British Airways Plc, Europe's third- biggest carrier, started talks to merge with Spain's Iberia Lineas Aereas de Espana SA to lower expenses as slower economies and higher fuel costs wipe out earnings. The airlines want to conduct an “all-share merger,'' and planes would still fly using the two names, London-based British Airways said Tuesday in a statement. Iberia rose 4.3 percent in Madrid before trading was halted, giving the carrier a market value of 1.63 billion euros ($2.6 billion). British Airways, at more than double Iberia's value, climbed 7.5 percent in London. British Airways said two weeks ago it will cut passenger capacity and stop hiring as it struggles to make a profit. The UK carrier said it recently increased its stake in Iberia to 13.15 percent from 9 percent, with Spanish bank Caja Madrid holding 22.99 percent. Iberia said today it has bought 2.99 percent of British Airways and holds a further 6.99 percent in contracts linked to BA's share price. “The aviation landscape is changing and airline consolidation is long overdue,'' British Airways Chief Executive Officer Willie Walsh said in the statement. “The combined balance sheet, anticipated synergies and network fit between the airlines make a merger an attractive proposition, particularly in the current economic environment.'' Record oil prices and slowing economies have prompted airlines to merge or strengthen partnerships. Madrid-based Iberia is attractive to suitors because of a route network that includes the highest density of services between European and Latin American cities such as Buenos Aires and Rio de Janeiro. “There are some real revenue synergies here,'' said Gert Zonneveld, a London-based analyst at Panmure Gordon. “There will be a level of costs that can be taken out of the business anywhere from finance to HR operation to looking at the fleet and engineering and maintenance costs.'' He said a merger also “makes sense'' because of Iberia's Latin American network. BA gained as much as 21.5 pence, or 9.2 percent, to 256 pence in London trading. The stock was at 252 pence at 12:23 P.M.
