BA and Iberia in merger talks as fuel costs soar

British Airways is in talks over a £4.5billion merger with the Spanish flag carrier Iberia.

The planned deal is seen as a defensive move by the two airlines, which are expected to rack up significant losses this year in the teeth of soaring oil prices.

"By opening talks the two airlines are facing up to economic and commercial reality," said one City analyst.

In a statement to the London Stock Exchange, BA said the two boards were in talks which would see the parent companies merge but continue to fly the separate BA and Iberia brands.

The deal would leave BA investors owning two- thirds of the new company.

Industry experts have long argued a tie-up makes sense as BA is the preeminent European player in the lucrative markets across the North Atlantic while Iberia is the leading player from Europe to Latin America.

The airlines believe there will be no competition problems with Brussels as Air France and KLM of Holland have already pulled off a similar deal.

"The aviation landscape is changing and airline consolidation is long overdue," said BA chief executive Willie Walsh.

He said the deal would save both airlines a lot of money in administrative and marketing costs and would ensure they did not compete on the same routes.

He continued: "The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment." Experts believe BA is going for the merger now because of how badly it is being hit.

Later this week, the company will report a profits slump because of a doubling in the price of fuel in the past year. Yesterday, another carrier, Ryanair, said its profits had been slashed by 85 per cent. At its recent annual meeting, BA chairman Martin Broughton said the company's record profits of £875million last year would be wiped out by a fuel bill going up this year by £1billion.

The two airlines have long been allies. BA took a nine per cent stake in Iberia nine years ago and now owns 13 per cent.

Last year it was part of a consortium which looked at making an offer for the Spanish firm.

Iberia has a seven per cent holding in BA with whom it is a partner in the oneworld alliance of airlines where partner carriers try not to compete with each other.

Company chairman and chief executive Fernando Conte said: "A merger would be good news for our customers."