MercoPress. South Atlantic News Agency

British Airways exploring potential merger with Qantas

British Airways announced it is exploring a potential merger with the Australian flag-carrier Qantas Airways. However BA warned there was “no guarantee that any transaction will be forthcoming”.

In a statement, BA said that the merger would be through the creation of a dual-listed company, so it would be listed in London and Australia. It follows indications from the Australian government that it may be prepared to relax the rules on foreign ownership. Under current Australian law, Qantas must be at least 51% Australian-owned. Any individual foreign airline can only own up to 25% of it and only a total of 35% may be owned by foreign airlines. Transport Minister Anthony Albanese proposed earlier on Tuesday that the rules be changed so that while 51% must still be Australian-owned, the remaining 49% may be owned by a single foreign airline. The future of Qantas has been uncertain since an 7.1 billion US dollars bid for it from Airline Partners Australia (APA) collapsed last year due to lack of support from shareholders. There is an EU investigation underway into a proposed revenue sharing deal between BA and American Airlines, which would allow them to agree fares, routes and schedules together. BA also said that its discussions with the Spanish flag-carrier Iberia are also still continuing. BA shares soared following the announcement, rising 12.46%, or 17.4 pence, to end the day at 157.1p. It is a time of consolidation in the airline sector, which was hit by the high fuel prices earlier in the year and is particularly vulnerable to the economic downturn. BA held a stake in Qantas for 11 years until 2004, when it sold its 18.25% shareholding to raise money to pay off some of its debt. It its most recently announced results, BA reported a 91.6% drop in six-month profits, blaming "incredibly difficult trading conditions" for the plunge. Its pre-tax profit totalled £52m between April and September, down from £616m a year earlier. Qantas fared better in its results for the year to the end of June. Its pre-tax profit rose 36% to 1.408bn Australian dollars. But the airline warned at the time that the business was starting to see the effects of a slowing economy and rising fuel prices. Last week, Qantas announced a fresh set of capacity cuts as the global financial crisis continued to hit demand for airline seats.