British Airways, Iberia sign merger pact

In a further move of consolidation in the global airline industry, the UK's flagship carrier British Airways (BA) and Spain's Iberia agreed yesterday to go ahead with the planned merger of the two airlines that would create the third-largest airline group in Europe.

The airline majors had signed a memorandum of understanding (MOU) in November on the proposed merger, and the agreement signed yesterday is the continuation of the deal. (See: British Airways and Iberia agree to $7 billion merger)

According to the terms of the agreement, a new company, known as International Airlines Group (IAG) would be formed through the merger of BA and Iberia. However, both the airlines will retain their bases and current operations under their existing brands.

Upon merger, the new company will be one of the world's largest airline groups with a fleet of 408 aircraft flying to 200 destinations and carrying over 58 million passengers per year.

At the current market prices, analysts estimate the value of IAG at around $7.6 billion.

Under the deal, BA shareholders will receive one new ordinary share in IAG for every existing BA ordinary share held by them and Iberia shareholders will receive 1.0205 new ordinary shares for every existing Iberia ordinary share held by them, BA said in a statement.