After the markets closed on Thursday night, the British Airways board marched into a meeting in its head office, close to Heathrow, for what would prove to be a defining moment for the airline.
Earlier in the day, the board of Iberia had met in Madrid to agree the terms of a deal with the British carrier, 16 months after the two sides had announced that they were in merger talks. BA chief executive Willie Walsh had previously suggested that corporate governance – the make-up of the board – had been a sticking point in the discussions. But the talks accelerated after a change in management at Iberia over the summer. Antonio Vázquez, who took over the Spanish carrier, sold tobacco firm Altadis to Britain's Imperial Tobacco in 2008 and has a reputation as a dealmaker.
It also seems likely that huge losses incurred by both airlines had sharpened the focus of the two companies on getting a deal done. After little more than an hour, the BA board emerged and the agreement was in place. An announcement was put out by 8.30pm that evening.
The two sides hope the deal will return the combined group to profitability, allowing them to slash costs and improve buying power on the likes of fuel and aircraft, generating savings of €400m (£357m) a year. It would also create potential for higher revenue by offering a far wider range of routes to passengers, combining BA's strength across the Atlantic with Iberia's network across South America. "Consolidation is happening in our industry and it is critical that BA starts participating in that," Walsh said on Friday.
That is, if BA can sort out its pension deficit – thought to be about £2.6bn. Its schemes are subject to a valuation later this year, after which pension trustees and BA management will need to negotiate how much cash the airline needs to pump in to keep them afloat. Even then, the agreement will need rubber-stamping by the pensions regulator, which is not expected to make a ruling until next September, and the merger will not be completed until the issue is resolved. It has been a long courtship, and it will be a long engagement.
"It was a deal that was waiting to be done and that needed to be done," said one source close to the agreement. "Europe will ultimately be divided up into three or four full-service airlines and one or two low-cost carriers. Nine months ago, BA was talking about a merger with Qantas, a deal with Iberia and a transatlantic alliance with American. Qantas has fallen away … and Willie needed to pull off at least one of the others."
By Walsh's own admission, BA has been in a "fight for survival" for much of this year. Over the past decade, the airline industry has lurched from one crisis to another: the terrorist attacks of 2001, the threat of liquid bombs, Sars, swine flu and a soaring oil price. BA itself also suffered the troubled opening of its new base at Heathrow, Terminal Five, which most agree has now been turned into a success.
But it has been the global recession that has wrought the most damage: BA is losing £1.6m a day. Earlier this month, it reported half-year losses of £292m on top of record losses of £401m for the previous year. This will be the first time in the carrier's history that it has recorded two successive years in the red.
The deal with Iberia was broadly welcomed by the City. The new firm will generate annual revenues of £13.5bn – making it the third-largest airline in the world – carry 61.5m passengers and fly to 205 airports. It will be headquartered in London, although domiciled in Madrid for tax purposes, with Walsh chief executive and Vázquez as chairman. Both brands will continue to exist.
John Strickland, an airline consultant, says BA had been "feeling more and more left behind" as rivals Air France and KLM merged and Lufthansa absorbed Swiss International Airlines in 2005 and subsequently Brussels Airlines, Austrian Airlines and the British carrier BMI.
"Air France-KLM is the shiny example of an airline merger," he says. "It was a deal that wasn't blood-laden for staff. Whether it was pragmatism or foresight, they kept two brands and two functioning head offices. They looked at cost savings but it wasn't brutal in human terms and customers have been kept happy. But there has been an enormous upturn in revenue. It really has been a case of one plus one equals three… It is a model that has worked and is something that BA and Iberia will have learned from."
Walsh, 48, who joined BA in 2005, made his mark at Aer Lingus, where he joined as a pilot and worked his way up to chief executive. He turned the business into an aggressive low-cost operator and while he was there spent two years in Mallorca, where he ran Futura, a charter airline owned by the Irish group. His Spanish, apparently, is not so bad.
It seems unlikely that Walsh will have much pause for breath after sealing the deal. BA cabin crew have threatened a strike over job losses and changes to their terms; the airline is already cutting 4,900 posts. The unions are also a potential obstacle in the Iberia deal, seeking assurances that there will be no further compulsory redundancies in return for lending support. And BA is still awaiting a verdict from Washington and Brussels on its alliance with American Airlines.
