Airlines Merger Progress : British Airways May Return to Profit, Boosting Iberia Merger

British Airways Plc Chief Executive Officer Willie Walsh, poised to take charge of the expanded airline created by a merger with Spain’s Iberia, may tomorrow report the U.K. carrier’s first profit in two years.

Net income may reach 158.6 million pounds ($250 million) in the three months ended Sept. 30 from a year-earlier loss, the average estimate of five analysts compiled by Bloomberg shows. London-based British Airways last posted a profit in August 2008, just before the collapse of Lehman Brothers Holdings Inc. that prompted a slump in demand for premium-class travel.

Air France-KLM Group and Deutsche Lufthansa AG both raised their forecasts this week, helped by a rebound in traffic. Six months after British Airways was rocked by a series of cabin- crew strikes and the closure of European air space because of a cloud of volcanic ash, Walsh is using an alliance on trans-Atlantic flights with AMR Corp.’s American Airlines to take on the carrier’s biggest European rivals.

“They’ve guided breakeven for the year but, it wouldn’t surprise me, given momentum and yields if we get better than that,” said Stephen Furlong, an analyst at Davy Stockbrokers in Dublin, who rates British Airways shares “outperform.”

British Airways, the third-largest airline in Europe, has risen 49 percent this year in London, as a recovery in air-travel demand combined with restrained capacity increases pushed up yields, or average fares. In the eight-company Bloomberg EMEA Airlines Index, only merger partner Iberia Lineas Aereas de Espana SA performed better, with a 69 percent increase.

Breaking Even

British Airways told investors on July 30 that it was aiming to break even at a pretax level in the year ending March 31, following record losses. An improvement in outlook would mirror a move by Lufthansa, which raised its forecast yesterday after nine-month operating profit more than doubled. Air France, Europe’s biggest airline, boosted its outlook Oct. 26, predicting an operating profit for its current fiscal year.

The International Air Transport Association last month tripled its projection for 2010 airline profit to $8.9 billion globally as travel increases. The eight biggest U.S. carriers, including United Airlines, Continental Airlines and Southwest Airlines Co., last week posted their highest profits in three years on rising fares.

Tomorrow’s earnings will be the final set before British Airways completes its merger with Iberia. Starting next year, British Airways earnings will be reported as part of International Consolidated Airlines Group S.A., which will report results in euros.
Merger Candidates

The merger, valuing the combined carriers at $9.3 billion at yesterday’s market prices, is scheduled to be completed in January subject to investor and court approval, British Airways said yesterday. The 49-year-old Walsh, and who will become CEO at IAG, said in September that the two carriers were already working together to identify further merger candidates even before their own tie-up was completed.

Walsh, who has led British Airways since 2005, will get a 90,000 pound raise in annual basic salary to 825,000 pounds, a 12 percent increase, according to shareholder documents.

The biggest threat to British Airways’ recovery will be the ability of the airline industry to resist the temptation of adding too many new routes and increasing services too fast to take advantage of the pickup in demand, said Douglas McNeill, an analyst at Charles Stanley in London who has a “reduce” rating on the stock.

Recovery

“Airlines have kept a pretty tight grip on capacity, taking it out during the recession and they haven’t really put it back yet, and as a result fares are quite well up.” McNeill said. “The risk is that the capacity discipline starts to slip, and some might say it’s more of a certainty than a risk.”

For Walsh, a 20-month dispute with the airline’s cabin crew, which could lead to a strike ballot at Christmas, still has the potential to sour his year.

About 12,000 flight attendants are set to vote on British Airways’ latest offer on pay and staffing levels that would slash annual expenses by 160 million pounds in a decade. A rejection of the proposal would prompt a poll on walkouts that could ground flights over the Christmas and New Year holidays.

A date for the ballot hasn’t been set yet, according to Pauline Doyle, a spokeswoman for the Unite cabin-crew union.

“Walsh would like to go out on a high as he moves to his new BA-Iberia role,” said John Strickland, an aviation analyst and director of JLS Consulting Ltd. “It would make a nice conclusion for him if he gets this sorted.”

Southwest Airlines Agree $1.4 billion to Buys AirTran Airways

Southwest Airlines, the nation’s largest low-fare carrier, said on Monday that it had agreed to buy its smaller rival AirTran Airways in a transaction valued at $1.4 billion, expanding its foothold in New York and Boston and allowing it to move into Atlanta, the nation’s largest airport.

