British Airways, Iberia mull merger

LONDON (AP) -- British Airways PLC and Spain's Iberia SA said Tuesday they are in talks over a potential all-share combination.

BA and Iberia, which are long-term partners in the "oneworld" alliance, said that each would retain its branding under the tie-up.

The pair said the negotiations are supported unanimously by both boards, but did not disclose any financial details in a statement.

BA and Iberia have also been in discussions for several months with American Airlines to potentially form a trans-Atlantic joint venture, but they did not provide any immediate update on those talks.

BA Chief Executive Willie Walsh said airline consolidation is long overdue as the aviation landscape changes.

"The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment," Walsh said in a statement.

The pair said they expect it will take "several months" to reach agreement on the terms of the combination and to finalize a joint business and integration plan for the combined group.

They added they were confident of securing regulatory approval, noting that the European Union has already granted the two carriers approval to cooperate widely. The pair have been working closely as alliance partners for more than a decade.

Media reports earlier this month had suggested that BA, Iberia, and AMR Corp.'s (AMR, Fortune 500) American, the world's largest carrier, were close to applying for U.S. antitrust immunity to form a trans-Atlantic joint venture.

BA and American have failed in the past to win an exemption from U.S. antitrust laws to work more closely together because of their dominance at London's Heathrow Airport, where the pair have more than half the capacity to and from the U.S.

In the meantime, BA has steadily been increasing its shareholding in Iberia, from 9% in 1999 to 13.15% currently.

Iberia revealed Tuesday it has recently acquired a 2.99% direct shareholding in BA and financial exposure to a further 6.99% through "contracts for difference" linked to BA's share price.

A contract for difference is an agreement to exchange the difference in a share's value between the time a contract is opened and the time it is closed. Holders of CFDs are financially exposed to the share price but do not own the shares and therefore have no voting rights.

The pair said that the corresponding shareholdings "reflect the mutual interest of both companies in each other."