Spain's Vueling says to merge with Clickair

By Ben Harding and Sarah Morris

MADRID (Reuters) - Spanish low-cost airlines Vueling (VULG.MC: Quote, Profile, Research) and Clickair have agreed to merge, Vueling said on Monday, in a move to create a carrier better equipped to tackle stiff competition and high fuel costs.

In a statement to the stock exchange regulator, Vueling said its board had approved a deal signed between the two airlines' main shareholders whereby Vueling would absorb Clickair through a capital increase.

The new company would trade under the name Vueling and continue to be headquartered in Barcelona, Vueling said.

Spanish flagship airline Iberia (IBLA.MC: Quote, Profile, Research), which controls 80 percent of unlisted Clickair, would be a major shareholder in the new airline along with Nefinsa and Inversiones Hemisferio, which had agreed to remain in the company for two years, Vueling said.

Iberia would be the main industrial partner in the merged company under the agreement. Earlier, a source close to the situation said Iberia would own 45 percent of the new airline.

Vueling's biggest shareholder, Hemisferio, the investment vehicle of Spain's Lara family, will hold some 15 percent, the source said, while regional airline Air Nostrum -- now holding 20 percent of Clickair -- will control just over 10 percent.

He said further details of the merger deal would be released on Tuesday.

The deal -- which the pair have spent months negotiating -- will give much-needed pricing power in Spain's crowded airline market which was struggling to make profits even before this year's sharp rise in the oil price.