The BA-Iberia merger is more about defence than attack. Research claims mergers often don't work, but the cost of not merging often brings companies together.
British Airways' deal with Iberia looks like a union with little upside other than the downside of not merging.
Airline consolidation used to be domestic (BOAC, BEA and British Caledonian amalgamating into BA, for instance) rather than cross-border because governments devised poison pills to avoid losing face by losing their flag-carrier.
Airlines formed alliances like Star and Oneworld instead, but massive losses eventually broke the impasse. Lufthansa bought Swiss, Brussels Airlines and Bmi while KLM linked with Air France.
BA suddenly seemed small by comparison -- it sought out mergers simply to maintain its relative position.
Repeated US merger attempts were blocked and talks with KLM and Qantas failed, so as all the best partners paired off BA chose Iberia as the best remaining option. If any further spur was needed for a Spanish deal, it was Lufthansa's declaration to link with Iberia if BA stalled.
This "keeping up with the rivals" triggers many bids, not all successful. Cadbury's merger with Schweppes (which it has since divested) coincided with Rowntree's bid for Mackintosh. (Rowntree was later bought by Nestle). Royal Bank of Scotland's takeover of NatWest bounced Bank of Scotland to seek Halifax as a partner.
The BA/Iberia merger has all the signs of defensive compromise rather than decisive consolidation. One entity (mistakenly called "Topco" by some in the media unaware this is a working name until both sides agree something acceptable) will own the two airlines without merging them.
Brands, codes, licences -- and labour relations -- remain local. BA investors become Topco's majority owners (though once the institutional holdings are mingled, that means nothing), but it will be a Spanish company holding shareholders' meetings in Madrid, even if the management is in London.
The chairman is Spanish, BA's becoming his deputy, while BA supplies the CEO and Iberia the finance director. Topco's board will have more Spanish non-execs than British and while the BA operating board has two Spanish members, Iberia's will have only one Brit. Neither Topco nor Iberia will top up BA's pension deficit.
It is a split based on diplomacy rather than merit.
And the benefits? After five years synergies should be 400m euros a year -- after spending an extra 350m euros first. Two-thirds of that is cost savings, mainly back office and maintenance, and the rest is expected extra revenues -- less than one per cent of turnover.
BA is big across the north Atlantic and Iberia strong over the southern ocean -- but that reflects demand as well as supply: if Heathrow-Brazil traffic justified it, BA would fly more often. And isn't the Oneworld alliance meant to generate those revenue synergies anyway?
After 16 months' negotiation, BA reckons its merger will take 14 more months to complete. The lack of haste suggests this is a marriage of convenience rather than a passionate love story.
Both carriers need a partner to remain in the league with Lufthansa and AirFrance/KLM but neither wants to lose their independence.