BA, Iberia plan to grow via consolidation

ALAN CLENDENNING - AP Business Writer
British Airway's Chief Executive Willie Walsh, left and Iberia's Chairman Antonio Vazquez share a light moment during a joint British Airways and Iberia news conference in Madrid Tuesday Nov. 30, 2010. The two airlines revealed in London and Madrid that more than 99 percent of investors had voted in favor of the merger, which the pair hope will help counter falling demand from both business and leisure travelers in the wake of the global credit squeeze.(AP Photo/Paul White)
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British Airway's Chief Executive Willie Walsh, left and Iberia's Chairman Antonio Vazquez share a light moment during a joint British Airways and Iberia news conference in Madrid Tuesday Nov. 30, 2010. The two airlines revealed in London and Madrid that more than 99 percent of investors had voted in favor of the merger, which the pair hope will help counter falling demand from both business and leisure travelers in the wake of the global credit squeeze.

Executives of British Airways and Iberia pledged Tuesday to make further airline acquisitions and partnerships after sealing a 5.7 billion pound ($8.9 billion) merger to create Europe's third largest airline.

The pair will lobby governments in countries that have strict regulations against foreign ownership of their airlines to reduce those impediments, said BA Chief Executive Willie Walsh.

Walsh declined to identify potential acquisition targets or countries where looser regulations would give the carrier growth opportunities, but said in September that he had a list of 12 potential takeover targets.

Walsh and Iberia chairman Antonio Vazquez also told reporters Madrid's international airport has room for expansion and that they want to turn it into a hub for flights in between Latin America and Europe for the combined holding company, International Airlines Group.

The two airlines held their news conference a day after British Airways PLC and Iberia SA shareholders approved the merger — an announcement partly overshadowed when the union representing BA's cabin crew said workers will vote on whether to take further strike action at the British flag carrier.

Walsh said he is confident that BA will be able to maintain most operations even if the strike happens, and Vazquez said the threat of a walkout had no impact on the companies' merger negotiations.

Many nations — including the United States and fast-growing Brazil — have laws prohibiting foreign airlines from taking majority stakes in domestic airlines.

Though Walsh would not say where regulations are considered onerous, he noted that air travel is growing exponentially in Latin America as its emerging economies are charging ahead in contrast to a weak recovery in the United States and fears of economic implosion in Europe amid the European debt crisis.

He predicted a wave of carrier consolidation and partnerships will take place, and that regulatory hurdles for foreign airlines will be reduced.

"Today is just the beginning and not the end of this new adventure," Walsh said.

The two airlines announced the merger earlier this year as a way to survive in an industry facing falling demand from both business and leisure travelers in the wake of the global credit squeeze.

The merged Iberia and BA group will rank behind Germany's Lufthansa AG and Air-France KLM in revenue terms. BA last year abandoned merger talks with Australia's Qantas Airways.

The pair also plan to expand their oneworld alliance with American Airlines, a proposal that has angered rival carriers, including Richard Branson's Virgin Airways. Strict U.S. antitrust laws currently bar a full-scale merger with the U.S. airline, but the trio still plan to set prices together and share seat capacity on trans-Atlantic flights.

International Airlines Group will be registered in Madrid, where its board of directors and shareholders meetings will be held. Its financial and operational headquarters will headquartered in London and run by Walsh. Trading in the holding company's shares is expected to begin on the London Stock Exchange in late January.

Each airline will retain its existing brand for commercial purposes, and Walsh said the combined company's plan on future acquisitions is for those airlines to retain their brands.

The combined group will have a fleet of 406 aircraft, carrying around 57 million passengers a year. Annual revenue is estimated at around 12 billion pounds.

Between them, the two carriers fly to more than 250 destinations. A key benefit for BA is Iberia's greater access to South American routes, while Iberia in return will gain from BA's more extensive North American operations.