Flying without wings

Enrique Dupuy De Lôme

Flying without wingsThe exquisitely-named Enrique Dupuy De Lôme will have
financial control of the world’s third biggest airline when British Airways and
Spanish carrier Iberia join forces.

But for all his responsibilities, the group CFO is not going to be rewarded
with a board position. This is particular to Iberia’s corporate governance
model, perhaps a sign that BA hasn’t got it all its own way on the terms of the

What’s happened?

Under its terms, Iberia would take a 45% stake and BA, which recently
reported a six-month pre-tax loss of £292m, a 55% stake in the company. In this
so-called “merger of equals”, Keith Williams, BA’s CFO, takes control of the UK
side as chief executive in the proposed management roster. But who will he
answer to?

Williams has executive control of the UK carrier and sits on the board, while
De Lôme is on the management team for the combined airline.

TopCo , the holding company for the combined business, will be a Spanish
incorporated company registered in Madrid. The TopCo board will comprise 14
directors, including the group CEO Willie Walsh and the CEOs of both operating
companies in the UK and Spain, plus 11 non-executive directors.

Yet the combined business will be managed by group CEO Willie Walsh and De
Lôme. Shareholders of both the existing airlines, or Opcos, will be the current
British Airways and Iberia shareholders.

Each OpCo will have a board comprising nine directors, of whom five will be
executives including both OpCo CEOs and De Lôme. The structure of the
deal is clearly fiendishly complicated and implies that De Lôme will be racking
up more than a few air miles.

What’s going to happen?

The majority of board meets and all shareholders meetings will take place in
Madrid and on completion of the merger, TopCo will be tax resident in Spain.
However, the operating and financial headquarters of the combined group will be
in London. And one other juicy question springs to mind: who will audit the
aviation giant when the merger is complete?

Ernst & Young sign off the books in the UK, while Deloitte provides
assurance in Spain. In this merger of equals, one auditor will find itself to be
excess baggage.

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