Qantas: BA's decent proposal

British Airways continues its bed-hopping. It's now courting Australia's Qantas, for a £3.5bn merger.

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Last Updated: 31 Aug 2010

The UK flag-carrier surprised shareholders by announcing it is seeking a deal to create a ‘truly global' airline that would be listed in both the UK and Australia, forming a business with 71m passengers a year, and 474 aircraft flying to more than 230 destinations.

It's a move driven partly by necessity: the International Air Transport Association, the industry trade body, expects the world's airlines to show a collective loss of $9.3bn in 2008 and 2009. Indeed, the beleaguered sector is taking on the air of Desperate Housewives, as everyone jumps into the sack with everyone else in a sudden panic to consolidate.

As well as the proposed Qantas merger, BA currently has one eye on a transatlantic relationship: a proposed revenue-sharing deal with American Airlines - which would allow them to agree fares, routes and schedules together - is now under investigation by the EU.

Then there are the ongoing discussions with Spain's Iberia. BA is making no secret of its urgent need to partner up, as the industry struggles with price hikes and the drop in consumer spending. As to whether it's man enough to juggle all this activity, BA's chief exec Willie Walsh remains confident that the Qantas talks needn't adversely affect the Iberia deal: ‘We can do both at the same time. I expect both deals to progress.'

The business created by the Iberia deal would become one half of the dual listing with Qantas. Walsh described the deal as a ‘merger of equals', but Qantas is the slightly larger business by market cap: at yesterday's closing prices, the Australian company was valued at £1.9bn, compared with BA's £1.6bn. The combined businesses would generate revenues of £15.7bn, although BA would be the bigger earner, with turnover of £8.7bn last year.

The announcement of the Qantas deal caused a leap in BA's share price this morning, a bit of positive news for the company after what has been a tumultuous year. BA recently reported a whopping 91.6% drop in six-month profits - £52m between April and September, down from £616m a year earlier.

Let's hope it works out better than last time BA and Qantas bedded down together. BA held an 18.25% stake in Qantas for 11 years until 2004, before dumping it to raise money to pay off debts.


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Qantas: BA's decent proposal
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