KLM says BA-Iberia deal to mirror Air France

By John Bowker

LONDON (Reuters) - British Airways looks set to structure its proposed merger with Iberia in a similar way to the Air France-KLM tie-up in 2004, with a unified holding company owning two distinct airlines.

The two carriers are expected to create a new holding company to buy both airlines. The carriers would then operate separately so as not to break country-specific restrictions on the nationality of airlines on certain routes.

"We will have two airlines, two brands. The day-to-day business of the two airlines will continue as they are today," BA Chief Executive Willie Walsh told reporters in Madrid, adding that a third board would be created to run the combined group.

According to the document formalising the Air France merger with KLM, the previously listed Air France became Air France-KLM, while its assets were placed into a new operating company called Air France. This allowed the two airlines to continue to be run separately.

"The combination is structured to ensure and protect KLM's international traffic rights going forward," the document said.

A BA spokesperson later confirmed that the single holding company would have a "unified management structure", made up of representatives from both BA and Iberia. She said it had yet to be decided whether one company would have majority control of the combined board.

"A single holding company would absorb the two (airlines), and the shareholders would receive shares relative to each one. If BA made up two thirds of the combined company, BA shareholders would get 65-70 percent of the shares," said Panmure Gordon analyst Gert Zonneveld.

He added that it was important to have two separate entities to preserve the country-specific agreements. For example, BA would not be allowed to fly between Madrid and Buenos Aires if it owned the new company, he added.

(Reporting by John Bowker; Editing by Andy Bruce)