02-Feb-2010

February 1, 2010

"In our view, BA's revenue story is the best amongst the flag carriers due to its exposure to the recovering southeast of England economy and financial services," -- Goldman Sachs.

Shares in British Airways rose on Monday on hopes its planned merger with Spanish carrier Iberia will go ahead, despite the European Union (EU) deepening its investigation into the plan.

BA, Iberia and American Airlines offered to modify their plans to share more of their lucrative trans-Atlantic routes in an effort to settle a competition dispute with the EU.

BA shares closed up 3.3 percent at 213 pence, its highest close since mid November, while Iberia gained 2.2 percent to 2.252 euros -- a closing level not seen since October.

Analysts at Goldman Sachs reiterated their positive view on BA and Iberia shares in the wake of the three airline's latest commitments.

"We believe the proposed merger will happen, possibly ahead of schedule and that this plus the potential for anti-trust immunity with American on the north Atlantic represents meaningful positive change versus the last cycle," Goldman analysts said in a note.

"In our view, BA's revenue story is the best amongst the flag carriers due to its exposure to the recovering southeast of England economy and financial services."

The European Commission, competition watchdog of the 27-nation bloc, launched an investigation last year after the members of the Oneworld airline alliance announced plans to cooperate on some transatlantic routes.

The airlines have set out plans to jointly manage schedules, capacity and pricing as well as to share revenue on routes between North America and Europe. The Commission said it was concerned whether consumers would benefit from the deal.

"British Airways, American Airlines and Iberia offered commitments in order to alleviate the Commission's concerns," the EU executive said in a statement. "This proposal requires further investigation before the Commission reaches any conclusion as to the next steps."

The Commission said parallel investigations into proposed cooperation between members of Oneworld's rival, Star Alliance, and members of SkyTeam were still under way.

It said it would send the commitments offered by Oneworld to market players for comment as part of the assessment before deciding whether they were sufficient.

(Reuters)