Vueling, Clickair In Merger Talks - Report

January 29, 2008

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Spanish low-cost airlines Vueling and Clickair are in merger talks to create Spain's third-biggest carrier, newspaper Expansion reported on Tuesday.

A merger would create a 47 plane carrier, flying 10.7 million passengers a year and employing around 2,000 staff -- Spain's next largest after Iberia and Spanair.

It would be better placed to take on Ryanair and easyJet, which have made major inroads into the European market to and from Spain and on domestic routes over the past two years.

Expansion said talks were at the preliminary phase of their main shareholders negotiating over price and that any possible deal had not been put to either company's board. It added the two groups were naming advisors for the deal.

"At company level, Vueling has had no talks or conversations with Clickair regarding a merger," a Vueling spokesman said, adding that he could not speak for its shareholders.

A spokesman for unlisted Clickair, in which Iberia and four other shareholders each hold 20 percent, declined to comment on the report.

Vueling shares were suspended from trade on Tuesday. They have dived 74 percent listing in December 2006 as Vueling issued two profit warnings and cleared out its senior management after struggling against high oil costs and an intense price war.

"The stories about a Vueling-Clickair merger are benefiting Iberia as it would go some way to reducing the number of competitors in the sector," said BPI analyst Javier Barrio.

Spanair, owned by Scandinavian airline SAS, is also for sale at the moment. Last week, Iberia declined to comment on a report it was considering bidding for Spanair.

One airline industry source who asked not to be named said Vueling and Clickair were a good fit as they have practically the same number of planes and routes.

But questions lingered over Vueling's health and operating costs. It has almost double Clickair's workforce and has made decisions that were criticized in the airline industry, such as opening an expensive hub in Paris.

"A merger, from a strategic standpoint, does make sense as there's overcapacity in the market, but I wouldn't be sure this is going to happen overnight," the industry source said.

A source close to Clickair shareholders said one of the carrier's owners, Quercus Equity, wanted to sell its stake after the airline delayed its breakeven target date to 2009.

Artur Carulla, whose family control Quercus, and Jose Manuel Lara, the chairman of Vueling's largest shareholder Hemisferio, see each other regularly as vice-president and president of Barcelona's Circulo de Economia business club.

Clickair's other shareholders are Spain's biggest construction group ACS, Nefinsa, which own regional flyer Air Nostrum, and hotel and travel firm Iberostar.