EU clears BA-Iberia merger, alliance with American

[July 14, 2010]  BRUSSELS (AP) -- British Airways and Iberia on Wednesday won the European Union's regulatory approval to merge and to team up with American Airlines to share more of their lucrative trans-Atlantic routes.

The companies say the two deals will help them cut costs and survive a tough business climate as they struggle with falling passenger numbers and industrial unrest.

British Airways' merger with Iberia will create Europe's third-largest airline with a market value of around $7.5 billion pounds. They will keep their existing brand identities and claim the deal will create savings of euro400 million ($530 million) a year by the fifth year.

The two loss-making airlines are among many struggling to survive after a fall in demand from both business and leisure travelers in the wake of the global credit squeeze. Those who are still traveling have increasingly turned to the cheaper fares of no-frills carriers.

They also plan to expand their one-world alliance with American Airlines, which currently coordinates how they sell and operate flights between the 27-nation European Union and the United States. They will now also jointly manage schedules, capacity and pricing on flights from Canada, Mexico, Puerto Rico, Norway and Switzerland as well.

The European Commission said it saw no antitrust worries with British Airways and Iberia merging since they don't compete directly on many routes and would continue to face rivalry where they do -- on flights from London to Madrid and Barcelona.

Regulators did see more problems with the one-world deal and only cleared it after the three airlines made a binding promise to cede valuable take-off and landing slots to rivals to help them start new routes between London and New York, Boston, Dallas and Miami.

The commitment to satisfy the EU requirements will last ten years and the companies can be fined up to 10 percent of yearly global turnover if they don't stick to their commitments.

Airlines wanting to start new services to the four U.S. cities will be able to choose to buy slots at New York's John F Kennedy airport and at either London Gatwick or Heathrow.

Rival airlines will also be allowed to combine one of their flights with one from the one-world alliance when selling a return ticket and to get "favorable terms" for connecting flights for B.A. or Iberia's short-haul flights in Europe.

This would allow an airline to sell passengers a ticket from Manchester to London on British Airways and then connect them to its own London to New York flight.

The EU's executive said the offer was necessary to eliminate antitrust worries that the wider one-world deal would allow the carriers to control trans-Atlantic routes and hike prices. It said there are now opportunities for new companies to enter the market.

[Associated Press]

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