Dec 2, 2008

Business - British Airways explores merger with Qantas

LONDON: British Airways said on Tuesday it was "exploring a potential merger" with Australian rival Qantas Airways as part of a broad tie-up in the
aviation sector that is set to fly into a deep recession.

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

"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.

"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.

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

The aviation sector is seeking consolidation as airlines fight for survival having been crippled by record high oil prices. They are now facing a fall in air travel as the global economy enters recession.

British Airways, Iberia and American Airlines (AA) in August signed an agreement to cooperate on flights between North America and Europe, a month after crude oil prices had struck record highs of 147 dollars a barrel.

Jet fuel is distilled from crude oil, which since reaching historic heights four months ago have plunged to trade at only 46 dollars on Tuesday.

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

Recently BA chief executive Willie Walsh also said his airline had expressed strong interest in a commercial alliance with troubled Italian carrier Alitalia.

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, winning 11 percent to 155 pence in afternoon deals.

Last month, British Airways announced a 91.6-percent plunge in half-year profits. Pre-tax profits dived to 52 million pounds (64 million euros, 82 million dollars) from 616 million pounds during the same six-month period a year earlier.

The airline recorded a net loss of 42 million pounds for the six months to the end of September and said passenger numbers were down by almost four percent.

Qantas meanwhile last week announced further cuts to its capacity, saying the global financial crisis was continuing to dampen passenger demand.

Chief executive Geoff Dixon said lower demand for flights, particularly on international routes, would mean Qantas' profit before tax for the fiscal year ending June 30, 2009 would be about 500 million Australian dollars (324 million US dollars).