Mergers can resemble a mating game, but it is not always clear who is dancing with whom.
British Airways has been in a merger dance with Iberia since at least July, and in August it announced plans to seek antitrust immunity, along with American Airlines, Finnair and Royal Jordanian, on flights between North America and Europe.
The BA-Iberia talks have gone slowly. Iberia's chief executive Fernando Conte says they can afford to take their time and get it right because neither carrier is in financial distress. This is not a situation, Conte says, where the survival of either airline is at stake. But insiders say the talks have faltered over BA's pension deficit that now exceeds £1.74 billion ($2.6 billion), a liability that Iberia is reluctant to assume.
This was the status when BA made its recent disclosure that it is also in merger talks with Australia's Qantas Airways. BA told Iberia about these talks only an hour before it went public with the news, catching Iberia by surprise. Australian papers have since revealed that BA and Qantas have been talking to each other since last June. After learning of this, Conte told a London lunch audience that he will meet with BA "very soon" to clarify its intentions.
BA says media speculation forced it to tell the London stock exchange about its talks with Qantas. Another explanation is that BA revealed the talks to pressure Iberia into a deal. Neither theory explains why BA kept its Qantas talks a secret from Iberia for six months.
Everyone knows that BA is anxious not to be left behind in the race to consolidate. Lufthansa has acquired Swiss International Air Lines, Brussels Airlines and is close to sealing its move for Austrian Airlines. Ryanair has relaunched moves for Aer Lingus. Alitalia is merging with domestic operator AirOne, with both Lufthansa and Air France-KLM looking on. And the Delta-Northwest merger is one of the world's biggest.
Conte does not see Iberia and Qantas as an "either-or" choice, but he insists that BA-Iberia should proceed first. Unquestionably he is right that a merger between two European airlines will be easier than trying to merge BA and Qantas. As he told his London audience, "If you want to do something between two different continents today, it is too complex."
It is also certain that a BA-Iberia merger will not make a follow-on merger with Qantas any easier. To satisfy ownership laws, any BA-Qantas tie-up will require a dual listing structure, which is complicated enough under any conditions. If Iberia also becomes part of this equation, it makes the negotiations over merger ratios and governance even more complicated. And given the scepticism of antitrust authorities toward airline deals that could restrain competition, approval of a BA-Iberia-Qantas deal looks even harder. Most of this is also true if BA and Qantas merge first.
Now that the word is out, the whole world is watching BA's three-way dance as it tries to become a global airline.