The deal is valued at $3.4 billion when AirTran’s debt and aircraft leases are included. Southwest said the purchase had been approved by the boards of both companies, although it still needs regulatory and shareholder approval.

The move comes as the domestic airline industry is consolidating and reducing the number of seats offered as it attempts to return to profitability. United Airlines is taking over Continental Airlines on Oct. 1, after shareholders of both companies recently approved the tie-up and the government gave the green light. Delta Air Lines led the way in 2008 when it acquired Northwest.

The transaction is a sharp departure for Southwest, one of the nation’s few consistently profitable airlines. The company’s success had been built on a simple business model, operating the same type of Boeing 737 planes at a higher frequency between smaller airports.

But Southwest has been looking for ways to expand as its network grew. For instance, it had sought ways into the nation’s larger markets, like New York, Boston and Washington.

So far, Southwest’s presence in New York has been very limited. It has a few landing and take-off rights, called slots, at La Guardia Airport. As part of the United-Continental merger, Southwest had recently obtained some slots at Newark Liberty International Airport.

Southwest said the acquisition would increase its presence in New York and open the door to Atlanta, which is the nation’s largest airport and the hub of Delta Air Lines.

Analysts at Deutsche Bank said they expect the deal to gain swift regulatory approval given the speed with which the federal government approved the United-Continental tie-up and the fact that the networks of Southwest and AirTran do not overlap much.

Southwest said the transaction would save $400 million a year by 2013. It said the one-time costs related to integrating AirTran would be $300 million to $500 million.

The offer represents a premium of 69 percent over AirTran’s closing stock price on Friday. AirTran shareholders would receive a combination of Southwest shares and cash. That includes at least $3.75 in cash and 0.321 shares of Southwest common stock for each share of AirTran common stock.

United Airlines and Continental Airlines to Start Passenger Service Operation Next Year

UAL Corp.’s United Airlines and Continental Airlines Inc. will start blending passenger-service operations early next year as they merge to create the world’s largest carrier.

Shared check-in kiosks and airport signs will appear next year in a process the companies call “Customer Day One” as the new airline adopts the United name. Operational changes such as joint websites probably won’t occur until about 2012, when United gets a single flying certificate from regulators.

UAL and Continental shareholders voted Friday to approve the $3.22 billion all-stock merger, which is scheduled to close by Oct. 1. The carriers are being advised by Bain & Co., the consultant Delta Air Lines Inc. hired to help mesh operations with Northwest Airlines Corp. beginning in 2008.

“On Customer Day One, Continental and United will be able to conduct key customer processes, such as airport check-in and upgrades, for any traveler, regardless of whether they are on a Continental- or United-operated flight,” said Julie King, a spokeswoman for Continental, based in Houston.

Passengers won’t see many immediate changes when the deal closes, King said. The websites for both carriers will continue to operate as they do now, and each company will run its own customer-service and marketing activities, she said.

United’s Mileage Plus and Continental’s OnePass frequent-flier programs will operate independently until after the closing. Members’ reward points will be combined, and the plans will be blended in the first half of 2011, according to the airlines.

United and Continental have decided to keep United’s Chicago headquarters. They will incorporate Continental’s globe logo on the tails when they repaint planes.

Continental Chief Executive Officer Jeff Smisek will run the company, while United CEO Glenn Tilton will become non-executive chairman.

It took Delta about a year and a half to fully combine operations with Northwest after their merger in October 2008.

Within a month, Delta and Northwest began aligning customer policies and fees for services such as taking pets onboard.

Delta installed new signs with its name and logo at all major hubs by March 2009, and the companies were granted a single operating certificate from the Federal Aviation Administration in December, which allowed them to integrate pilot groups and flight procedures.

They combined websites and reservation systems in January, and finished meshing technology and dispatch systems in April.

US Government Need to Consider New Airlines Industry Regulation

After the justice department approved the merger of Continental Airlines and United Airlines last Friday, Congressman James Oberstar (D-Minn) voiced his displeasure again with the merger and suggested that Congress might just need to reconsider the deregulation of airlines that happened in 1978.

The airlines have been stuck between a rock and a hard place for years. Combined profits of the industry are non-existent and customer satisfaction with airline service is somewhere down there in the range of our approval ratings of congress’s performance.

What we have received from deregulation are cheap air fares. Most people don’t remember what it cost to fly on the airlines prior to 1978 because they were either not old enough or did not fly on the airlines back then due to the costs. Real costs for flying via commercial airlines have come down over the past 30 years but the by product of lower fares has been a reduction in what we consider to be service and the amenities of air travel. In some ways airline travel has become just another form of mass transit much like rail service.

