Spaniards to Control Iberia Board in TPG Bid: Source

Spanish funds within a group looking to buy Spanish carrier Iberia will control both the board and hold the majority of its capital if successful, an industry source told Reuters on Thursday.

The question of whether Spaniards or foreigners control Iberia is important because it determines whether key landing rights agreements with non-EU countries remain valid. These hold the key to Iberia's most profitable routes -- to Latin America.

The comments contradict a report in Spanish newspaper Cinco Dias on Thursday which said British Airways and consortium leader, private equity group TPG would control the majority of shares though not the boardroom.

"The offer model foresees a majority of the capital and the board of Iberia going to Spanish partners," the source said.

The source added that the partners favored remaining long-term shareholders and were not, as Cinco Dias reported, expecting to exit the company within 5 to 7 years.

Cinco Dias cited sources close to the deal as saying TPG and the Spanish funds -- Vista Capital, Ibersuizas and Quercus -- had successfully persuaded British Airways to up its stake in Iberia to 15% from its current 10% and that TPG and BA would together control between 55% and 60% of its capital.

However the paper said that the three Spanish shareholders, Vista Capita, Quercus and Ibersuizas, would control 60% of seats on the board. BA and TPG will hold the rest.

Under current rules, foreign companies can hold a majority of Iberia's share capital as long as Spanish shareholders control the board, industry sources said.

However, the picture for Texas-based TPG is complicated by the "open skies" pact between the European Union and United States, which says that from March 30, 2008, non-EU firms can hold no more than 25% of a European airline, down from 49% today.

The Cinco Dias report also quoted Iberia Chairman Fernando Conte as telling a works council that the consortium would present an offer this month, after an indicative 3.60 euros a share approach in March, confirming what sources had told Reuters previously.

Iberia shares rose 0.3% to 3.45 euros, in line with the Ibex blue-chip index, but still below TPG's indicative approach which values the airline at 3.4 billion euro ($4.79 billion).