13 November 2009

British Airways and Iberia have agreed to merge creating the third largest airline in the world.

The two carriers signed a memorandum of understanding (MOU) after 16 months of talks to set up a new joint holding company TopCo with BA boss Willie Walsh as its ceo.

BA will hold 55% of the new company and Iberia 45%.

Both BA and Iberia will keep their own individual brand but a statement by the two loss making carriers said they expected to make about 400m in annual synergies.

About one third will come from a joint sales operation and network and revenue management benefits with the rest in savings on IT, fleet, maintenance and back office functions.

The statement said there was a "compelling strategic rationale" for the merger.

It would benefit shareholders, customers and employees.

The merger which is expected to be completed late next year, will create an airline with 419 aircraft, 205 destinations and with a joint annual revenue of 15bn.

Only Air France KLM and the Lufthansa Group are bigger.

BA customers will gain access to up to 59 new destinations, of which 13 will be in Latin America where Iberia is particularly strong.

Iberia's customers will gain up to 98 new destinations in the BA network.

Customers will also be offered better frequencies and connections, more competitive prices, access to more VIP lounges and enhanced frequent flyer benefits, the airlines said.

Antonio Vzquez, Iberia's chairman and ceo, said: "It has been a long process where many people, both at British Airways and Iberia, have worked very hard to reach this agreement. But in the end it was worth it.

"This agreement is a giant step in the history of both Iberia and British Airways.

"We are laying the foundations of what will be one of the most important airlines in the world, a real global airline.

"I believe that, thanks to this transaction, which is the most important in the European airline industry in recent years, we are more prepared than ever to face future challenges."

Mr Walsh said: "The merger will create a strong European airline well able to compete in the 21st century.

"Both airlines will retain their brands and heritage while achieving significant synergies as a combined force."

Topco will have 14 directors, seven from each airline. The company will be headquartered in Madrid but its financial base will be in London.

It will be listed on the London Stock Exchange.

Mr Vzquez will be chairman with the BA chairman Martin Broughton as his deputy.

The management team will be Willie Walsh as ceo with Rafael Snchez-Lozano, ceo of Iberia OpCo, Keith Willliams, ceo of British Airways OpCo, Enrique Dupuy De Lme, group cfo, Robert Boyle, revenue synergies officer and Jos Maria Fariza, cost synergies officer.