British Airways plc, widely recognised as the largest airline of the United Kingdom, has very recently signed an agreement with the Spanish airline, Iberia, for the merger of the two organisations. The merger agreement, when complete, will result in the formation of the world’s sixth largest airline, in terms of revenues. In Europe the merged airline will rank third in the pecking order, behind Air France-KLM and Lufthansa. The new company, valued at USD 7. 5 billion, will be known as the International Airlines Group, even as both the Iberia and BA brands will continue to function as they have done till now.
Mergers and acquisitions commonly occur when it is felt that the existing synergies between two organisations can enable them to work with greater efficiencies if they act together, than what they can achieve if they operate on their own. Such synergies can arise from a number of reasons, the more important of which arise from the combined ability of the merging organisations to exploit scale economies, reduce work duplication, share managerial, technological, and knowledge resources, and raise greater amounts of funds. Mergers are also motivated by the desire of firms to retain or increase market share or power.
Apart from such reasons, M & A activity occurs because of strategic objectives associated with diversification, exploitation of new markets, spreading of risks, and maximisation of value. The merger of British Airways and Iberia is being driven by a number of such reasons. One of the most important factors behind the merger is the ability of the new organisation to provide customers with a much larger combined network. BA as of now operates 245 aircraft and flies to 149 destinations. Iberia on the other hand flies to 106 destinations with its fleet of 174 aircraft.
The Term Paper on Mergers and Acquisitions: American Airlines Merges With Rival US Airways
Successful corporations in business are always seeking different ways to improve their position in their respective areas of operation. Mergers and acquisitions have been proven to be a way to do just that. A merger is simply defined as two companies joining to make a new company, whereas an acquisition occurs when one company outright purchases another company. Mergers and Acquisitions are ...
The merged group will in future be able to operate 419 aircraft and fly to more than 200 destinations. With the two airlines having few overlapping routes, losses on account of post merger cannibalisation are expected to be low. Both BA and Iberia are also facing severe marketplace competition because of (a) the growth of low cost carriers like Ryan Air and Easy Jet, and (b) the consolidation of large European carriers like Air France-KLM and Lufthansa. The merger will help the two companies to compete far more effectively with domestic and international carriers.
Both the organisations have also been hit very badly by the ongoing recession and the sharp escalation in oil prices. BA made its biggest ever loss in 2009 and Iberia has also turned in miserable financial results. BA’s revenues have slid from 8753 million GBP to 7994 million GBP between 2008 and 2010, even as its earnings figures have crashed from profits of 883 million GBP to losses of 531 million GBP over the same period. Iberia’s losses, whilst lesser than those of BA, have also been very substantial; the company recorded pre-tax losses of 381 million GBP in 2009, compared to profits of 30 million GBP in 2008.
The merger will allow the companies to exploit significant cost and operational synergies. British Airways employs about 39,000 staff, even as Iberia’s workforce totals up to approximately 22,000 people. Their coming together will enable the combined organisation to reduce its manpower significantly and to consolidate its operations. It is estimated that existing cost synergies will enable the merging entities to save approximately 530 million USD every year. In fact cost synergies seem to be the major driving force behind the merger.
With both companies trying to combat the current slump through various cost cutting measures in areas related to staff remuneration and on board food and refreshments, the merger will allow the two organisations to make much better use of cost synergies, reduce duplication, and trim surplus staff. One of the biggest hurdles to the development of successful mergers arises from areas related to leadership and strategic vision for the future. The much hyped merger between Daimler and Chrysler fell through mainly because of differences at the level of the top managements of the two companies.
The Essay on Organisations need strong culture
Consider this statement in relation to how we understand and make sense of culture in the post? bureaucratic era. Introduction Culture is an important aspect of an identity. It is what we believe, how we behave and culture influences an identity’s decision making. Organisational culture is the deep, basic assumptions, beliefs and shared values that define organisational membership. It is also ...
Mergers essentially involve the joint working of people and managements from different organisations. The effectiveness with which the managers and staff of the two merging organisations are able to work together often plays a key role in the success of the merged enterprise. Leadership in merged organisations is often distributed in the ratio of ownership. In the present case, the ownership ratio of 55:45 in favour of BA would appear to indicate that BA is likely to have the predominant say in leadership matters. Media reports however indicate that both organisations have agreed to share leadership.
Willy Walsh the CEO of BA is designated to be the Chief Executive of the merged company, even as the President’s position will be occupied by Antonio Romero, the current Chairman of Iberia. The two organisations have now been collaboratively working together for more than a decade and are expected to share similar world views and visions for the future. In any case announcements from both companies indicate that management will be joint and participative and that the managements of both BA and Iberia will contribute equally to formulation of strategic direction and operational management.
The organisational cultures of two merging firms also play key roles in the success of mergers. Whilst the organisational cultures of different business firms are essentially dissimilar and are reflected through features like symbols and totems, organisational communication processes, remuneration systems and hierarchical structures, they become operationally relevant in the way organisations work, as also in their approach towards issues like innovation, competition, expansion and aggression.
Organisational cultures, in terms of Geertz Hofstede’s theory on national cultures, are also significantly influenced by the national cultures of the countries in which organisations are based. Managers of organisations with dissimilar organisational cultures by and large find it difficult to function harmoniously in one merged entity. With BA and Iberia expected to have significantly different organisational cultures, the success of the merger will overly depend upon the ability of the leadership of the merged entity to develop a common organisational culture, which is unique and yet takes the best from the cultures of both organisations.
The Term Paper on Organisational Culture Organisation Management Business
Do you think that the concept! ^0 organisational culture! +/- is a useful one in the real world? If so, why? If not, why not? ABSTRACT The concept of culture is in itself a social concept. Therefore it follows that the concept of organisational culture should be viewed as the social context of an organisation and is an interpretation of the way the organisation behaves. However, according to Iain ...
