Gabriel’s scarcity rent – it’s management stupid!

Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia

22 May, 2007 at 12:00 pm 2 comments

Smart move from British Airways. The hunt has resumed and two hunters have made an alliance: Texas Pacific Group and British Airways will go together.

That’s a good idea because private equity can cooperate easily with the British airline’s knowledge support. And there are synergies: Iberia has what BA lacks: a good connection with America, specially Central and South America. And TPG has what BA lacks: money. Apax wouldn’t fit in the agreement, though.

British Airways has many shared codes with Iberia, plus a 10% stake in the company, and call options to a 27% more from Caja Madrid (10%), BBVA (7,3%), Logista (6,7%) and El Corte Inglés (3,1%). But British Airways’ shares have not been very optimistic lately, as you can see in the following graph:

BA in London Stock Exchange (blue) compared to Dow Jones Index (red), not too bright 

(It’s not something about British Airways. EasyJet and RyanAir have been squeezing as much money from traveller’s pockets as they have been able to, but there’s a dead end right in front of them, and the Airline’s sector situation now is not that bright. Iberia and Alitalia are looking for buyers. Time for restructuring. But that’s not for today.)

Remember my last post on Iberia and why it had to keep being Spanish? Well, looks they’ve found the solution. TPG and BA would acquire a maximum share of 49% while the rest would be left for Spanish investors. They are also known:  Vista Capital (which includes Banco de Santander and his old ally Royal Bank of Scotland), Ibersuizas and Quercus (a venture capital fund also participating in another low-cost Barcelona-based airline: Vueling). That way they can protect their exclusive international flying agreements signed with the Spanish government. (those kind of agreements that you can’t acquire in the free market). Here is the post: Iberia and its brides… where is the value?

So it looks like British Airways is trading handling victory to TPG over Apax (and partners Hemisferio and Torreal) with his call options, plus knowledge and synergies with his network for a bigger chunk of shares without spending money. All of that without having to renounce to international agreements signed by the Spanish government on behalf of a Spanish Iberia.

European real integration: British airports more Spanish and Spanish planes more British

Well done BA!

Entry filed under: Aviation, Business, Economics, MBA, Microeconomy, Spain. Tags: .