British Caledonian came into being in November 1970 when the Scottish charter airline Caledonian Airways, at the time Britain's second-largest, wholly privately owned, independent airline, took over British United Airways (BUA), then the largest Independent British airline as well as the UK's leading Independent scheduled carrier. The BUA takeover enabled Caledonian to realise its long-held ambition to transform itself into a major scheduled airline. The merged entity eventually became Britain's foremost independent, international scheduled airline.

A series of major setbacks during the 1980s as well as the airline's inability to grow to the minimum size to become a viable "Second Force" as envisaged in the 1969 Edwards report led to increasing financial difficulties during the second half of that decade. This was the time the airline began looking for a merger partner to improve its competitive position.

British Airways emerged victorious in the ensuing bidding war and gained control of its erstwhile competitor in December 1987.