British Airways and Iberia Agree to Merger

November 13, 2009 7:52 AM EST

Spanish Airline Iberia SA will merge with British Airways PLC (OTC: BAIRY) to form a new company in which BA will have a controlling 55 percent.

The new company has been called TopCo according to a joint statement between the two companies, adding that it will be registered in Spain while being controlled from a financial headquarters in London. TopCo will be listed on the London Stock Exchange, while having a secondary listing in Madrid.

According to the deal, shareholders for British Airways will hold 55 percent of the new company, while Iberia's will control the other 45 percent. The merger could take as much as another year to close, creating a company with potential annual revenue of 15 billion euro ($20 billion).

TopCo will be run by BA Chief Executive Willie Walsh, with Iberia Chairman Antonio Vasquez having the same position in the new company.

Walsh expects the combined company to see increased profit of 400 million euro ($594 million) by the end of the fifth year of the deal, with two-thirds coming from cost savings and the rest from increased revenue.

The deal ends 15 months of negotiations that have been tied-up due to the large pension plan for BA employees and the proposed structure of the merged company.

The merger has come after BA reported a loss for the first time in the six month period ending in September. BA reported a net loss of 208 million pounds ($346 million)as revenue decreased by 13.7 percent. The third largest airline in Europe has already cut 2,500 jobs in the past 15-months and plans to slash another 1,700 positions.

Iberia has dealt with its own troubled times as the company has froze hiring through 2012, and salaries through 2011.

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