Airline merger

British Airways and Spain's Iberia have announced a preliminary agreement to merge, which will make the new air carrier one of Europe's largest airlines, along with Air France-KLM and Lufthansa.

The deal, which comes after months of negotiations, is aimed at helping the airlines cope during the global economic slump. The industry has suffered from a sharp decline in passenger and cargo traffic.

Iberia posted third-quarter losses of 16.4 million euros ($24.5 million) on Friday, down from a profit of 30.4 million euros in the same period a year ago.

Achieving synergy

"The merger will create a strong European airline well able to compete in the 21st century," BA chief executive Willie Walsh said.

"Both airlines will retain their brands and heritage while achieving significant synergies as a combined force," he said.

Iberia chairman Antonio Vazquez said they were "laying the foundations of what will be one of the most important airlines in the world, a real global airline."

In a joint statement late Thursday, the two airlines said the new company, known as "TopCo," would be registered in Spain but have its financial headquarters in London.

Job losses on the horizon

British Airways will hold 55 percent of the combined firm, while Iberia will retain 45 percent, the statement said, adding that the merger will save around 400 million euros ($594 million) after five years.

British media have warned of more job losses at both airlines. A spokeswoman for BA said she couldn't rule it out, but maintained that most savings would stem from sharing services such as IT.

"Both airlines are already restructuring their business because of the current economic downturn," she said.

British Airways and Iberia hope to finalize the deal by the end of 2010; however, the merger must first get a stamp of approval from the European Commission, the EU's executive body.

vj/sjt/Reuters/AP/AFP
Editor: Nancy Isenson