British Airways and TPG, the US private equity group, are near to securing funding for their joint €3.4 billion (£2.37 billion) bid for Iberia, the Spanish airline, despite continuing turmoil in the debt markets.

It is understood that the consortium is in the final stages of agreeing an underwritten loan from Citigroup, Royal Bank of Scotland and Natixis, the French bank. The move means a fully financed bid for the Spanish operator could come as soon as next week, with a plan to close the deal before Christmas.

The acquisition will be one of the largest buyouts to get the green light in the wake of this summer’s credit crisis. Most of the other large deals have been postponed or derailed altogether as banks have refused to lend until their backlog of underwritten but unsyndicated deals is cleared.

Citigroup, which earlier this week ousted its chief executive in the wake of the financial crisis, has been an aggressive lender on leveraged buyouts.

One source said it was surprising that the group had managed to secure the funding, particularly in the notoriously difficult airline industry. The source said: “The fact that this got done is a pretty good signal in this environment.”

TPG made a preliminary bid of €3.60 a share, or about €3.41 billion, in March. The airline’s board refused to open its books and insisted that TPG line up some Spanish partners to take part in its bid.

The private equity group, which has a history of buying and restructuring airlines, went one step further and secured the backing of British Airways, which already held a 10 per cent stake in Iberia.

The consortium also includes three Spanish private equity firms: Vista Capital, the private equity group owned by Santander; Ibersuizs, the business owned by olive oil king Fernando Martin; and Quercus Equity, which already owns a stake in Iberia’s low-cost carrier Clickair.

Iberia opened its books to the group in July after waiting to see if any other bidders would emerge. A rival group, which included Apax, the British private equity firm, abandoned the sale after BA lent its weight to the TPG bid.

As well as its 10 per cent stake, BA has the right of first refusal on an additional 26.5 per cent held by Spanish investors and has two members on the Iberia board.

It is believed that the three Spanish funds supporting TPG would hold at least 51 per cent of the consortium under any formal offer, to ensure that Iberia remains in Spanish hands.

A bid would mark the latest consolidation move in the airline industry following Air France and Lufthansa’s respective acquisitions of KLM and Swiss.

Airline timetable

March 28 TPG considers €4 billion bid for Iberia

March 30 TPG confirms €3.5 billion Iberia approach

March 31 British Airways has appointed UBS to advise on whether to make a counter-bid

April 11 Iberia is hoping British Airways will be a white knight and increase its shareholding to fend off a private equity takeover

April 24 BA in talks with TPG and Apax Partners over bid

May 12 BA is considering a last-minute offer from Gala Capital to join its bid

May 22 BA confirms that it has joined the TPG bid

May 23 BA and TPG Capital ask to look at Iberia’s books

July 12 Iberia opens books to BA and TPG

July 17 Apax and Air France are preparing a rival bid

Nov 7 TPG and BA set to secure funding for bid

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