British Airways in merger talks with Qantas Airways to create ‘global airline’

British Airways, the national airline and flag carrier of the United Kingdom and one of the largest ailrines in Europe, is holding merger talks with Qantas Airways, the national airline and flag carrier of of Australia.

If the deal materialises, it would create what can be rightly called the world’s first global airline.

British Airways is already in talks to combine its services with American Airlines, headquartered in Fort Worth, Texas, the United States, and Iberia, the flag carrier-airline of Spain.

Willie Walsh, chief executive of British Airways, announced in a statement: “The British Airways-Qantas Airways merger, involving £3.5 billion, would create a unique business with 71 million passengers a year, 474 aircraft flying to more than 230 destinations in two continents. It is an exciting step towards a truly global airline.”

British Airways has its main hubs at London’s Heathrow Airport and London’s Gatwick Airport. It a founding member of the Oneworld airline alliance.

Qantas Airways, based in Sydney, Australia, has is its main hub at Kingsford Smith International Airport. It is the world’s third oldest continuously operating airline and the oldest airline operating under its original name.

So far, consolidation in the airline industry has been confined to intra-continental deals, with Air France joining its Dutch competitor KLM and, in the United States, Delta Airlines merging with Northwest Airlines.

The discussions between British Airways and Qantas Airways reportedly began in August 2008 at the behest of Qantas Airways. The proposal is for an equity swap to create a company that is dual-listed in both the United Kingdom and Australia, as a way to help overcome the substantial legal issues facing the merger of two flag-carriers from different jurisdictions.

British Airways’ plans are part of a huge consolidation in the airline industry as carriers try to protect themselves from high costs of aviation turbine fuel and falling passenger numbers.

In terms of passenger numbers or routes flown, a British Airways-Iberia-Qantas Airways tie-up would be the biggest airline outside of the United States.

Willie Walsh said in the statement he was confident that the Iberia deal, which has been slowed down by concerns over British Airways’ pension-fund deficit, “would not be derailed by another round of talks. We can do both at the same time. I expect both deals to progress. The Iberia and Qantas discussions are being conducted by separate teams within British Airways.”

Britain’s newspaper Independent quoted an aviation analyst as observing: “British Airways and Qantas Airways are exploring a dual listing structure similar to the model employed by Anglo-Dutch groups Reed Elsevier and Shell, which would bypass airline ownership restrictions in the United Kingdom and in Australia. If British Airways’ merger with Iberia goes ahead, the business created by that deal would become one half of the dual listing with Qantas Airways. Then British Airways-Iberia and Qantas would have a combined balance sheet, overlapping boards and an integrated management team – but would remain separate legal entities with two groups of shareholders.”

Though British Airways’ chief executive Willie Walsh described the British Airways-Qantas Airways deal as a “merger of equals,” Qantas is the slightly larger business by market capitalisation, with a value of Australian $4.45 billion (£1.9 billion), compared with British Airways’ £1.6 billion at closing prices on December 2, 2008.

In Australia, the ownership limit for foreign airlines is 35%, though the government is proposing to raise that to 49%, in line with United Kingdom’s limits for non-European Union carriers.

The website guardian.co.uk quoted an analyst at the Royal Bank of Scotland as commenting on the British Airways-Qantas Airways deal: “A merger between British Airways and Qantas Airways could transform the airline industry. If someone can find a way to structure a cross-border airline, we can move towards a properly consolidated industry. But the question is” can they do it?”

Meanwhile, British Airways and American Airlines are applying for regulatory clearance to join together over fares and schedules in the lucrative trans-Atlantic market. However, the alliance stops short of a full-fledged merger of the two airlines owing to ownership restrictions.