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BA/IB to look at more acquisitions

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Matt Scuffham and Rhys Jones

London and Madrid — Reuters

Published on Monday, Sep. 06, 2010 3:08PM EDT

Last updated on Monday, Sep. 06, 2010 3:11PM EDT

British Airways and Iberia have identified possible acquisition targets to pursue once their own merger completes, with Asia seen as a key region for expansion.

Shares in Kingfisher Airlines, India’s second-largest private-sector carrier, jumped on Monday after BA Chief Executive Willie Walsh told reporters in Mumbai that BA and Iberia had compiled a list of 12 potential targets.

Davy stockbrokers analyst Stephen Furlong said: “I would say Asia is number one in the context that it’s a high-growth market. India is very important for them and I suspect Kingfisher is top of the list.”

BA and Iberia plan to merge by the end of the year to create the world’s third-largest airline by revenue called International Airlines Group (IAG).

“We have had a number of meetings where we have looked at airlines around the world and identified those that would be attractive to us in joining IAG,” BA CEO Walsh said, adding that no deals were imminent.

“This is just to give us a focus. We have not had any discussions with any airlines. There is nothing going on at the moment,” he said.

Shares in Kingfisher, India’s second-largest private-sector carrier, were 9 per cent higher at 69 rupees by 1325 GMT.

Kingfisher last week approved a $1 billion fundraising to stem losses and make the airline profitable.

Aviation fell into a steep nosedive after the financial market collapse in 2008 but airlines are growing more confident as economic recovery takes hold, with performance at pre-crisis levels and expectations of profitability rising.

So far, most airline mergers have been within continents, but recently more airlines are forging intercontinental ties via partnerships and joint ventures.

Japan Airlines earlier this year agreed a joint venture with American Airlines on Pacific routes to tap revenue growth in a larger route network.

“Asia is where the growth is ... that will be an interesting area,” said Deutsche Bank analyst Geoff Van Klaveren.

Portuguese broker BPI highlighted Kingfisher and Brazil’s TAM as possible targets.

Analysts pointed to the need for consolidation within the industry as companies look to increase their competitiveness in a market dominated by big air alliances and low-cost carriers.

“The BA-Iberia merger is a start not an end. There’s a thousand airlines and there should be maybe a hundred or less,” said Davy’s Mr. Furlong.

Other analysts say BA has more pressing issues to tackle before considering more tie-ups.

“This is a long-term ideal -- a wish list -- and merely an invitation to other airlines to consider some form of consolidation under the BA-Iberia name,” said Howard Wheeldon, the senior strategist at brokerage BGC Partners.

“We’re talking 10 years away, not one or two. BA needs to sort its pension deficit which will take many years and prove that the merger with Iberia can work first.”

However others say deal financing could be made easier by BA’s agreement with its pension trustees over a recovery plan for its £3.7-billion ($5.7-billion U.S.) pension deficit.

Analysts have also identified Air Berlin, British Midland, Finnair and Aer Lingus as possible targets in Europe.

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