BA, Qantas Talking Merger

Sydney, Dec 3, 2008 (ABN Newswire) - Qantas shares will soar today after British Airways said overnight Tuesday it is "exploring a potential merger" with Australian rival Qantas Airways as part of a broad tie-up in the struggling aviation sector.

BA's share price soared in London trade after the airline also said its tie-up talks with Spanish airline Iberia were continuing.

Qantas shares closed at $2.25 in Sydney yesterday, down 4.3% in yesterday's sell-off.

"In response to recent media speculation, British Airways Plc confirms that it is exploring a potential merger with Qantas Airways Limited via a dual-listed company structure," BA said in a short statement released in London."

(That's the sort of structure BHP Billiton and Rio Tinto operate under).

"The discussions between British Airways and Iberia are continuing. There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate," the British carrier added.

The BA statement came hours after the Federal Government said it wanted to put Qantas on a "level playing field" with its rival airlines but indicated it would not remove a cap on foreign ownership.

Both airlines operate a joint services agreement covering the so-called Kangaroo Route from Australia to the UK.

Federal Transport Minister Anthony Albanese said the government wanted to maintain the legal requirement that the country's international airlines, including Qantas, were at least 51%.

The position at present limits a single foreign holding to 25% and 35% in total for all foreign airlines, and 49% for all foreign investors, portfolio and airlines.

But the green paper suggests that the cap change to being a maximum, meaning just one person or group could hold the 49%: that would allow Qantas and BA to swap stakes in each other.

The change comes as Qantas management from around the world gather in Sydney this week for the usual end of year get together. That is held after the annual meeting, which was in Brisbane last Friday.

It will also be the occasion for the company to say farewell to former CEO, Geoff Dixon, who retired at the AGM and handed over to Alan Joyce. Dixon has long pushed for the freedom for Qantas to form alliances via takeovers or by being partly o6 wholly acquired.

The airline had talks with Singapore Airlines a few years ago, from media reports.

BA was the cornerstone investor when Qantas was floated by the Keating Labor Government in 1995. The cap was set in such a way to allow that sort of arrangement, but not dominance. BA sold out a few years ago tor raise cash when its finances became strained.

British Airways and Iberia announced in July they were holding merger talks to create the world's third-largest airline in terms of income.

Separately, British Airways, Iberia and American Airlines (AA) in August signed an agreement to cooperate on flights between North America and Europe,

BA's tie-up talks also come as airlines seek to take advantage of the recently-launched "open skies" agreement that eased restrictions on airlines flying between the United States and Europe.

Following BA's announcement of a potential merger with Qantas, the share price of British airline soared to the top of London's FTSE 100 index, jumping 11.3% to 155.5 pence, or around $A3.75.

Last month, British Airways announced a 91.6% in half-year profits. Pre-tax profits fell to 52 million pounds from 616 million pounds during the same six-month period a year earlier. Qantas last week downgraded its 2009 profit to around $500 million, 64% lower than the pre-tax result in 2008.

Qantas also cut capacity by grounding a number of planes, especially its big Boeing 7474-400 aircraft. It said the slump was greatest in international business travel.

BA reported a net loss of 42 million pounds for the six months to the end of September and said passenger numbers were down by almost 4%.

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