London - British Airways (BA) and Spanish airline Iberia ended months of speculation Tuesday when they confirmed merger talks that could lead to the creation of a "strong European airline" fit to survive in the "current economic environment."The firms said the British Airways and Iberia brands would be retained as part of a combined group, which would be run separately and be listed in London and Madrid.
Shares of BA and Iberia rose by 8 per cent and 13 per cent respectively as investors digested the news.
BA chief Willie Walsh said the two companies were a "good fit" and could look back on a decade of a "successful business relationship" in the One World Alliance of airlines.
"The aviation landscape is changing and airline consolidation is long overdue," said Walsh, giving a clear hint that merger plans were given fresh impetus by the rocketing fuel price.
"The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment," said Walsh at a joint news conference with Iberia president Fernando Conte in Madrid.
Conte said the first step towards a merger had been made, although it was too soon to say when a deal would be finalized. "This is an historic day for the aviation industry," he said.
British Airways, which recently increased its holding in Iberia to 13.2 per cent, Tuesday described its business relationship with Iberia over the past decade as "successful."
Iberia recently bought a 2.99 per cent share in the main British carrier.
The proposed tie-up met with instant disapproval from main BA rival Virgin Atlantic, which said in London that a BA-Iberia merger would push up ticket prices and reduce consumer choice.
The two airlines, which between them have nearly 450 aircraft serving more than 250 destinations, have a staff of more than 60,000 - 42,000 at BA and 22,000 at Iberia.
If the merger goes ahead, it would follow the template of the Air France/KLM link-up and create Europe's third-largest airline in terms of passenger numbers after Air France/KLM and Germany's Lufthansa.
Between them BA and Iberia would carry an annual 60 million passengers.
However, the two firms will have to win support from shareholders for a deal, including Iberia's largest shareholder Caja Madrid, the Spanish bank which owns a near-23-per cent stake in the Spanish carrier.
Caja Madrid gave a hostile response to BA's previous approaches for Iberia as part of a bidding consortium last year, which withdrew its interest after Caja Madrid reportedly indicated it would like to see the national airline kept out of foreign hands.
BA and Caja Madrid have, as core Iberia shareholders, rights of first refusal on each other's stakes.
The two airlines were likely to have "agreed spheres of interest," analysts in London said.
While Iberia was expected to concentrate on services to Latin America and Africa, BA would focus on routes to the Middle East and the Far East, as well as North America.
