there)

In the event of some rapid deterioration or contagion within the economies of the continent (because it wouldn't just be Spain) I am sure that whilst frightening for a while nations would do whatever it took to keep their infrastructure at some sort of operational level.

I am also convinced we would all be surprised by how quickly we would all emerge.

Under those circumstances national institutions (vital to any hope of a recovery) like IB, AF, LH, BA, KL, etc whether private or public would not be allowed to fail.

(In my view anyway)

[Edited 2012-08-03 12:59:01]


Flying is like sex - I've never had all I wanted but occasionally I've had all I can stand.
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