British Airways in Merger Talks with Qantas

By: AP
By: AP
British Airways PLC said Tuesday it is in talks with Australia

In this photo released by the Media Affairs Division of the Ninoy Aquino International Airport in Manila, Qantas pilot Capt. John Francis Bartels looks at the right wing damaged fuselage of Qantas Airways Boeing 747-400 after it made an emergency landing Friday July 25, 2008 in Manila, Philippines. The plane en route to Australia from London made an emergency stop in Manila on Friday and airport authorities discovered a big hole in the Boeing 747-400's fuselage near the right wing. (AP Photo/Ninoy Aquino International Airport, Edwin Loobrera, HO)

LONDONBritish Airways PLC said Tuesday it is in talks with Australia's Qantas Airways Ltd. about a potential merger, sending its shares soaring as it confirmed expectations of consolidation in the hard-hit aviation industry.

BA, which is already pursuing a revenue-sharing deal with American Airlines and Spain's Iberia SA, said that it is exploring a "potential merger" with Qantas "via a dual-listed company structure."

In a brief statement released in response to market speculation, BA did not provide any reasoning for the prospective deal but chief executive Willie Walsh has long advocated industry consolidation, arguing that closer cooperation will help airlines cut costs in the current difficult economic climate.

BA added that its discussions with Iberia on a potential merger are continuing.

"There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate," BA said in the statement to the London Stock Exchange. It provided no further detail on the structure of the potential deal with Qantas.

The London-based carrier's stock jumped more than 10 percent after the announcement to 154 pence ($2.32).

The two airlines are already partners in the oneworld global alliance, which brings together 10 of the world's carriers including Japan Airlines.

The confirmation from BA on the talks comes a day after the Australian government revealed that it plans to increase the level of foreign ownership allowed in Qantas, but will not permit a takeover. Australian law currently limits a single foreign holding to 25 percent, while a group of foreign holdings can total 35 percent.

A federal government policy paper released Monday proposes lifting the foreign ownership limit — whether by one company or a group of companies — to 49 percent. That would allow Qantas and BA to swap equal stakes in each other.

BA has already filed for worldwide antitrust immunity from U.S. authorities for a revenue-sharing deal with American and Iberia that would see the trio set prices together and share seat capacity on trans-Atlantic flights. American would be the non-merged member of the BA-Iberia linking.

The agreement is the closest alliance the trio can form under strict U.S. airline ownership laws that all but rule out a full merger and follows two earlier failed attempts by BA and AMR Corp.'s American to forge closer ties.

Rival carrier Virgin Atlantic Airways has bitterly opposed that proposed deal, claiming it will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers.

But American and BA contend that the partnership will merely allow the trio to better compete with the other major airline alliances, Star and SkyTeam, which already have antitrust immunity on trans-Atlantic flights and a large presence at other European airports.

BA and AMR Corp.'s American have failed in the past to win an exemption from U.S. competition laws to work more closely together because of their dominance at London's Heathrow Airport, where the pair have more than half the capacity to and from the U.S.

Walsh has argued that the competitive situation has changed since the "open skies" agreement between the U.S. and the European Union came into force in March, allowing airlines to fly to and from any point in the U.S. and any point in the EU.


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