The owners of British Airways are being threatened with a challenge from Germany and France
concerning legacy rules on ownership imposed by Brussels
before Brexit. This challenge could potentially see the break-up of IAG,
with some or all of British Airways having to be spun off from the Group as a result.
The International Airlines Group, or IAG, is a powerful force within the European aviation scene.
However, BA’s status as a cornerstone of the group is under threat, following indications from France
and Germany that the airline's ongoing membership is contrary to pre-Brexit regulations set out
by the EU. Due to Brexit’s completion in January 2020, British Airways is no longer an EU carrier.
IAG was formed in 2011 when BA and Iberia signed a merger agreement. In doing so,
both airlines became wholly-owned subsidiaries of IAG. The Group has since expanded to include
Aer Lingus and Vueling. It also owns the Level brand as well as the Avios rewards program.
Analysts warned that IAG might be forced to make British Airways a truly independent company
because EU rules dictate that any airline within the bloc
must be quote-unquote "owned and controlled" by an EU-based company.
Negotiations have failed to make any headway towards a resolution. The regulation regarding
ownership and control remains at the center of those talks. It’s suspected by many that
certain EU member states will be keen to see the rules re-instated to protect their own airlines.
Andrew Lobbenberg, Aviation Analyst at HSBC, spoke to the Telegraph saying:
"National interests are ever-present in the airline industry, which is often the home for
mercantilist policymaking. The commercial interest of Air France-KLM and Lufthansa
would unquestionably be supported by adding new strategic challenges to IAG. "
Meanwhile, airlines across the EU have formed their own opinions about the precise definition
of quote-unquote "owned and controlled." The most commonly held view amongst EU
airlines is that this means more than 50% of the shareholders are based within the European union.
IAG argues that it complies with all current EU ownership rules, noting that its headquarters are
in Madrid and that it satisfies the ownership definition of the Brussels regulations.
Its board is also majority-controlled by several EU-based non-executive directors.
One big issue is that IAG remains 25% owned by the state of Qatar. As a result,
it’s estimated that the group remains 10-12% short of being majority EU-owned.
If this is the case, then IAG's only option might
be to spin off at least one part of the British Airways operation.
This has been considered before. In 2021, the former chief of IAG,
Willie Walsh, stated that if push came to shove,
BA could be spun off from IAG to comply with Brussels ownership regulations, stating:
"There's nothing to say that bits of IAG could not be sold off or cut loose. That was always
my thinking when I was there. If one part of the business wasn't performing, or was
under­performing, or didn't make sense, then you could dispose of that part of the business."
Observing how this divisive situation plays out over the coming months will be interesting.
Could it be that we see all of British Airways' long-haul and non-EU operations being taken over
by a new offshoot of the carrier? Alternatively, will IAG's arguments to Brussels be compelling and
persuasive enough to maintain the status quo? What do you think? Let us know by leaving a comment.