BA and Iberia could walk away from merger
Friday, January 30, 2009: As the cracks begin to show themselves more evidently in talks between British Airways and Iberia, local media have begun to speculate around whether the two could simply walk away from a deal.
When talks began in the middle of last year, the dynamics at both companies were dramatically different to the current situation. Back in July British Airways entered with the upper hand, but recent issues have seen the carrier fall from grace.
Ballooning pension debt, profit warnings and plummeting shares have made British Airways less than appealing, and operations appear so bad that Standard & Poor have hinted that it may drop ratings on the carrier into the junk pile.
Currently British Airways carries a BBB-minus rating, the lowest rating S&P gives for stocks which carry investment value, but the analysts may move it into “junk bonds” territory as it says “BA’s financial profile is likely to come under increased pressure”.
Due to British Airways shares losing some 45% in value and Iberia gaining some 11%, the stakes have turned, with Iberia now valued higher value than British Airways, as BA currently carries a market price of EUR1.6 billion and Iberia at around EUR1.8 billion.
Recently BA reported a third quarter operating loss of GBP50 million and warned of a full financial year operational loss of GBP150 million.
Despite these downturns, British Airways will reject a 50:50 split in a merged entity as it believes it outweighs the Spanish carrier in other fields, and it is unlikely that British Airways shareholders will agree to a 1:1 share swap.
Going into discussions, it is understood that British Airways was eyeing a 65% stake in the new carrier.