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Friday, July 04, 2008

BA to seek clearance for AA and Iberia merger

British Airways is said to be close to seeking clearance from competition authorities for a three-way operational merger with American Airlines (AA) and Iberia.

The deal would allow the companies to combine nearly all aspects of their operations, including sales, purchasing and marketing, leading to lower costs and greater economies of scale. Legal sources in the United States said that a submission to the US Department of Transport was expected as soon as next week.

The operational partnership may also provide a foundation for a full merger of the carriers should foreign ownership rules in the United States and Spain change. BA said two months ago that it was in talks with AA and Continental, another American carrier, about creating an alliance, but Continental has since walked away.

BA and AA have continued their discussions and are believed to have invited Iberia - in which BA has a 13 per cent stake - to be the third member. BA said last night that its talks with AA were continuing but a decision had yet to be made.

If BA and AA do seek regulatory approval to merge their operations, it would be their third attempt, having been blocked by regulators in 1998 and 2001. The authorities in Britain and America were concerned that the

two carriers would have a dominant position on many North Atlantic routes and demanded that the airlines sell Heathrow slots to reduce their traffic.

However, sources familiar with BA's discussions said that the airline was more optimistic of gaining approval this time because of the liberalisation of air travel rules between Europe and the US. In addition, the dire state of the airline sector, which is striving to cope with high fuel prices, may force regulators to accept the deal.

AA lost $328 million (£164.7 million)and Iberia €28.3 million (£22.5 million) in the first quarter of this year. BA has given warning that it may struggle to stay profitable this year.

An analyst said: "There is a lot of pressure on BA and AA to do this deal and cut costs. It's inevitable." Another added: "Including Iberia makes sense, as it would give the alliance a strong position across both the North and South Atlantic."

Meanwhile, BA said yesterday that it had bought L'Avion, a French business-class only airline, for £54 million. L'Avion is the last of the survivors of the rush two years ago to launch all-business-class transatlantic services. Silverjet, MaxJet and Eos have all gone out of business.

L'Avion will be merged with BA's new OpenSkies service, which flies from Paris to New York. The purchase price includes L'Avion's £26million in cash and two Boeing 757 aircraft.


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