What we want we can’t have, and the government stepping in will not solve the problem.

We want our cheap $99 return fares, anywhere, anytime, and we want great service and convenient on time departure schedules to go with the low price.

Deregulation brought on the competition with low cost carriers, which brought down the fares that we all enjoy.

Low fares combined with volatile fuel prices, worldwide competition with lower labor costs and airlines irrationally putting too much inventory of seats in the market took the profits out of the airline industry.

So now we have to adjust to some new fare structure and service level that the free market should work out. Mergers of air carriers are a part of this evolutionary process.

The airlines and their shareholders deserve to make a profit, or at least attempt to do so, while providing air transportation to the consumer. Unlike a utility where we have no choice, we don’t have to fly if we don’t like the combination of price, service and time efficiency of air travel.

As my Southwest flight pulled into the gate Sunday afternoon at Nashville, the flight attendant reminded us that we have many choices about who we fly with and he thanked us for choosing Southwest Airlines. In reality we have choices beyond whom we fly with because we can drive and in some cases take the train. We can also choose not to go at all.

Regulation of air travel from the federal government should be limited to matters of safety. Congress should not venture anymore than they already have into the regulation of customer service, pricing and competition.

Government intervention has not brought much value to anything lately and I can’t imagine a scenario where reregulation of the airline industry will ultimately benefit the US economy and the consumer of air travel.

U.S. Regulators Approved Propose Merger Continental Airlines and United Airlines

Continental Airlines Inc. and United Airlines cleared the biggest hurdle in their proposed merger on Aug. 27 after federal regulators said they had approved the deal.

United Airlines and Continental were informed by the Antitrust Division of the U.S. Department of Justice that it had completed its review of the proposed merger. That clears the way for the deal to close Oct. 1, pending shareholder votes in September.

“The completion of DOJ’s review is an important step on our journey of creating the world’s leading airline, benefiting our customers, co-workers, communities and stockholders,” said Jeff Smisek, Continental’s chairman, president and chief executive in a statement. “The DOJ’s decision permits us to clear one of the last regulatory hurdles to closing our merger.”

Houston-based Continental and Chicago-based United announced an all-stock merger on May 3. Both companies have set special shareholder meetings to vote on the deal Sept. 17.

United and Continental received clearance from the European Commission on the airlines’ proposed merger in July, which noted its investigation found the transaction would not raise competitive concerns in Europe or on trans-Atlantic routes.

Continental shareholders will receive 1.05 UAL shares for every Continental share they own. At the closing of the deal, Continental shareholders will hold 45 percent of the new entity, while UAL shareholders will own 55 percent. The combined company will have headquarters in Chicago.

Also on Aug. 27, Continental and United said they would lease 18 pairs of round-trip flights to Southwest Airlines at Newark Liberty International airport in an effort to address DOJ concerns.

Latin American Airlines (LAN of Chile and Tam of Brazil) Merger Will Create Top Global Airline

Two leading airlines in Latin America LAN of Chile and Tam of Brazil is planning to merger to makes largest airline. This plan to anticipate global aviation industry growth in future.

Planned merger of two largest airlines in Latin America will help the growth of aviation industry in Latin American countries. The new name is planned after the second airline mergers is Latam Group Airline.

“As the world industry consolidates we cannot stand still,” said Enrique Cueto, the chief executive of LAN who will also be chief executive of the new parent company, to be called Latam Airline Group.

He told a conference call that emerging markets, and Latin America in particular, were seeing dynamic growth in demand, adding: “Now is our time to capitalise on this trend.”

Under the non-binding memorandum of understanding signed on Friday, the two airlines – market leaders in their respective countries – will team up in a all-share deal which will see LAN offer 0.9 of its shares for every Tam share – a premium of some 47 per cent.

In terms of passenger airlines, it will rank 15th in revenue terms and 11th in passenger numbers, according to LAN and Tam.

The two airlines, with combined 2009 revenues of $8.5bn, will each retain their own brands but operate under a merged parent company.

Shares will be listed in Chile and the US and it has plans to list on Brazil’s Bovespa. Tam shares will be delisted. Mauricio Rolim Amaro, vice chairman of Tam, will be the group’s president.

Alejandro de la Fuente, LAN’s chief financial officer, told the conference call: “We are not only the right partners but we are partnering at the right time.”

The new group says it expects to achieve “real and achievable” annual synergies of $400m through alignment of passenger networks, growth in cargo operations in Brazil and internationally and cost savings.

