Iberia at centre of BA strategy

BRITISH Airways chief Rod Eddington today reaffirmed that closer relations with Spanish carrier Iberia were central to BA's strategy as it grapples with consolidation in the European market.

Speaking in Australia, Eddington said BA intended to forge closer ties with Iberia.

'Consolidation in Europe is beginning. That is really important for BA. We own just under 10% of Iberia and seats on the board, so pursuing that relationship is very important to us.'

But Eddington stopped short of talking of a merger.

In the past he has said that mergers or significant acquisitions in Europe involve too much red tape.

Instead, alliances such as the one with Iberia offer many of the benefits of a merger, he says.

BA picked up 9% of Iberia in December last year at the same time as American Airlines took a 1% interest in the company.

At the time, the European Commission gave the commercial alliance between BA and Iberia anti-trust immunity.

The commission allowed BA and Iberia to publish joint profit and loss accounts and to operate routes together. Analysts believed that the deal would lead towards a consolidation of Europe's fragmented aviation sector, a move made more likely by the regulatory approval of Air France's takeover of KLM.

That has been seen as an indication by competition authorities that they will be more lenient about mergers as the industry struggles with a harsh trading environment. Iberia has put in a strong performance since the arrival of chief executive Fernando Conte a year ago, although it was profitable before Conte's arrival.

The carrier ranks among Europe's most profitable network carriers, with a net profit of e143.6m (£94.5m) last year.

Broker Smith Barney has labelled the airline 'the highest quality European flag carrier in terms of balance sheet strength' with a net cash position at the end of last year of e700m.

Eddington told the Australian Financial Review that BA would maintain its stake in Australian flag carrier Qantas, where it is the biggest shareholder.

DELTA Air Lines, the third-largest carrier in the US, says it is ' completely clear' it cannot survive in its current form, as fare levels continue to erode despite an improving economy. But chief executive Gerald Grinstein told a transportation conference in New York that Chapter 11 bankruptcy protection would only be sought if no other path were available.