12 APRIL 2010

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Article from BTNews 12 APRIL 2010

COMMENT: British Airways and Iberia

Willie Walsh is likely to go down in business history as the man that saved British Airways – or destroyed it. 

It was announced last week that the proposed BA merger with Iberia is to move ahead, subject to certain provisions.  It came slightly as a surprise with the Iberia board seven days earlier postponing any decision.  Many had assumed that Mr Walsh, as energetic as he is, was concentrating on a little matter concerning unrest with the cabin staff.

The national newspapers and major news outlets lead with the story taking it on face value.

However the actual announcement by BA was more reserved.

“The completion of the merger is subject to regulatory approval from the relevant competition authorities including the European Commission and the approval by both British Airways and Iberia shareholders.”

“Iberia will be entitled to terminate the merger agreement if the pension recovery plan agreed between British Airways and its pension trustees is not concluded satisfactory, in Iberia’s reasonable opinion, because it would be materially detrimental to the economic premises of the proposed merger.”

The whole thing could still collapse in the unlikely event of the EU not liking the deal or the shareholders deciding against.  Perhaps that is the reason Mr Walsh has persevered with the loss making, flag waving, 32-seat New York jet.  Certainly since coming into office he has concentrated on improving the efficiency of the airline and being nice to the City, many would say to the detriment of the vital commercial world.

The merged carrier will be one of the world’s largest air transport groups with 408 aircraft flying to 200 destinations and carrying more than 58m passengers per year.  Initially there will be 60,000 staff.  It will be headquartered in London with a 14-member board, seven from each airline.

Engineering and operationally it should work, with a bit of give and take (but who will give and who will take?). 

The biggest problem will be on the vital commercial front.  Will people want to fly on either of the two airlines?  Loss making Iberia is not the favourite carrier of many, its latest economy product getting a thumbs down and the long haul offering poor compared with the rising stars of the Middle East, and the established global operators of South East Asia.  Even to South America, where it dominates the market, it is being challenged by aggressive newcomers.

British Airways can be good, very good, but the message coming back is mixed, with the current cabin staff problems not helping.  The new First Class is staggering into service not helped by an insipid launch, Club World is often questioned, and the Premium Economy class is light years behind what Air New Zealand and Air France now offer.

Go back 15 years and the European airline scene was very different.  BA dominated, Swissair was nearly theirs, and the bets were out for KLM to cement an Anglo Dutch relationship that started 350 years ago.  Today both British Airways and Iberia are far from profitable.  Marketing and PR-wise both airlines are questionable.

Many would argue that the Spanish intrusion into the UK aviation scene has not been a success with BAA struggling as part of the Ferrovial Group and Belfast International, Cardiff and Luton airports, part of Airport Concessions Development Ltd, a company majority owned by Abertis, another Spanish infrastructure provider, hardly setting the world alight.

If the deal does go ahead we can only wish them well.  But the big question who is the real boss of International Consolidated Airlines Group SA, Willie Walsh, or Antonio Vazquez, Iberia’s Chairman and Chief Executive?  Is it back to the give and take noted above?  Only time will tell.

Malcolm Ginsberg
Editor in Chief

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