Airline Mergers Gather Momentum in Europe and U.S.
The weeks preceding the unforeseen losses caused by Europe's volcanic ash crisis saw improved trading conditions across much of the airline sector and, in its wake, revived momentum for long-anticipated consolidation between carriers on both sides of the Atlantic.
On April 8, British Airways and Iberia announced that they have reached agreement on their planned merger and hope to consummate it by year-end. But first they will need to secure anti-trust approval from the European Commission and overcome potential obstacles such as BA's $5.6 billion pension deficit, which accounts for one of several issues that could prompt Iberia to exercise its right to back out of the deal. Assuming the marriage goes ahead, BA and Iberia will trade under the unimaginative name International Airlines Group, with a headquarters in London and a tax base in Spain. Meanwhile, BA continues to press for approval of its planned tie-up with American Airlines and the prospect of that union extending into some sort of ménage a trois with the Spanish flag carrier has given Virgin Atlantic Airways boss Sir Richard Branson fresh ammunition in his efforts to persuade Brussels officials of its anti-competitive prospects.
Meanwhile, United Airlines continues to play the field, launching merger talks with US Airways in the same week that the BA and Iberia announced their nuptials. According to unconfirmed reports, the public flirtation between United and US Airways has convinced Continental Airlines, which shunned United two years ago, to reconsider its position and restart talks with UAL.
Meanwhile, the financial impact of extensive disruption of flights into Europe and by rising oil prices could influence the prospective partners' share valuations, which will prove critical to the outcome of the proposed mergers in terms of the equity dowry they might bring to the altar. A separate consideration for BA remains the question of whether or not it can resolve its industrial action with cabin crew; the United union has yet to indicate whether it will return to the negotiating table or set new strike dates.