British Airways bullish on closing AMR, Iberia deals

British Airways Plc Chief Executive Officer Willie Walsh said he’s confident he can conclude tie ups with American Airlines and Iberia and that there’s no danger his company will be left behind as the industry consolidates.

Plans for a closer alliance with AMR Corp.’s American should win regulatory approval without a requirement to surrender takeoff slots at London Heathrow airport, Walsh said today in an interview. Talks on a merger with Iberia Lineas Aereas de Espana SA are continuing and the Spanish carrier now has a better understanding of BA’s pension deficit, he said.

“I’m confident about both proposals,” Walsh said, adding that even if the deals fail, this wouldn’t be a “big problem” given the current economic climate. “There is no shortage of airlines for acquisition. I get phone calls from CEOs all the time saying, ‘Please buy us.’ We have to be picky.”

Walsh is under pressure to seal the deals with Iberia and Dallas-based AMR after the breakdown last month of a merger with Qantas Airways Ltd. of Australia. Europe’s two largest carriers, Air France-KLM Group and Deutsche Lufthansa AG, have used acquisitions to leapfrog BA and leave it trailing in third.

British Airways rose 1.8 pence, or 1 percent, to 184.1 pence in London, where the company is based. Iberia advanced 4 cents, or 2 percent, to 2.05 euros in Madrid, the best performance on the 11-member Bloomberg Europe Airlines Index.

Widening Deficit

Discussions with Iberia have stumbled on concern about BA’s widening pension deficit and the balance of ownership in any combination. Walsh said he welcomed the Spanish carrier’s recruitment of Mercer LLC last week to study the 1.5 billion- pound ($2.22 billion) pension liability.

“The focus has been on pensions,” the CEO said in the interview in London. “They understand the issue much better. It’s something they have had to come to terms with. But the deal makes as much sense today as when we first announced it.”

The introduction of an “Open Skies” air-services agreement between the U.S. and Europe last March should ease regulatory concerns about plans for a deeper alliance with American Airlines, Walsh said, with rival carriers now able to win greater access to Heathrow, Europe’s busiest airport.

British Airways and AMR said in August they’d seek the go-ahead to operate as a single carrier on trans-Atlantic routes, coordinating prices, capacity, schedules and routes and share revenue on flights. Two previous applications failed.

‘Different Environment’

“I’m confident about American,” Walsh said. “The environment is very different today to last time and there has been no great opposition from the industry in the U.S.”

Approval for the plan may come in time for the carriers to introduce their alliance in time for the next winter timetable, the CEO said.

“The consolidation that counts is the trans-Atlantic tie-up with American rather than Iberia,” said Douglas McNeill, an analyst at Blue Oar Securities in London with a “buy” recommendation on BA. “The prospects going forward are good. They’re riding out the downturn well and the airline will certainly be around when the dust settles.”

The failure of negotiations with Qantas came after the Sydney-based airline had made the first contact, Walsh said.

“I think the reaction of the press in Australia was a factor,” he said. “It was their initiative. They approached us. I was skeptical about the synergies at first but was proved wrong.” A merger would have produced savings of A$1 billion ($720 million) a year, he said.

Broader Networks

While British Airways has pursued potentially lucrative deals that have proved tough to execute, rivals have pulled off a series of acquisitions giving them broader networks.

Paris-based Air France bought Dutch carrier KLM in 2004 to become world No. 1 by sales. Cologne, Germany-based Lufthansa purchased Swiss International in 2007 and last year added Brussels Airlines and Austrian Airlines AG before striking at BA’s Heathrow base by buying BMI. Both carriers are in the running for a stake in Alitalia SpA that may be awarded by the Italian carrier’s owner as early as this week.

Walsh said his company “would have loved to have had a commercial relationship” with Alitalia but wasn’t prepared to buy a stake. “It’s critical to choose partners and acquisitions very carefully,” he said.

British Airways plans to go ahead with the introduction of business-class only flights from London City airport to the U.S. at the end of the summer even after premium traffic fell 12 percent last month, Walsh said. No cuts to the network will be considered before the introduction of next winter’s timetable and the CEO said the collapse of more airlines as demand for travel slows may better match supply to demand by then.

Walsh said he expects a U.K. government decision on BAA Plc’s plans to build a third runway at Heathrow by the end of this month.