Shakeups Loom for European Airlines

Source: Spanish Airline Receives Takeover Offer

European airlines are positioning themselves to take advantage of the “open skies” agreement that will deregulate transatlantic air transportation. See EU battles US over airline restrictions. One of the expected effects of the increased competition on transatlantic routes is airline consolidation across Europe.

Iberia Lineas Aéreas de España, a carrier with a number of lucrative transatlantic routes, and BMI, a largely domestic airline in Britian, are two of the prime consolidation targets. Iberia recently indicated that it was willing to talk with potential suitors. A US private equity group, Texas Pacific Group, responded with a $4.55 billion buyout offer, which may set off a bidding war with other European carriers. British Airways and Virgin Atlantic, the top two British carriers, are both interested in BMI because it owns about 12 percent of the coveted takeoff and landing slots at London’s Heathrow Airport. These slots, which sell for up to $19 million each, are increasingly important under the open skies agreement, because, in March 2008, Heathrow will be open to competition by all airlines for the first time in 30 years.

Separately, Europe’s Competition Commission is reviewing the ownership of several British airports, including Heathrow. Heathrow’s owner, BAA, owns seven airports in the UK and is under investigation for anti-competitive practices. Depending on its findings, the Competition Commission could order BAA to sell off one or more of its airports.