British airways and Iberia merging

Topics: Mergers and acquisitions, Management, Merger integration Pages: 3 (1010 words) Published: March 4, 2014

British Airways plc, widely recognised as the largest airline of the United Kingdom, has very recently signed an agreement with the Spanish airline, Iberia, for the merger of the two organisations. The merger agreement, when complete, will result in the formation of the world’s sixth largest airline, in terms of revenues. In Europe the merged airline will rank third in the pecking order, behind Air France-KLM and Lufthansa. The new company, valued at USD 7.5 billion, will be known as the International Airlines Group, even as both the Iberia and BA brands will continue to function as they have done till now. Mergers and acquisitions commonly occur when it is felt that the existing synergies between two organisations can enable them to work with greater efficiencies if they act together, than what they can achieve if they operate on their own. Such synergies can arise from a number of reasons, the more important of which arise from the combined ability of the merging organisations to exploit scale economies, reduce work duplication, share managerial, technological, and knowledge resources, and raise greater amounts of funds. Mergers are also motivated by the desire of firms to retain or increase market share or power. Apart from such reasons, M & A activity occurs because of strategic objectives associated with diversification, exploitation of new markets, spreading of risks, and maximisation of value. The merger of British Airways and Iberia is being driven by a number of such reasons. One of the most important factors behind the merger is the ability of the new organisation to provide customers with a much larger combined network. BA as of now operates 245 aircraft and flies to 149 destinations. Iberia on the other hand flies to 106 destinations with its fleet of 174 aircraft. The merged group will in future be able to operate 419 aircraft and fly to more than 200 destinations. With the two airlines having few overlapping routes, losses on account of post...
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