BA 'may merge with Iberia'

BA needs to cut costs

British Airways chief executive Rod Eddington has indicated that the British carrier could well merge with Spain's Iberia.

Mr Eddington's comments come in the Spanish press after he has been in Madrid at a dinner hosted by the Spanish airline.

According to an interview in El Pais newspaper, Mr Eddington said the two flagship airlines may "finish in each other's arms".

Mr Eddington added that Spain was a strategic market for Britain and it was natural for the two airlines to work together.

Speculation of a tie-up between the two airlines has been growing after Air France effectively took-over Dutch KLM earlier this week.

The Air France-KLM structure - where the two airlines are brought together under a joint holding company but keep their separate identities - "could be a good formula" for British Airways, Mr Eddington told the Spanish business magazine Expansion.

Complications

The Air France-KLM deal creates Europe's largest airline, putting pressure on BA to follow suit with a merger in order to maintain its cost efficiency and market position.

Iberia and British Airways have already signed so-called code-sharing agreements on 57 routes which allows each airline to sell tickets to fill seats on the other airline's flights.

But full-scale mergers are more tricky to negotiate because of bilateral agreements made between individual governments and third countries which dictate where airlines can fly.

The European Commission is currently negotiating to replace all these bilateral transatlantic agreements with a single pan-European deal, and analysts expect more mergers once these rules are modified.

Pride

"Regulation norms still complicate many things...and we would have to know what kind of union would be meaningful for two companies like BA and Iberia to work together," Mr Eddington said.

There have been some question marks over whether the KLM-Air France deal will actually save a significant amount of money because the two airlines are forced to operate independently.

The struggling airline industry has long been expected to undergo consolidation, with too many airlines competing for too few tickets.

But the process has been delayed by a variety of factors, including the national pride associated with having a flagship carrier as well as the long-established rules over flight paths.