Iberia is courting trouble with the Spanish competition authorities after reaching agreement for a franchise deal with its main domestic competitor, Palma-based Air Europa.
Iberia suffered capacity shortages during 1997 and was forced to wet lease a variety of aircraft, resulting in a fall in service standards. The deal with Air Europa, headed by former Iberia chairman Juan Saez, is, however, designed to end the squeeze.
The agreement will enable Iberia to utilise 11 of Air Europa's 34 aircraft - a third of the carrier's fleet - on European and longhaul services, adding capacity for an extra two million passengers a year. The two-year agreement, predicted to take effect in April, covers three B737-300s, six B757-200s and two B767-300ERs.
The deal's final structure has yet to be agreed but a franchise operation, with costs and revenues funnelled through a special purpose company, is seen as the most likely option. The aircraft will be operated in Iberia colours using Air Europa staff transferred to the new operation.
Air Europa's expansion of scheduled services has been halted by a lack of slots for its European services from Barcelona and Madrid but it will continue to compete with the flag carrier on domestic trunk routes and to the Caribbean.
European competition officials had no comment on the proposed pact but the Spanish authorities, which are examining allegations of domestic price collusion between Iberia, Air Europa and Spanair, have privately voiced concern.
However, by shoring up its European network, Iberia has advanced the case for an early visit to the equity markets. British Airways and American Airlines remain the frontrunners to take initial equity stakes. Options to acquire five per cent each expired at the end of December but sources at Stesi, the state holding company, say an informal offer has been made to extend the option and offer each carrier two board members on an 11-strong executive.
Employees have agreed to acquire nine per cent of the company's shares during the first privatisation phase, and Stesi indicates that it will examine the initial public offering of 30-40 per cent of the carrier's shares in 1999, after placing 10 per cent with trade or institutional investors before the end of the year.
Iberia will also close its unprofitable Miami hub in April and is negotiating a codeshare deal with American or Taca to maintain its Central American services. Four DC-9s will return to Spain while the carrier's four B727-200s will be sold. The carrier plans to increase capacity to Latin and Central America by 15 per cent over the next two years and to start services to Chicago in April, exercising existing rights to codeshare with American to 24 US points.
Source: Airline Business