UPDATE: EU Begins Probing BA/Iberia Merger Plans

11th Jun 2010 16:30

(Adds detail, background, analysis) By Peppi Kiviniemi Of DOW JONES NEWSWIRES BRUSSELS (Dow Jones)--The European Commission has set a provisional antitrust deadline of July 15 for the investigation of the planned airline merger between British Airways PLC (BAY.LN) and Iberia (IBLA.MC), a spokeswoman for the commission's competition division said Friday. Concerned that the deal may create monopolies on certain routes the commission, Europe's highest antitrust authority, has already sent a questionnaire to competitors querying whether they see any issues with the merger, according to a person familiar with the questionnaire. Main routes under scrutiny concern flights between London to Madrid, London to Barcelona and London to Malaga the person said. In addition the commission is asking questions about some 20 indirect routes. The commission is also asking about the likelihood of passengers being willing to substitute close-by airports with each other, to see whether instead of flying directly to Barcelona passengers might be happy to board a flight that lands close to Girona, the person added. Brussels lawyers following the airline industry closely say that it is likely the commission has its eye on gaining some concessions from the airlines before clearing the deal. In a similar merger in 2009 when Lufthansa (LHA.XE) took over Austrian Airlines, the commission's antitrust investigation was extended over several months as the regulator was trying to extract concessions from the airlines. In the end, the deal was cleared subject to Lufthansa reducing the number of flights from Vienna to several European airports, allowing new entrants to offer flights on those routes. If the commission has already identified problem routes on the BA/Iberia merger, it can well require city pair divestments before clearing the deal, said one lawyer representing an European airline. In such an eventuality, the deal deadline will be extended at least by 20 working days. BA and Iberia are likely to argue that they face sufficient competition on the London to Madrid and Barcelona routes from low-cost airlines EasyJet (EZJ.LN) and Ryanair (RYA.DB), but the commission hasn't always considered budget airlines a credible alternative for business travelers, the lawyers say. The airlines don't expect to conclude the merger until the end of the year. In addition to the EU merger clearance, British Airways also needs to sort out its pension liabilities, expected to happen sometime during June. Under the merger agreement BA and Iberia would keep their separate brands and identities, but a BA-Iberia holding company called International Consolidated Airlines Group SA would be created with a primary listing in London and a listing in Spain. The combined airline would be the third largest airline in Europe by revenue, carry more than 58 million passengers a year. -By Peppi Kiviniemi, Dow Jones Newswires; +3227411483; [email protected] (END) Dow Jones Newswires June 11, 2010 11:30 ET (15:30 GMT)