Late last year British Airways backed away from a bid it had made with four private-equity firms for Iberia, Spain’s flag carrier, after Caja Madrid - a Spanish savings bank - bought a large defensive stake. On Tuesday July 29th, with the price of oil up 25% and BA and Iberia shares down 25% and 37% respectively, the two firms said they were in talks about an all-share merger. Both companies’ boards support the deal, as does Caja Madrid.
Iberia will bring it extra capacity at Madrid Barajas Airport, which has four runways, and fast-growing long-haul routes between Spain and Latin America.
As is customary in cross-border airline mergers, BA and Iberia will merge financially, but not operationally—at least in the immediate term.
Savings will come from combining back-office activities and from joint purchasing of aircraft, fuel and ground services. Joint purchasing of aircraft, potentially the biggest source of savings, may take some time.
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