"BA's problems are serious but they are arguably no worse than anyone else's," says Strickland. "And they are not paralysed, or twiddling their thumbs; they are working in a wide range of fields to improve the situation… And in the main, the staff have bitten the bullet and seen the need for change. Willie Walsh is very well regarded by investors and the deal with Iberia is a key plank in moving forward. It is a feather in his cap."
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British Airways plc is the flag carrier airline of the United Kingdom. It is headquartered in Waterside near its main hub at London Heathrow Airport and is the largest airline in the UK based on fleet size, international flights and international destinations. Its second hub is London Gatwick Airport. British Airways has discontinued all direct overseas flights from UK airports other than Heathrow, Gatwick and London City Airport. BA's UK passengers originating at non-London airports must now connect via London or use other airlines with direct services.
The British Airways Group was formed on 1 September 1974 through nationalisation by the Labour Government of the time. BA was formed from two large London-based airlines, BOAC and BEA, and two much smaller regional airlines, Cambrian Airways Cardiff and Northeast Airlines Newcastle upon Tyne. All four companies were dissolved on 31 March 1974 to form British Airways (BA) and almost thirteen years later, in February 1987, the company was privatised. The carrier soon expanded with the acquisition of British Caledonian in 1988 and Gatwick-based carrier Dan-Air in 1992. Despite being a primarily Boeing customer, British Airways placed a major order for Airbus aircraft in November 1998 with the purchase of 89 A320 Family aircraft. In 2007, the carrier placed its next major order, marking the start of its long-haul fleet replacement, ordering Airbus A380s and Boeing 787s. The centrepiece of the airline's long-haul fleet is the Boeing 747-400; with 54 examples, British Airways is the largest operator of the type in the world.
The formation of Richard Branson's Virgin Atlantic Airways in 1984 began a tense relationship with BA. In 1993, the fierce rivalry led to "one of the most bitter and protracted libel actions in aviation history" in which British Airways apologised "unreservedly" for a “dirty tricks” campaign against Virgin leading to them paying damages and legal costs. Until 2008 British Airways was the largest airline of the UK, measured by passenger numbers. In 2008 the airline carried 35.7 million passengers. Rival UK carrier EasyJet carried 44.5 million passengers in the same year, taking the title from British Airways.
British Airways is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. On 31 March 2009 the airline celebrated its 35th anniversary.
On 12 November 2009, British Airways confirmed that it had reached a preliminary agreement to merge with Iberia Airlines. The combined airline will become the world's third-largest carrier (after Delta Air Lines and American Airlines) in terms of annual revenue.
British Airways (BA) was created in 1972, when the British Overseas Airways Corporation (BOAC) and British European Airways Corporation (BEA) managements were combined under the newly formed British Airways Board. This effectively made British Airways into the national airline for the United Kingdom and due to the lack of competition, the new company began to exert its position and significance. BA was one of only two airlines to operate the supersonic Aerospatiale-BAC Concorde; inaugurating the world's first supersonic passenger service in January 1976. The final commercial Concorde flight from New York to London was on 24 October 2003.
Sir John King, later Lord King, was appointed Chairman in 1981 with the goal of preparing the airline for privatisation. King was credited with transforming the loss-making giant into one of the most profitable air carriers in the world, boldly claiming to be "The World's Favourite Airline", while many other large airlines struggled. The flag carrier was privatised and was floated on the London Stock Exchange in February 1987 by the Conservative government. In July 1987, British Airways effected the controversial takeover of Britain's "second" airline, British Caledonian.
During the 1990s, BA became the world's most profitable airline under the slogan "The World's Favourite Airline". In 1993 BA formed British Asia Airways, a subsidiary based in the Republic of China (Taiwan), to operate between London and Taipei. BA also purchased a 25% stake in Australian airline Qantas, and acquired Brymon Airways to form BA Connect all in the same year.
Lord King stepped down as chairman in 1993 and was replaced by former deputy Colin Marshall while Robert Ayling took over as the CEO. Benefits under his management included cost savings of £750m and the establishment of Go in 1998. However, one year on, in 1999, British Airways reported an 84 percent drop in profits, its worst since privatisation at the time. In March 2000, Robert Ayling was removed from his position and British Airways announced Rod Eddington as his successor. Eddington set about cutting the workforce further, in response to the slump caused by the 11 September attacks in 2001. On 8 September 2004, British Airways announced that it was to sell its 18.5 percent stake in Qantas.
