Iberia And British Airways Merger Case Study

Iberia and British Airways were trying to increase their dominance in the market, that was shrinking due to the rise of LCCs (low-cost carriers) in Europe and the industry consolidation. Both companies agreed a memorandum of understanding (MoU) setting out the basis for a proposed merger of equals to create a new one. The two airlines began discussing a merger moved by the challenging economic conditions they were both facing. The British and Spanish flag carrier suffered heavy losses and struggled for survival after a fall in demand for air travel in the wake of the global credit crunch. These are the reasons why a merger seemed a favourable option for both companies as BA and Iberia were seen as a well-matched business that complement each …show more content…
BA shareholders would get 55% of the new company and Iberia shareholders 45%. This exchange of the shares has been on a like-for-like basis, so that if a shareholder owned 100 BA shares, he now owns 100 IAG shares. BA and Iberia would continue their existent airline brands. The new company was called IAG plc (International Airlines Group), which had its shares listed on both the London and Madrid stock markets. IAG is a British-Spanish multinational airline with the company headquarters in London, and with its registered office in Madrid. IAG initially estimated £349 million of annual cost savings by the fifth year after the merger. A quarter of the cost savings would come from IT and back office efficiencies plus savings on maintenance and purchasing. On the other hand, the implementation cost of the merger was estimated to be of £350 million .
Iberia and British Airways had developed strong links over the years. BA acquired 13% stake in Iberia in 1998. In 2003, BA and Iberia won European approval to operate an alliance within the EU. BA & Iberia started co-operation and route-sharing in that year. In 2004, Iberia announces plans to start joint accounts with BA on flights between Spain and the UK. In 2007, BA made the first bid for Iberia
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The new CEO of IAG was Willie Walsh, previous CEO of BA. IAG CEO Willie Walsh commented: “Our goal is for more airlines – but, importantly, the right airlines – to join the group. Today is the first step towards creating a multinational multi-brand airline group.” He added: “IAG has a great future ahead of it. The first two airlines in the group, British Airways and Iberia, will retain their strong brands and have complementary networks that operate from two of the biggest hubs in Europe. The merger will lead to annual synergies of EUR400 million from year five and benefit IAG shareholders and British Airways’ and Iberia’s customers and staff. British Airways and Iberia are the first two airlines in IAG but they won’t be the last.” Furthermore, Antonio Vazquez, previous Iberia CEO, has become the new chairman of IAG. IAG and Iberia Chairman Antonio Vázquez similarly noted: “Today a major new player in international aviation has been born and British Airways and Iberia have achieved their ambition of playing a full role in industry consolidation. Together, Iberia and British Airways fly to over 200 destinations on more than 400 aircraft. They have joint revenues of more than EUR14 billion and last year carried 55 million

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