Calmer skies for one airline, more turbulent skies for another

Yesterday International Airlines Group (IAG), which is the newly created holding company of both British Airways and Iberia, commenced trading on the London Stock Exchange. This deal has been a long time in coming, first mooted back in 2002 and finally completing yesterday with investors able to buy shares in the new entity from 8am yesterday.

During the nine years that the deal has gone from speculative to formally announced to finally completed the airline industry has had a tumultuous time. Passenger numbers and revenues fell steadily after 9/11 and took some time to return. Last year alone saw the now infamous Ash Cloud, two major disruptions to services by snow, and a series of cabin crew strikes which British Airways had to negotiate.

There have been a number of curveballs thrown at the merger from within the industry as well, not least a non-binding offer made by TPG Capital (the US-based private equity firm) for Iberia back in July 2007, amongst many other supposedly interested parties and the huge issue that was British Airways’ pension deficit.

But the deal is now concluded and is testimony to the determination of boards wanting to get a deal done. To quote the official spin on yesterday’s launch: “Today a major new player in international aviation has been born and British Airways and Iberia have achieved their ambition of playing a full role in industry consolidation.

“IAG is the third largest scheduled airline group in Europe and the sixth largest in the world, based on revenue. Together, Iberia and British Airways fly to over 200 destinations on more than 400 aircraft. They have joint revenues of more than €14 billion and last year carried 55 million passengers.”

However, this success story has had a negative impact on one of British Airway’s rivals.

Virgin Atlantic, which Richard Branson reluctantly put up for sale back in November, is no closer to finding a buyer although some sources are linking Abu Dhabi’s Etihad Airways as a potential buyer. Branson claims he has been forced to review the airline as a direct result of the deal, with British Airways having to give up some of the lucrative Trans-Atlantic routes out of Heathrow to other US carriers in order for the Iberia merger to proceed.
So a somewhat unique example of where industry consolidation has an immediate effect on a competitor.

Filed under: dealmaking, M&A, Spain, Spanish, UK, US, airlines