Iberia-British Airways: Merger of equals?

Publicado: enero 31, 2013 en Economia, Empresa, Gestión, Política
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Over the past months there has been a lot of talking about the poor performance of Iberia, the restructuring plans to be carried out by the company and the Government’s declarations with a certain interventionist intonation considering that it is a private company.

For those not familiar with the subject, I’ll try to explain as briefly as possible the airlines current situation:

In April 2010 IAG was formed as a holding company resulting from the merger between British Airways and Iberia with a 55% and 45% share of each company respectively (participation equal to the value that each party contributed to the group at the time). This arose after Bankia’s denial (former Caja Madrid) to sell its block of shares from Iberia to BA in 2008 when the British company intended to buy the Spanish airline.

So far, it seems a logical merger between two private companies seeking synergies between them in order to improve efficiency and profit, with its main operation in complementary markets and that “in no case” should affect the airways of a company on the other.

But the reality is that before the merger Iberia accumulated more than 2,000 million euros in cash surplus as a result of the profits generated during the previous 10 years, with good prospects of growth in the Latin American market, while the British company was technically bankrupt with losses of 875 million euros generated that year. Today, the picture is very different with losses in Iberia of 262 milion euros only in the first 9 months of 2012 and a fall in activity of 3%, and BA increasing both supply and demand in a 8% up to 286 million euros in profits. Such is the situation of the Spanish airline that IAG has submitted a restructuring plan of 4,500 employees (almost a quarter of the workforce) to get back on the track of benefits.

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Source: Report of traffic Statistics IAG Group – December 2012

I am not in favor of state intervention, but considering that the government is shareholder in a 15% of the group (with 12% held by Bankia and another 3% of SEPLA, both state owned) I do understand the concern. After all we are talking about unemployment, with the consequent cost to the state, and the image of a very important company for the country that has the brand “Spain” associated and which is the gate of entry into the Latin American continent that has clear signs of growth in the coming years and will probably be one of the engines of domestic trade.

Can you really talk of merger of equals when it comes to the merger between Iberia and British Airways? Since the integration became effective BA has increased its market share in Spain in more than 20% while Iberia has reduced its quota by more than 15%, and BA has plans to incorporate nearly 40 aircrafts and over 800 pilots while Iberia will eliminate aircrafts and fire more than 4,500 employees.

Additionally we must not overlook the detail that the British company recently made an offer for 55% of Vueling, a Spanish company that has its HUB in Barcelona and whose remaining 45% is held by Iberia, and therefore would be taking control of the company ahead of their Spanish partner.

I’m not trying to avoid Iberia’s management team blame because the performance of the company is the result of both, the economic environment and their decisions, and probably BA itself has made ​​the right decisions, designing an appropriate roadmap on the medium to long term. What I say is that there are obvious signs that a company has been benefited from the holding more than the other, or at least in the merging negotiation (which obviously many things escape my understanding) one was strengthened while the other was clearly prejudiced.

I will not favor state intervention, which we criticize so much when looking at countries like Argentina, Bolivia or Venezuela, but it seems right that, for once, the government has raised their hands and has communicated its position.




  1. knowthing dice:

    Do you think that Iberia is in the way of being taken over by British Airways? What position do you think the government should take to this issue?

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