BA confirms board talks on Iberia merger deal

LONDON -- British Airways PLC and Spanish airline Iberia SA confirmed they are holding separate board meetings Thursday about a long-awaited merger, responding to feverish speculation that has sent the companies' shares soaring.

BA, the third largest airline in Europe, said the meetings would consider a "potential transaction" and that no deal has yet been reached. It declined to provide any further information.

The two airlines' shares surged Thursday on speculation that a deal announcement is imminent, possibly on Friday, when Iberia announces financial results that are expected to show an operating loss over the first nine months of the year.

An announcement would end more than a year of difficult negotiations between BA and Iberia. The pair began talks about a possible tie-up back in July 2008 in response to slowing passenger demand, but discussions have faltered over issues including BA's large pension fund deficit and the proposed structure of a merged company.

Iberia also confirmed that the deal currently being discussed would give the Spanish airline 45 percent of the new company, with BA taking the remaining 55 percent.

Analysts view a merger - and a proposed revenue-sharing deal with American Airlines that is still facing antitrust barriers - as a necessary consolidation in the airline industry after rising fuel prices and the global economic downturn hit demand.

BA's stock was up 10 percent at 220 pence ($3.64) in afternoon trade in London on Thursday, making it the biggest riser in the FTSE 100, while Iberia shares jumped 13.3 percent to euro2.25 ($3.35) in Madrid.

BA Chief Executive Willie Walsh has been among the most vocally pessimistic airline executives about the outlook for the sector, warning that the key premium market may never recover.

BA last week reported a net loss of 208 million pounds ($346 million) for the six months ending in September, its first-ever loss in the period, as revenue fell 13.7 percent.

The airline has begun a drastic cost-cutting drive, axing meal services on short-haul flights and announcing sweeping job cuts and pay curbs that have raised the threat of strike action by its 14,000 cabin crew. The airline has already slashed 2,500 positions between June 2008 and March 2009 and plans to cut another 1,700, freeze pay for current staff and offer lower wages for new employees.

Iberia, meanwhile, is also cutting costs after losing euro165.4 million in the first half of the year. Its board last month approved a plan to freeze hiring through 2012, freeze salaries for all employees in 2010 and 2011 and offer early retirement for flight attendants over the age of 55.

The strategy also calls for creating more long-haul flights, in which Iberia is the leading European airline for flights to Latin America, and slash short and medium-haul flights, and create a new company to compete better on such routes.