BRITISH AIRWAYS IBERIA AIRLINES MERGER

JESSY THOMAS P09116

AGENDA
Company profile : BA and IBERIA AIRLINES Transaction Overview Rationale for the combination Key terms Major Legal Aspects Corporate Governance Hurdles Assurances Conditions Dates

COMPANY PROFILE
BRITISH AIRWAYS IBERIA AIRLINES

Founded : 31 March 1974 Fleet size: 245 (+51 orders) Destinations: 150 Headquarters: London Hubs :

Founded : 28 June 1927 Fleet size: 183 (+ 76 orders) Destinations: 120 Headquarters: Madrid Hubs :

a) London Gatwick Airport b) London Heathrow Airport

a) Madrid Barajas Airport

TRANSACTION OVERVIEW
Worlds third largest airline by revenue Enhanced customer benefits and network offering

Improved strategic position globally

Significant synergy potential Effective governance structure to deliver joint business and synergy plans while retaining separate brands and airline operations Merger Agreement to be signed in Q1 2010 and completion expected by Q4 2010

WHY MERGE?
Revenue enhancement and the eventual ability for BA and Iberia to play on a more level competitive playing field with Air France/KLM and Lufthansa ENHANCED CUSTOMER BENEFITS: COMBINED NETWORK Overall 205 new destinations 48 destinations served by British Airways and Iberia 59 new destinations for British Airways customers 98 new destinations for Iberia customers Large network for cargo customers Greater potential for future growth by optimising dual hubs of London [Heathrow] and Madrid

I.

WHY MERGE?
II. IMPROVED STRATEGIC POSITIONING: NETWORK FIT Complementary transatlantic networks BA currently a leading long haul North Atlantic carrier [North American traffic] Iberia currently a leading long haul South Atlantic carrier [Latin American traffic] Highly complementary worldwide fit

WHY MERGE?
III. Improved Strategic Positioning Compete globally with other major airlines Positions the merger for future industry consolidation

IV. Synergies Estimate annual revenues of $22.38 bn Target annual synergies of $595mn by end of year 5 o 1/3rd from revenue o Cost savings from: IT, fleet, maintenance and back office

KEY TERMS
$7 billion merger BAs stake : 55% [ existing 13.5% stake in Iberia] Iberias stake: 45% To create a new holding company

Dual hubs in London and Madrid

To keep their own licenses, codes and brands for the first five years of merger

MAJOR LEGAL ASPECTS

Require regulatory clearance from European Commission

BA had code sharing agreement with Iberia under One World alliance of airlines
BA applied to US and European authorities for anti-trust immunity o To allow cost and revenue sharing on transatlantic routes with Iberia and American Airlines

CORPORATE GOVERNANCE
Board of 14 members o 7 from BA o 7 from Iberia Willie Walsh: new CEO [BA Chief Executive] Antonio Vasquez: new Chairman [Iberia Chairman] Responsible for overall direction, strategy and coordination

HURDLES
Both are loss-makers : combined loss of 1 billion Both need to deal with strike threats from employees

Merger result in job cuts, more strike threats

BA's estimated 3 bn pension shortfall 20million demanded by Iberia as break fee if pension deficit of BA unsolved BA bigger than Iberia: stake only 55% But demand for large break fee by Iberia inspite of only 45%

ASSURANCES
BA and Iberia to keep their base in their home country, own licenses, certificates, codes and brands

Slots and destinations to be protected for the benefit of the group

Balance between both networks, with new opportunities for both airlines Labour relations to be kept locally

CONDITIONS
Pre-Conditions o Appropriate confirmations from UK and Spanish Civil Aviation Authority o CNMV approval of transaction structure Conditions o Appropriate antitrust/regulatory clearances received from BA and Iberia shareholders o Admission of holding company shares to UK listing o Satisfactory outcome to BA pensions review

Break fee of 20m payable in certain circumstances, no guarantee by Iberia to fund BA pension deficit

KEY DATES
November 2009: o Sign binding MoU Q1 2010: o Finalisation of financial and legal aspects o Development and Synergy Plans o Sign Merger Agreement Q3 2010: o Shareholder meetings Q4 2010: o Closing

THANK YOU