BA, Iberia Say Merger Talks Going Well

February 3, 2009

"Discussions are progressing well, but deals are never done until they are done," -- BA Commercial Director Robert Boyle.

Merger talks between British Airways and Spain's Iberia are going well, the two sides said on Tuesday, hinting that news of a possible deal could arrive next month.

"I am an optimist. I believe we are going to try to find the route so that this deal happens," Iberia Chairman Fernando Conte told journalists on the sidelines of a oneworld alliance meeting in Madrid.

"February is going to be a very important month but March is going to be a month in which we will be able to give news."

British Airways Commercial Director Robert Boyle said talks had been complicated by the volatile exchange rates and stock markets but was also positive on the chances of a deal.

"Discussions are progressing well, but deals are never done until they are done," he said.

"Current financial conditions, with very volatile stock markets and exchange rates does make it a particularly challenging time to conclude that negotiation."

He was standing in at the meeting of oneworld CEOs for BA chief Willie Walsh, who was forced to stay in the UK to deal with the chaos created by heavy snow across England.

Conte said the two sides were trying to value the respective businesses using a variety of methods.

"Elements of the market, not only right now, but historic. There are elements of discounted cash flow from business plans that we have put in place together. And also we have the views of analysts".


Conte said the Iberia board had already received a report it commissioned from pensions experts Mercer on the deficit in BA's retiree scheme and that it contained no great surprises.

The deficit is almost certain to have ballooned from the GBP1.5 billion pound (USD$2.16 billion) hole in BA's main scheme identified by trustees as of March 31 last year, complicating discussions on what the two are worth.

"There has been no surprise (from the Mercer report) but it was a study that was necessary to do," said Conte, surrounded by journalists. "We have a lot of information already, and now the important thing is to proceed with discussions."

Iberia's market capitalization has risen above British Airways' in recent weeks because of the weakened pound and a drop in BA's share price following a profit warning. BA had expected to comprise around 65 percent of the combined airline when merger talks were announced last July.

Despite now having a bigger market capitalization than BA, when asked if the division of the new company would be somewhere between the 66:33 split and 1:1 division, Conte said: "probably, yes".

He added that "without doubt" the exchange rates were an element that had to be taken into account when valuing the two.

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