BA100: 31. The Iberia Merger

100 Years Of British Airways: The merger of BA and Iberia under the umbrella of International Airlines Group.

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British Airways & Iberia aircraft
British Airways & Iberia aircraft (Image Credit: Iberia)

Welcome to our 100 part series on the history of BA and its predecessor airlines.

Ten years or so ago, it looked like BA was becoming increasingly isolated amongst airlines in Europe.

Air France-KLM had taken the lead in consolidation in Europe after talks between BA and KLM had fallen through for a second time. Lufthansa had acquired Swiss, again after talks between BA and Swiss fell though.

Not only that both Air France-KLM and Lufthansa were encroaching BA’s territory in London. Air France-KLM had acquired CityJet which, at the time, dwarfed BA at London City. Lufthansa had also, albeit not on the terms it would have liked, acquired bmi, the second largest airline at Heathrow.

BA admitted that it had looked on with some admiration with what both had groups have achieved. It turned to Iberia, in which the airline had already owned a stake in and had a codeshare relationship.

It took some time to acquire merger terms, principally due to concerns on Iberia’s side about BA’s pension deficit, which had to be ring-fenced. It also looked like talks were about to fall through when parallel merger talks between BA and Qantas leaked to the press.

There were questions as to how two airlines with radically different cultures and histories could be brought together.

The answer was to leave them operationally separate, partly due to route authorities requiring BA and Iberia to controlled in the UK and Spain respectively.

On top of BA and Iberia a new self-styled “brand agnostic” parent was imposed with the relatively anodyne name International Airlines Group.

Again, there were questions as to whether IAG could impose control over the two airlines. The answer came in the form of its new CEO Willie Walsh who was reported to have quipped that BA’s new CEO and former CFO Keith Williams had been promoted from the 2nd most important job in BA to the 2nd most important job in BA.

On the launch of its merger in 2011 IAG briefed the media that it had 12 takeover targets. So far it has acquired a further three airlines. IAG took full control of Vueling in 2013, acquired Aer Lingus in 2015 (navigating delicate national interests in the process) and, most significantly for BA, bmi in 2012.

Not that it was a given that bmi would be merged into BA. Many in IAG pressed for it to be kept separate and BA pilots had to make concessions to secure its integration. It’s no exaggeration to say the bmi merger has transformed BA’s position at Heathrow and enabled it to launch many new short-haul and long-haul routes.

There have been wobbles on the way. Shortly after the merger Iberia swung to heavy losses, bringing into question the merits of the deal. IAG pushed through a painful restructuring at Iberia which resulted in unedifying scenes during staff protests at Madrid. However, IAG can now claim with some justification to have radically improved Iberia’s fleet and image.

Not all attempts to acquire airlines have been successful. IAG lost out on a bid to acquire Nikki from what remained of Air Berlin. A bid to acquire Norwegian was also rebuffed.

For BA, the cost and revenue synergies from IAG have helped it become a much more financially stronger airline. Last year, it reported an operating profit of £1,952m.

There have, however, been compromises. Many decisions, such as new aircraft orders are outside the control of BA. Significant savings come from standardising the configuration of new aircraft deliveries between IAG airlines. This means that new deliveries of Airbus A320 aircraft do not have some of the comforts of BA’s existing fleet.

Almost ten years on from the merger, IAG can claim to have pursued consolidation with considerably more vigour than its rivals and introduced genuinely new ideas and thinking. Air France-KLM is not a true pan-European airline group and there are evident tensions between Air France and KLM. Listening to senior IAG executives it is almost as if they would relish an industry crisis to demonstrate its relative financial strength and take advantage of acquisition opportunities.

There is certainly still much to do, particularly in the areas of IT, and IAG shows no signs of slowing down in the pursuit of synergies, nor ever accepting a status quo.

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