A consortium led by British Airways and TPG, the American private equity firm, has scrapped its €3.4 billion (£2.4 billion) bid for Iberia.

The withdrawal of the offer for the Spanish airline was laid squarely at the feet of Caja Madrid, the influential Spanish savings bank and one of the airline’s biggest shareholders, and the Spanish Government, sources said.

The consortium did not name the Spanish bank directly, but its identity was heavily implied in a statement made to the Spanish stock market regulator late yesterday evening.

The consortium said that it had “arrived at the conclusion that it is not possible to make the bid under the terms of consensus and friendliness that we always thought indispensable to develop our project”.

BA and TPG had said previously that they would make their long-mooted bid for Iberia official in mid-December.

BA had a deadline of midnight yesterday to decide whether to exercise its right of first refusal on a stake in Iberia being sold by BBVA, the Spanish bank, and Logista, the distribution unit of Altadis.

However, faced with the prospect of a rival, all-Spanish offer and by Caja Madrid moving to raise its stake in Iberia, BA threw in the towel.

Instead, the 13.4 per cent stake will go to Caja Madrid, a politically connected savings bank that will become Iberia’s largest shareholder, with 23.4 per cent of the company. It previously held a 9.9 per cent stake in Iberia, the same as BA.

A source close to the BAled consortium said that there was no point in continuing with plans to launch a full offer for Iberia if Caja Madrid and the Spanish Government had no plans to sell the airline.

The source said: “Three months ago they were saying they wanted an industrial partner and now they are saying they want to keep it Spanish.”

Caja Madrid has close links to the regional government of Madrid, which has invested heavily to turn the city’s Barajas airport into an international hub. Local officials are wary of any foreign deal that could threaten its position.

“British Airways’ position as Iberia’s key industrial partner remains important and is not dependent on an increase in shareholding,” Keith Williams, BA’s chief financial officer, said. “We will enter into discussions with Caja Madrid in order to maximise the value of our relationship with Iberia.”

When TPG originally approached Iberia about a bid, it was told by the Government that it needed to find an industrial partner and Spanish partners. It signed up British Airways and three Spanish private equity firms.

BA and TPG were moving slowly on their offer, but were thought to be close to securing €3.4 billion of financing despite the turmoil in the debt markets. However, a surprise later offer by Gala Capital, a private equity company owned by some of the wealthiest individuals in Spain, threw the BA bid into question.

Gala made an indicative offer of €3.60to€3.90 a share, compared with the €3.60 offered last March by BA and its partners.

Shares in Iberia fell 1.9 per cent to €3.19 yesterday before trading was suspended. Trading resumes today.

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