Friday November 13, 09:52 AM
UPDATE 2-BA merger partner Iberia operating loss widens
By Tracy Rucinski
MADRID, Nov 13 (Reuters) - Spanish airline Iberia (Madrid: IBLA.MC - news) posted a wider-than-expected nine-month
operating loss on Friday, evidence of the difficulties it aims to address by its planned merger with British Airways (LSE: BAY.L - news) .
BA and Iberia agreed the deal late on Thursday to create the world's third-largest airline by revenue in a move to cope with the industry's largest downturn in decades.
The new company will combine British Airways' strong position in Europe-to-North America traffic with Iberia's Latin American business, and will potentially be reinforced by a planned alliance with AMR Corp (NYSE: AMR - news) 's American Airlines.
By 0933 GMT, Iberia's shares were 2.4 percent higher to 2.274 euros, extending Thursday's 12 percent gain, while BA was 2.5 percent higher at 221 pence.
Iberia said its loss before interest and taxes widened to 331 million euros, and was bigger than analysts' average forecast for a 320 million euro loss, as aggressive cost-cutting was not enough to compensate for a 20 percent fall in revenues.
'Iberia has done some aggressive campaigning to fill its planes, even at cheap fares, and margins have suffered as a result, ' an analyst in Spain who asked not to be named said.
The airline swung to a net loss of 181.9 million euros from a 51.1 million euro profit a year ago as the economic crisis continued to dent passenger numbers, Iberia said on Friday.
'The airline industry in Spain is facing exceptionally difficult circumstances,' Iberia said.
Iberia carried 5.1 percent fewer passengers in October, while its load factor -- a measure of how full its planes fly -- improved to 80.6 percent.
British Airways posted last week posted a 292 million pound pretax loss and said predicted revenue would slump by 1 billion pounds this year.
The International Air Transport Association expects airlines to lose $11 billion in 2009.
BA and Iberia expect to close their merger in December, 2010, with BA's Chief Executive Willie Walsh taking over as CEO and Iberia's chairman Antonio Vazquez as chairman of the new company.
BA will control 55 percent of the new company, based in London, and Iberia 45 percent.
'Our impression is that Iberia has rushed into this deal and in the process has accepted a less favourable exchange ratio. We were betting on a 47-53 division of the new company,' a Madrid-based equities sales trader said.
'And there's still a risk that the deal will fall through. It's all hanging on BA's negotiating weight with Trustees over its pension,' he said.
BA's pension deficit, which stood at around 3 billion pounds at the end of its first half, was one of the main stumbling blocks to the 16-month merger talks and was as a key negotiating tool for Iberia.
Iberia said it was reserving the right to back out of the merger if the final agreement between BA and the administrators of its pension is not 'reasonably satisfactory.'
Iberia is due to hold a conference call at 1100 GMT, where investors will be looking for more details on the planned tie-up.
(Reporting by Tracy Rucinski, Editing by Will Waterman and Erica Billingham)
($1=.6668 Euro) Keywords: IBERIA/
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