Iberia : British Airways - Essay Example

Competition is getting stiff as a result of the growth of international business and it is difficult for small or medium organizations to survive long. Realization of above fact forced such organizations to agree with merger or acquisition deals offered by big organizations. British Airways and the Spanish airliner, Iberia recently signed a merger agreement. This paper analyses the above merger deal in detail. British Airways is the UK airliner headquartered at London. It was established in 1974.

It was started under public sector initially and privatized in 1987. Both Boeing and Airbus aircrafts are used by British Airways for transporting passengers. “In 2002, 38 millions of passengers traveled with British Airways with its fleet of 237 aircraft and it seems that even more will have the pleasant of travelling with the world's favorite airline” (British Airways Information). On the other hand, Iberia is the Spanish airliner based in Madrid, Spain. “Iberia was founded in 1927. Its first name as Lineas Aeras de Espanan” (Iberian Airlines).

In 1944 it was came under the direct control of the Spanish government. However, it was again privatized in 2001. Mergers and acquisitions always result in mutual growth and benefits to both the offeror and the offeree. Berry (2009) has pointed out that “Increased market share, lower cost of production, higher competitiveness, acquired research and development, knowhow and patents, financial leverage, improved profitability etc” as some of the advantages M & A (Berry, 2009). Gaughan, (2001) has pointed out that the combined power of the merged organizations would be more than that of the individual firms.

In his opinion, the combination of two firms will yield a more valuable entity than the value of the sum totals of the individual entities. In other words, Value (A + B) > Value (A) + Value (B) according to Gaughan (Gaughan, 2001, p.5). In mathematics 1+1 =2, but in business 1+1 is more than 2. The major objectives of merger and acquisition are to increase the competitive power. Airline industry is facing stiff competition at present because of the introduction of globalization. Emirates Airlines, Lufthansa, Air France, Air India, Singapore Airlines, Malaysian Airlines, Gulf Air etc like big airliners are causing big challenges to the business prospects of British Airways and Iberia which forced them to engage in a merger deal.

When two airliners compete in a market, they are knowingly or unknowingly destroying some of the opportunities of the other. If they merge together, the destructive elements will be completely disappeared and the constructive elements will be increased which will increase the competitive power very much. “Cross border strategic alliances (CBSA) were motivated by the desire to speed entry into new markets, to develop and commercialize new products, to gain skills or to share costs” (Sudarsanam, 2003, p.232). Sharma (2001) also expressed similar opinion; “Accelerate product development,??Spread risk/share resources, ?

Access to new markets, Expand customer base, Increased market presence, ?Provide added value to customers, ?Access knowledge and expertise outside of your company, Strengthen reputation