The two airlines carried a combined 45m passengers and 832,000 tons of cargo in 2009. Merged, they will operate 115 destinations to 23 cities, with a fleet of 220 planes and 40,000 employees.

The companies say Latin America is seeing increased airline demand and the merger will allow faster growth and more profitability than either company could have achieved alone. Lan operates in Chile, Peru, Argentina and Ecuador, while Tam operates in Brazil and operates Tam Mercosur, which also serves Paraguay.

The new group sees growth coming from routes from Brazil to Europe and Africa; from Peru to North and Central America; new hubs to connect to Europe and the US; and in cargo, taking advantage of LAN’s expertise and Tam’s footprint.

The two companies have long been discussing closer co-operation and have code sharing deals, but Friday’s announcement of a merger was nonetheless a surprise. The deal is subject to regulatory and shareholder approval, which could take six to nine months, but executives said a binding deal should be agreed within two to three months.

However, the share ratios announced on Friday will not be subject to change.

“Together LAN and Tam will be able to offer new destinations that neither company could have supported on its own. This will position us to compete with the foreign carriers that continue to increase serviceds to our region,” said Maro Bologna, chief executive of Tam, in the statement.

Tam’s controlling shareholders, Tam Empreendimentos e Participacoes, will retain control of the Brazilian company with an 80 per cent voting stake and will also own an undisclosed stake in LAN.

LAN’s controlling shareholders, Costa Verde Aeronautica SA and Inversiones Mineras del Cantabrico will also retain control of the Chilean airline, Tam said.

The airlines said the planned deal complied fully with Brazilian rules limiting foreign ownership to 20 per cent and they would comply if there were any changes to that in future.

Tam shares rose 27.6 per cent to close at 36.20 reais in Sao Paulo. LAN rose 7.7 per cent to 13,900 Chilean pesos in Santiago.

LAN is a member of the Oneworld alliance, while Tam is a member of Star Alliance, but the companies said it was two early to say how the question of alliances would be managed under the combined structure.

U.S. Merger Not Expected to Impact Air Canada Or Westjet

The proposed merger between United and Continental airlines is unlikely to have any impact on Canada’s two dominant carriers, industry observers said Monday.

Since both U.S. airlines are members in the Star Alliance along with Air Canada, the union creating the world’s largest airline shouldn’t have any material operational impact on the Canadian carrier, said Cameron Doerksen of Versant Partners.

The U.S. carriers says there isn’t much overlap in their networks.

So there shouldn’t be any significant impact on Air Canada’s schedule since the partner are already co-ordinating their activities.
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United Airlines and Continental Airlines to Agree to Create World Biggest Airlines

United Airlines and Continental Airlines agreed Sunday to a $3 billion merger that would create the world’s biggest airline, according to people briefed on the negotiations.

United’s purchase of Continental, to be announced officially on Monday, would form a coast-to-coast behemoth with a leading presence in the top domestic markets, including New York, Chicago and Los Angeles, along with an extended network to Asia, Latin America and Europe. The deal was completed in a remarkably swift two weeks, and would give the airlines the muscle to fend off low-cost rivals at home and to take on foreign carriers abroad.

The combined company would keep the United name and be based in Chicago. Jeffery A. Smisek, Continental’s chief executive, would run the company. If the deal wins antitrust approval, the merged airline would replace Delta Air Lines as the top carrier.
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United Airlines and Continental Airlines to Create Largest US Carrier

A merger between UAL Corp.’s United Airlines and Continental Airlines Inc. would create the largest U.S. carrier on routes across the Atlantic and Pacific where business fliers pay some of the industry’s highest fares.

The companies together would pass Delta Air Lines Inc. for the top spot in the U.S. industry across the Atlantic, with 40 percent of the passenger traffic, and grab 53 percent of traffic across the Pacific, where United already leads, based on data compiled by Bloomberg.

UAL and Continental are holding talks on a tie-up, a person with direct knowledge of the meetings said yesterday. Broader networks help funnel in more travelers and attract corporate customers who fly between airports such as San Francisco and Tokyo’s Narita, or Newark, New Jersey, and London’s Heathrow.
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Air Canada Union Begins Negotiations With Call For Airline To Change

Air Canada’s largest union began two days of scheduled contract negotiations Monday with a call for the airline to change the way it operates in order to secure a contract agreement.

The International Association of Machinist and Aerospace Workers said its 10,000 members who work at the country’s largest airline feel ignored. Read more

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