Slaughters ready to help BA realise its global dream
9 February 2009
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Early last week, British Airways (BA) chief executive Willie Walsh was due to fly out to Madrid for crunch merger talks with Spanish carrier Iberia.
Then the weather took a turn for the worse. Just like thousands of his customers, Walsh was grounded by the snow.
Cynics will have noted the parallels with BA’s recent efforts to become the world’s first global airline. The company has launched a series of audacious merger bids, most of which failed to get off the ground.
At the end of last year BA’s talks with Australia’s Qantas collapsed. A proposed alliance with American Airlines is currently bogged down in competition issues in the US, and the Iberia talks could yet stumble over ownership rights.
Whatever happens at BA, a new era of airline consolidation is beckoning as the industry looks to drive down costs and expand its reach. And deal-starved lawyers with the right clients will be rubbing their hands with glee at the prospect.
The key legal players in the UK are Slaughter and May for BA, Freshfields Bruckhaus Deringer for Lufthansa, and probably Linklaters for Air France KLM. The latter used to be a Linklaters client, but more on that later.
BA is currently the most active of the three carriers. Having watched its European rivals grow, it is playing catch-up in the consolidation game.
Norton Rose head of aviation Jeremy Edwards says: “Lufthansa succeeded in taking over Swiss Air in 2005 and Austrian Airlines in 2008. Air France has an impressive link-up with KLM. BA doesn’t want to be the only player left out by themselves.”
Thanks to strict rules on foreign ownership, airline mergers have been limited to regional consolidation – Air France and KLM in Europe and Delta Air Lines and Northwest Airlines in the US.
BA’s attempt to take over Qantas changed all that. It is surely only a matter of time before Walsh secures the first global merger, and Slaughters is in prime position to win the instruction.
The firm has advised BA since 1999, when the airline gave Linklaters the boot before its attempt to link up with KLM. It was reported at the time that BA’s favoured Linklaters partner Anthony Cann was unavailable, so the airline promptly instructed Slaughters.
Since then the firm has cemented the relationship. Slaughters acted on the sale of subsidiaries Go in 2001 and GB Airways in 2007, as well as on various competition cases.
M&A chief Steve Cooke is currently working on the Iberia negotiations opposite Allen & Overy’s Madrid managing partner Inigo Gomez-Jordana.
“For any major M&A, we’d hope to be their main advisers,” says Slaughters regulatory partner Bertrand Louveaux, who is working with Cooke on the Iberia bid.
Linklaters bounced back from the disappointment of losing BA in 1999 by bagging another ambitious airline, Air France, as a client. The Paris office advised on the company’s alliance with Italy’s Alitalia in 2001 and got the call in 2004 for the crucial merger with Dutch airline KLM.
The relationship had seemed unshakeable until last month. Air France KLM is circling Alitalia again and last month bought a 25 per cent stake in the struggling airline. It handed the mandate to Debevoise & Plimpton corporate partner Patrick Laporte, the ex-Linklaters partner who acted on the KLM merger, who moved to the US firm in 2005.
Could Linklaters be about to lose its second major airline client in less than a decade? The question will not be answered until Air France KLM picks an adviser for its next acquisition.
BA’s great rival Lufthansa is also in expansionist mode. It would like Frankfurt, not London, to be Europe’s transport hub, and is rumoured to be considering a bid for Scandinavian carrier SAS, which counts Norton Rose among its advisers.
Freshfields has emerged as a likely beneficiary of Lufthansa’s expansion. The firm acted for the company twice in 2008, first when in took a controlling stake in UK airline BMI and again when it swallowed up Austrian Airlines.
But the relationship goes back yet further. Lufthansa is a Bruckhaus client from before the days of the Freshfields merger. Frankfurt-based Dick Schmalenbach is the relationship partner.
US firm WilmerHale is also understood to have represented Lufthansa on competition issues in Germany.
There are those who say that global consolidation in the airline sector is impossible because of national ownership rules and limited access to routes.
However, Walsh clearly doesn’t share this view – and nor does his team of legal advisers at Slaughters.
“It’s surmountable, although it does involve some quite complex ownership and control provisions,” says Louveaux, who worked on the Qantas bid.
“Everyone’s expecting the first wave of consolidation to be in Europe, and to some extent that’s already happening. After that the next wave will be across regions. In that sense the Qantas bid was ahead of the game.”
For the magic circle and Slaughters, the airline sector could prove a crucial revenue stream in the months ahead.