In September 2005, new CEO Willie Walsh, former Aer Lingus boss, took charge of the company. In January 2008, BA unveiled its new subsidiary OpenSkies which takes advantage of the liberalisation of transatlantic traffic rights, and flies non-stop between major European cities and the United States. On 30 July 2008, British Airways and Iberia Airlines announced a merger plan that would result in the two airlines joining forces in an all-stock transaction. The two airlines would retain their separate brands similar to KLM and Air France in their merger agreement.
British Airways serves nearly 150 destinations, including 6 domestic. Along with Delta Air Lines, Emirates, Korean Air, Malaysia Airlines, Qantas and South African Airways - is one of only seven airlines that fly to all six inhabited continents.
With the exception of the Boeing 707 and Boeing 747 from BOAC, the airline as formed in 1972-4 inherited a mainly UK-built fleet of aircraft. The airline introduced the Boeing 737 and Boeing 757 into the fleet in the 1980s, followed by the Boeing 747-400, Boeing 767 and Boeing 777 in the nineties. However, with the exception of 29 of its 777 fleet, it has often equipped its aircraft with British-made Rolls-Royce engines, examples including the Trent 800 on its Boeing 777s, the RB211-524 on its 747-400s and 767s, and RB211-535s on its 757-200s. Boeing-built aircraft for British Airways are allocated the customer code 36, which appears in their aircraft designation as a suffix, such as 737-436, 747-436, 777-236.
Although it had a large Boeing fleet it has always operated other aircraft. British built aircraft were transferred from BEA (e.g. Trident) and BOAC (e.g. VC10), and in the 1980s the airline bought the Lockheed L-1011. It has also acquired through the buyout of British Caledonian Airways in the 1980s the McDonnell Douglas DC-10 and Airbus A320. In the late 1990s British Airways placed its own first direct Airbus order, for over 100 A320/A319s to replace its own aging fleet of Boeing 737s. In September 2007 BA placed its first order for long-haul Airbus jets, 12 Airbus A380s with 7 options.
British Airways has 32 outstanding options with Airbus, which may be taken as any member of the A320 family. Secured delivery positions on 10 Boeing 777 aircraft are held.
On 27 March 2007, British Airways placed a firm order for four 777-200ER aircraft with an option for four more, with the order totalling more than US$800 million at list price. The company has stated that these are for fleet expansion. BA's first batch of 777 were fitted with General Electric GE90 engines, but BA switched to Rolls-Royce Trent 800s for the most recent 16 aircraft. This has been continued with the most recent four orders as Trent 800 engines were selected as the engine choice.
On 27 September 2007, BA announced their biggest order since 1998 by ordering 36 new long-haul aircraft. The company ordered 12 A380s with options on a further seven, and 24 Boeing 787s with options on a further 18. Rolls-Royce Trent engines were selected for both orders with Trent 900s powering the A380s and Trent 1000s powering the 787s. The new aircraft will be delivered between 2010 and 2014. The Boeing 787s will replace 14 of British Airways' Boeing 767 fleet and the Airbus A380s will replace 20 of BA's oldest Boeing 747-400s and will most likely be used to increase capacity on routes to Bangkok, Cape Town, Hong Kong, Johannesburg, Singapore, and Sydney from London Heathrow.
On 1 February 2008, it was announced that BA had ordered two Airbus A318s to operate a premium service out of London City Airport (LCY) to New York. The two A318s used for the service are fitted out with 32 lie flat beds in an all business class cabin, and the service began in September of 2009. The A318 is the largest aircraft able to operate out of London City Airport. On 4 February 2008 the engine selection was announced as the CFM International CFM56. Most of BA's fleet of A320 family aircraft are powered by International Aero Engines V2500, however these engines are not available to power the A318. It was subsequently announced that, because of runway length limitations at LCY, this route will include a westbound fuel stop.
On 1 August 2008, BA announced orders for six Boeing 777-300ERs and options for four more as an interim measure to cover for delays over the deliveries of their 787-8/9s. On 12 January 2009 CEO Willie Walsh stated that BA's purchase of six 777-300ERs did not indicate that they had ruled out purchasing the A350 for their fleet renewal program and "that the airline expects to reach a decision towards the end of the year."
