Qantas, BA merger talks ?

Qantas will remain a majority-owned Australian airline even if it merges with British Airways to create a global carrier to better cope with challenging market conditions, the Australian government said Wednesday.

The chief executives of the two iconic airlines have been in merger talks since August as they battle volatile fuel prices and shrinking passenger demand as the world economy creeps into recession.

Qantas Airways confirmed in a statement Wednesday it was "exploring a potential merger with British Airways plc via a dual-listed company structure" but said that there was no guarantee a transaction would be forthcoming.

But the airline has acknowledged that the industry was heading towards a period of consolidation and as recently as last week said that it would be in Qantas' interests to merge with a rival sooner rather than later.

Australian Treasurer Wayne Swan said there was no proposal yet before the government but any merger would have to abide by the regulation that foreign ownership of Qantas be limited to 49 percent.
But the government has hinted it will alter other foreign ownership rules, which currently limit individual foreign airlines to a 25 percent holding and aggregate foreign airline interests to a 35 percent stake.

Under current law Qantas' base must remain in Australia, it must retain its name and be incorporated in Australia, and its chairman and at least two-thirds of its board must be Aussie citizens.

"To think that the 'flying kangaroo' would disappear is a bit like thinking that the Sydney Opera House would be bulldozed," he said.

Talk of a merger between Qantas and BA, which formerly held a 25 percent stake in the Australian carrier but had sold out by 2004 to pay off debts, comes amid moves towards consolidation of the sector in Europe and the US.

BA is continuing in talks to link up with Iberia while reports here said Qantas could be included in a "three-way" deal with the Spanish carrier.

A spokesman said Qantas' rivals, including Singapore Airlines, would be unhappy with the news, but a merger with BA made the most sense.

"Qantas has got a choice, it either gets into bed with somebody like BA or (German carrier) Lufthansa or it retreats to being an Asian carrier with a couple of routes to Europe," he told AFP.

"It will allow Qantas to stay servicing Europe meaningfully and it makes it (in combination with BA) about the third biggest fleet in the world."

Qantas shares gained on the news of the merger talks, closing up 10 cents, or 4.4 percent, at 2.35 dollars in an overall flat Australian market.

But some traders said Qantas, one of the world's most profitable airlines, would be unwise to link itself to a carrier with a less robust bottom line.

"Qantas has low debt, a protected US-Australia route and an oligopoly on one of the most profitable short-haul legs in the world between Melbourne and Sydney," a spokesman said.
"If I am a shareholder of Qantas, my initial response is cold feet, as the potential groom has a good name but his short-term financial prospects look challenged," he told the media.

Last year an 11.1 billion dollar (4.8 billion pound) private equity bid for Qantas, which was supported by the airline's board, crashed after the Macquarie Bank-led consortium did not reach a minimum 50 percent of shareholder acceptances for its proposal.