The news that British Airways and Iberia had finally agreed to pursue a long-mooted merger drew a swift and gleeful response from one rival. "Ryanair welcomes BA and Iberia's white flag," declared the Irish airline.
Naturally, the protagonists view things differently. They foresee that the merger - which, pending approvals, they intend to complete by the fourth quarter of 2010 - will deliver annual synergies of €400 million ($600 million) within a five-year ramp-up phase. According to a Goldman Sachs research note, these synergies are "equal to 3% of group revenues" and "less than Air France-KLM claim to have achieved". In this context they are seen by many as realistic.
Two-thirds of the forecasted synergies are expected to derive from cost savings in the areas of IT and back-office functions, maintenance, purchasing, ancillary business, and sales and distribution. The remaining one-third would arise from revenue opportunities created by an enhanced network and fleet.
MIX AND MATCH
There is a high level of commonality between the two carriers' short-haul fleets, both of which are focused on the Airbus A320. Analysis of their long-haul fleets tells a different story, however. BA operates a mix of Boeing types and has on order Airbus A380s, which have been deferred, and Boeing 787s, which have been delayed.
Iberia, meanwhile, operates a single-type long-haul fleet of A340s and has on order only two long-haul aircraft (both A340s).
"Fleet commitments over the next three to five years are unlikely to change," BA chief executive Willie Walsh has told analysts. "However, we do see opportunity in terms of fleet co-ordination for the benefit of the combined business." This perhaps hints at switching of aircraft between the two airline operations, intended to remain separate and be overseen by a new holding company, TopCo, in which BA shareholders would hold 55% stake and Iberia shareholders 45%.
Major decisions on long-haul fleet renewal have still to be taken, notes RBS analyst Andrew Lobbenberg. "Iberia has an open decision between the A350 and 787, in principle, and BA has another long-haul order outstanding," he says. "BA's existing order for 787s and A380s is designed to replace the 767s and some of the oldest 747s, but it does not put in place a replacement plan for the entire 747 fleet - or indeed the older 777s. It would be that competition which would presumably be aligned with the Iberia one."
Short-term gains appear to lie more in network than in fleet synergies. The airlines say the merger would extend BA's network by 59 new destinations, including 13 in Latin America, while Iberia would gain 98 new destinations.
Based on 2008 data, a united BA-Iberia beats Lufthansa to become Europe's second biggest operator by fleet size and by traffic.
Access to the Latin American market appears central to BA's aspirations. "We will focus the growth into Latin America over Madrid, which would then give an opportunity to focus on North America and Asia from Heathrow," says Walsh, who is convinced the blueprint is in place for "a strong European airline". Ryanair begs to differ. "The merger of BA and Iberia is like two drunks trying to prop each other up," it sneers.
Source: Flight International
