British Airways-Iberia merger

graeme at 6:50 a.m. Fri 13 Nov 2009

British Airways and Iberia are to merge. The merger terms will give BA shareholders 55% of the combined business, which appears reasonable: BA is bigger but performing worse.

The main question is whether the merger synergies (i.e. redundancies to cut costs) will be worth the upheaval of and costs of restructuring. Will combining two bad businesses create a good one?

Traditional airlines have not been coping well with competition from budget airlines, erratic oil prices, and recession. Both airlines cost cutting has already lead to costly strikes, so the greater level of cost cutting needed to justify the merger is not going to happen entirely smoothly.

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