A New “Largest Airline In The World”: British Air And Iberia Marry

A merger between United Air (UAUA) and US Airway (LCC), which was recently rumored, would not create much of carrier compared to the BA merger with Iberia which was completed today. The new operation will be known as the International Airlines Group and its parent will be named the International Consolidated Airlines Group.

The tie-up will create Europe’s the third largest airline and the two companies expect to save $534 million beginning in year five of the combination.

The only remaining sticking point before the consolidation begins is the size of BA’s pension obligation which is $5.6 billion. The two companies are close enough to resolving that issue to go ahead with their announcement. BA shareholders will control 56% of the new entity.

BA and Iberia are merging for the same reason that most airlines do, but the devil is in the details. On paper, it makes sense that the new company will make money. A number of employees will certainly be fired. But, that process can cost airlines a large sum. BA’s crews have been on strike over the last month which has prevented the carrier from operating all of its flights. If Iberia and BA workers should strike simultaneously over a long period, it would cost hundreds of millions of dollars in lost revenue.

Airline mergers are always haunted by poor customer service. It is usually a by-product of combining computer and other IT systems and reconfiguring airports that the carriers use as their primary hubs. Competing carriers often pick up dissatisfied customers and some of the new loyalties become permanent

The BA-Iberia merger may not be a success at all. Computers and employees may scuttle the best made plans.

Douglas A. McIntyre