Qantas Will Remain Aussie, Despite BA Merger Talks: govt

SYDNEY ~ 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 government said this week.

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.

The Australian Financial Review said the merger would create an AUS$8-billion (US$5.2 billion) carrier with bases on two continents.

Qantas Airways confirmed in a statement on 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.

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.

“Our bottom line is that the ‘flying kangaroo’ remains majority Australian-owned and -based,” he told reporters in Canberra.

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.

Transport Minister Anthony Albanese said 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.

Neil Hansford, chairman of Strategic Aviation Solutions 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 Lufthansa or it retreats to being an Asian carrier with a couple of routes to Europe,” he said.

“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.”

Brent Shaw, research manager with Shaw Stockbroking, said Qantas had realized it had to “change and move with the times to survive.”

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,” Goldman Sachs JBWere senior trader Patrick Crabb.

“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 Dow Jones Newswires.

Last year an $11.1-billion 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.

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