M&A

13 November, 2009

NEWSMAKER-BA's Walsh brings overhaul skills to Iberia

* Former pilot Walsh known for cost-cutting

* Iberia's Vazquez cements dealmaker reputation

By Elisabeth O'Leary and Rhys Jones

MADRID/LONDON, Nov 13 (Reuters) - Iberia's (IBLA.MC) dealmaking chairman, Antonio Vazquez, is counting on British Airways (BAY.L) chief and veteran cost-cutter Willie Walsh to lead their fightback from the worst industry crisis in decades.

The two loss-making airlines agreed late on Thursday to merge, creating a group with a combined market value of $7 billion. [ID:nLD644350]

"The challenge of integrating two large businesses will be new for everybody, but Walsh's experience and operational skills should serve him well there," said Eamonn Hughes, an analyst at Goodbody Stockbrokers in Walsh's old stomping ground of Dublin.

Walsh, 48, was hired by British Airways in 2005, after he restructured Irish flag carrier Aer Lingus (AERL.I), in the face of competition from aggressive low-cost operators such as Irish rival Ryanair (RYA.I).

Aer Lingus, where Walsh started out as a pilot, also gave him an introduction to Spain -- he was chief executive of Futura, a Spanish chartered airline owned by the Irish group.

For Vazquez, who sold Franco-Spanish tobacco firm Altadis to the UK's Imperial Tobacco (IMT.L) in 2008, the tie-up between BA and Iberia seals his reputation as an international dealmaker.

"(Vazquez) has been decisive here. He's much more proactive and positive than the earlier (Iberia) management, and his abilities have already been proven in similar deals," said Elena Fernandez, analyst at Ahorro Corporacion Financiera.

The merger came out of top-level negotiations between senior management, including Walsh and Vazquez, rather than bankers, according to one source involved in the deal.

"Pragmatism prevailed," the source said, describing the talks, which took off after Vazquez arrived, as unemotional, with both sides willing to make thoughtful concessions.

The talks began in June 2008 between Vazquez's predecessor Fernando Conte and Walsh. Vazquez, 58 and dubbed "The Negotiator" by Spanish travel magazine Savia, became Iberia's executive chairman this July. [ID:nL9558954]

Although Iberia has already been cutting costs, that has not been enough to offset falling revenues. BA's Walsh may be the man to give the process fresh impetus.

Walsh has trimmed BA's bulky management, offloaded its loss-making regional BA Connect unit and helped the airline regain investment-grade status by resolving a protracted pension dispute.

He is embroiled in a row with unions as he seeks to rein in some of the most generous terms of employment for cabin crew in the airline industry -- something Iberia says its cabin crew, currently on strike, also enjoy.

Vazquez, known for a personal touch in his dealings with subordinates, has not been able to stem the anger of his staff.

Iberia was one of the few airlines to post a profit last year, mostly due to its stronghold in Latin America. But it has struggled to fill seats as low cost competitors take the advantage during the recession.

"Vazquez has given this deal the necessary priority ... and has given Iberia the confidence to understand that they had to reach an agreement," said an analyst who declined to be named. (Additional reporting by Robert Hetz and Tracy Rucinski in Madrid and Paul Hoskins and Quentin Webb in London; Editing by Erica Billingham)

Source: http://www.reuters.com