British Airways and Iberia Forge Memorandum of Understanding

British Airways' and Iberia's boards of directors have agreed to a binding memorandum of understanding for a proposed merger to create a new, leading European airline group that will bring significant benefits for customers. The merger is expected to be completed in late 2010.

The new airline group would have 419 aircraft and fly to 205 destinations. In 2008, British Airways and Iberia carried 62 million passengers and, in their last financial years, their joint revenues are approximately € 15 billion.

In a statement the airlines said they believed there is a compelling strategic rationale for the transaction, which is expected to generate annual synergies of approximately €400 million, and benefit both companies' shareholders, customers and employees.

The new group will combine the two companies' leading positions in the UK and Spain and enhance their strong presence in the international longhaul markets, while retaining the individual brands and current operations of each airline.

The benefits of the proposed merger include:

    * Enhanced customer benefits with a larger combined network for passengers and cargo and continued investment in new customer products and services.
    * The combined group will offer its customers connections to 205 destinations and strengthen the oneworld alliance.  British Airways' customers will gain access to up to 59 new destinations, of which 13 will be in Latin America, while Iberia's customers will gain up to 98 new destinations across the British Airways network. They will also be offered better frequencies and connections, more competitive prices, access to more VIP lounges and enhanced frequent flyer benefits.

The merger will also improve the strategic position within the global aviation sector, including:

    * Highly complementary network fit worldwide, in particular combining British Airways' strong presence in North America, Asia-Pacific and Africa with Iberia's strong Latin American presence.
    * Greater potential for future growth by optimizing the dual hubs of London and Madrid.
    * Enhanced scale and ability to compete with other major airlines and participate in future industry consolidation.

 Annual synergies of approximately €400m at budgeted exchange rates are expected by the end of the fifth year after the completion of the merger at a cash cost of up to €350m. The synergies will be incremental to the existing value from the airlines' joint business between the UK and Spain.

Approximately one third of the synergies are expected to be revenue related (joint selling, network and revenue management benefits) with the balance coming from cost synergies in areas such as IT, fleet, maintenance and back office functions.