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BA Looking At IB

Sun Jun 16, 2002 9:37 pm

BA weighing up Spanish merger

by Tom McGhie, Mail on Sunday

BRITISH Airways has targeted Spain's national airline Iberia as its preferred merger partner in Europe, a senior BA source has told Financial Mail.

Analysts say the two airlines would fit together well. They have complementary strengths, with BA holding a leading position on lucrative North Atlantic routes, while Iberia is the top European airline serving Latin America.

BA already has a 9.99% stake in Iberia and a seat on its board. Both carriers are part of Oneworld, an alliance of eight international airlines that co-ordinate their schedules and tickets.

Iberia told shareholders this month that it planned to strengthen its commercial relationship with BA, led by chief executive Rod Eddington. As a first step towards a closer relationship, the airlines are seeking permission from the EC to share routes.

The competition authorities will be concerned that the two airlines already have a market share of 27% of the air traffic between Britain and Spain. But a full merger, which on current values would create a company worth £3.3bn, must wait until changes are made to the complex rules that govern national carriers' rights to fly to each other's countries.

Under the current rules, a national airline is entitled to fly to other countries, but if its ownership passes to a foreign company, it loses the rights. These rules are one reason why BA pulled out of a deal with KLM last year. If the Dutch carrier had become British-owned, it would have lost its right to fly from the Netherlands to the US.

The EU's highest court, the European Court of Justice, is expected shortly to outlaw bilateral aviation negotiations among EC states. This decision is expected to lead to Europe becoming a single air state with the EU negotiating flying rights. This would speed up the consolidation of European airlines, which, unlike their American rivals, have been unable to merge. But any rule changes are not expected for at least two years.

Iberia, which was privatised last year, is one of the few European airlines to have made profits since the 11 September terrorist attacks. BA announced a £200m loss in the year to March. It has racked up losses of £726m on its European operations in the past three years.

BA's plight was illustrated last week when it announced that it was taking on the no-frills airlines by slashing its fares The price cuts, which are expected on up to 12 continental European routes, are part of BA's plan to turn round its loss-making European shorthaul operations. Eddington said BA needed to ensure that its online ticket system could meet expected passenger demand. He said BA would use smaller planes, but would increase the number of flights.

© Associated Newspapers Ltd., 16 June 2002
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RE: BA Looking At IB

Mon Jun 17, 2002 1:20 am

I am not sure if this is really necessary. If British Airways thinks this is a way to get AA/BA to go through claiming that AA does not have a large MAD operation(which they don't, only 1 daily), I don't think it will help at all. I think this is one of those moves that need to be subjected to Oneworld to see how they feel about it.

Give me a break, I created this username when I was a kid...
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RE: BA Looking At IB

Mon Jun 17, 2002 2:05 am

I think it could work, but not for a BA AA co-op. becuase that all boils down to the US being greedy and wanting one million new slots at heathrow.
but for BA and IB it would work, as a group they would generate huge revenues, and they would both be better connected, BA getting better links to South America, and IB being better represented in the States.
Where would such a merger put the BA group in the list of biggest airline groups? it would be AA, UA and then BA??? i heard that if they tied with KLM they would be third, is the same true with IB?

Funny how BA is the first to try and get a headstart in Europe, with the idea that "three european carriers is the future" - after all, many of the big EU carriers have said this will be the case, and yet BA seems to be the only airline doing something about it.
we will see.

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RE: BA Looking At IB

Mon Jun 17, 2002 2:10 am

Looking at the numbers i have to hand, the combine mainline fleets will number in excess of 439 aircraft, exlcuding British Airways regional carrier (CitiExpress - BRAL, BRYMON and CityFlyer) and the franchise carriers which add up to 65 more aircraft...

that will mean a combined fleet including subsidiaries (and fracnhise holders) of over 500 aircraft [before rationalisation]!!!!!
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RE: BA Looking At IB

Mon Jun 17, 2002 2:13 am

So what if BA and IB have 27% of the air traffic between Spain and the U.K. If landing fees in Spain were lower there would be probabrly more flights-Ryanair etc
go canada!
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RE: BA Looking At IB

Mon Jun 17, 2002 5:46 am

i cant see that mnay airlines getting annoyed over this, easy jet and ryanair arent interested, they have their own market, they serve different customers.

BA hasnt kicked up a fuss over easyjet buying go so i think its expecting a favour,27% isnt as bad ads a ba-aa merger and i hardly expect air france nor lufthansa to complain too much, ba can turn around and point to lufthansa's marriage to bmi.

Virgin atlantic wont have a concern, also virgin dont seem that interested in competiton agurments with ba since they are preparing to sell some heathrow slots to them, slots that apparently they needed more of.
It is amazing what can be accomplised when nobody takes the credit
northwest 777
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RE: BA Looking At IB

Mon Jun 17, 2002 6:04 am

Go Canada!-

In your last paragraph you stated Virgin was going to sell some LHR slots to BA? Is this old news or did you just hear this? Where did you hear this? I'm just curious to know why they would want to do that. Thanks!