British Airways & Iberia PLUS American?

BAW - British Airways Boeing 757-236

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This week saw the first anniversary of a joint business agreement between American, Iberia and British. Under this agreement, the airlines agreed to co-operate commercially on flights between the United States, Mexico, Canada, the European Union, Switzerland and Norway. The agreement  was backed up by anti trust immunity from US and European authorities.

Shortly, after the agreement was signed, in January, 2011, Iberia and BA merged into a new company called IAG (international Airlines Group), Europe’s third largest airline group and the sixth largest in the world by revenue. The airlines have combined the strong BA Asian connections with Iberia’s Latin American connections. The new company has headquarters in Madrid, and operational offices in London. BA investors got 55 per cent of the carrier and Iberia 44 per cent. The two brands have been kept. There have been some claims by Spanish unions of favoritism to the Brits.

That merger and the agreement raises the question for me about American Airlines and IAG. Its so logical for IAG to merge with American.

American has not got many places left to go. United and Delta are not possible merger partners for lots of reasons (monopoly issues, already bedding down mergers, different alliances etc). Merging with USAir would be a bad idea.  Frontier, Alaska, Hawaiian and JetBlue are too small and Southwest would not give American enough international connections. American needs to go outside of the USA to get a merger partner.

American had been surrounded by rumours of its impending bankruptcy for a couple of weeks now.  If it did declare bankruptcy, it could clean up its balance sheet.  Such a bankruptcy would therefore,  make the merger even more interesting for IAG.

The major blockage to merger is that the U.S. government caps foreign ownership  of US carriers at 25 per cent. Moving this cap to 49 per cent, would make such an international merger much more possible and attractive. It would ensure the survival of American.

It could lead to some more interesting international mergers. My friend Tony and I predicted a world with 10 to 12 mega carriers and 25 -30 regionals. Be interesting to see how right we end up!

Wonder if anyone is lobbying the US Government over the 25 per cent rule?

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