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British Airways merger with Iberia threatened by pension scheme

Insiders say that Iberia, in discussions with British Airways over a £3.8 billion all-share merger, is likely to delve further into the BA pension scheme after some of the findings by the pension consulting firm Mercer were recently disclosed.

Spain’s flag carrier engaged the consultant to review the BA pension scheme after months of attempting to understand the reason for the airline’s ballooning pension deficit.

The report by Mercer is scheduled for delivery to Iberia’s board in January, as is a business plan by management consultant McKinsey, which was jointly-commissioned.

It seems that Iberia is concerned about inheriting the liabilities of the BA pension scheme in the merger deal and is also concerned about the amount of money that British Airways might have to inject. Iberia does not have such a scheme in place.

The concerns are making it difficult to establish a ratio for the merger. In July, when the talks were first revealed, British Airways was looking for a 65 per cent/35 per cent ratio, but shareholders of Iberia are now saying they want at least 40 per cent.

Iberia’s chairman, Fernando Conte, admitted earlier this month that the airline was still trying to understand how the pension scheme deficit had grown – and the implications for the deal.



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