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British Airways in merger talks with Australia’s Qantas

Dec. 2, 2008, London, UK - British Airways PLC said Tuesday it is in talks with Australia's Qantas Airways Ltd. about a potential merger.


December 2, 2008
By Jane Wardell

Dec. 2, 2008, London, UK – British 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 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 co-operation will help airlines cut costs in the
current difficult economic climate.
BA, the third-largest airline in Europe, 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 th
potential deal with Qantas, Australia's largest airline.

The London-based carrier's stock jumped more than 12 per cent
after the announcement to 156.7 pence (US$2.35).

The two airlines are already code sharing partners in the
Oneworld global alliance, which brings together 10 of the world'
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 per cent, while a group of foreign holdings can total 35 per
cent.

A federal government policy paper released Monday proposes
lifting the foreign ownership limit  – whether by one company or a
group of companies – to 49 per cent. That would allow Qantas and BA
to swap equal stakes in each other.
Qantas last month slashed its full-year profit forecast to around
500 million Australian dollars ($316 million), down from an August
forecast of AU$750 million. It also said it would cut flights to
cope with plummeting demand, despite a recent easing in the oil
price.
Walsh last month warned that the industry was still “heading
into the eye of the storm,'' shortly after BA reported a first-half
net loss of 49 million pounds ($77 million).

Analysts have been expecting greater consolidation in the airline
industry after the global economic crisis combined with soaring oil
prices earlier this year to severely crimp passenger demand.

The International Air Transport Association has reported
international passenger traffic declined 1.3 per cent in October
compared with 2007, following a 2.9 per cent drop in September, and
forecasts industry-wide losses of $2.3 billion this year.

Budget airline Ryanair Holdings PLC on Monday launched a new
takeover bid for Aer Lingus, seeking to capitalize on labour unrest
at its Irish rival along with the country's economic difficulties

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
transatlantic 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 transatlantic 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 transatlantic flights and a large presence at other European
airports.

BA and 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.
 

 

THE ASSOCIATED PRESS