BA explores merger with Qantas

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British Airways and Qantas are exploring a potential merger in the boldest move yet considered to accelerate the consolidation of the global airline industry.

Following an initial approach from Qantas, BA said it was studying a merger with the Australian flag carrier “in a dual-listed company structure”.

“This is an exciting step towards the creation of the first truly global airline,” said Willie Walsh, BA chief executive. “We have complementary networks and similar views about consolidation.”

BA shares rose 17½p or 12.5 per cent on the news to 157p. In early trade on Wednesday in Sydney Qantas surged 9.3 per cent to A$2.46.

The carrier said that under the structure being discussed each airline would remain a separate legal entity with separate shareholders. There would be “a combined balance sheet, overlapping boards of directors and an integrated management team”. If a deal emerged it would be “a merger of equals”.

There was “no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate”, the airline said.

The UK group said it was continuing its discussions on a merger with Spain’s Iberia that have been under way since July, but investment bankers close to the talks warned last night that BA would not be able to manage both deals. “It is going to have be one or the other,” said one banker involved. “A three-way deal would have a logic. It would be nice to see, but the reality is one deal or the other.”

The potential merger was immediately attacked by Virgin Atlantic, BA’s UK long-haul rival. Steve Ridgway, chief executive, said, “one day it’s Iberia, then it’s American, and now Qantas. The only strategy BA seems to have is to lock-up some of the busiest routes in the world, against the consumer interest”.

A merger between BA and Qantas would be much more ambitious than the Iberia deal and would be the first time two carriers have attempted to combine operations between two different regions of the world.

Airline consolidation has only taken place to date within single regions such as the Air France takeover of KLM of the Netherlands in Europe and this year the Delta Air Lines takeover of Northwest Airlines in the US.

Australia is looking at reforms to rules restricting equity stakes in its flag carrier. Currently, an individual foreign investor can own only up to 25 per cent of Qantas, while foreign airlines can collectively own up to 35 per cent.

BA and Qantas already have links. They are in the Oneworld global alliance and BA owned as much as a 25 per cent stake in Qantas but sold the remaining 18.25 per cent stake in 2004.

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