British Airways Says It Is In Talks with Australian Airline Qantas About a Potential Merger

British Airways PLC said recently it's in talks with Australia's Qantas Airways Ltd. about a potential merger, sending its shares soaring as it confirmed expectations of consolidation in the hard-hit aviation industry. BA, which is already pursuing a revenue-sharing deal with American Airlines and Spain's Iberia SA, said it is exploring a "potential merger with Qantas via a dual-listed company structure." In a brief statement released in response to market speculation, BA did not provide any reasoning for the prospective deal but the CEO has long advocated industry consolidation, arguing closer cooperation will help airlines cut costs in the current difficult economic climate. BA, the 3rd-largest airline in Europe, added its discussions with Iberia on a potential merger are continuing. "There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate," BA said in the statement to the London Stock Exchange. It provided no further detail on the structure of the potential deal with Qantas, Australia's largest airline. The London-based carrier's stock jumped over 12% after the announcement to 156.7 pence ($2.35). The two airlines are already code sharing partners in the one world global alliance, which brings together 10 of the world's carriers including Japan Airlines. The confirmation from BA on the talks comes a day after the Australian government revealed it plans to increase the level of foreign ownership allowed in Qantas, but will not permit a takeover. Australian law currently limits a single foreign holding to 25%, while a group of foreign holdings can total 35%. A federal government policy paper released recently proposes lifting the foreign ownership limit, whether by 1 company or a group of companies, to 49%. That would allow Qantas and BA to swap equal stakes in each other. Qantas last month slashed its full-year profit forecast to around 500 million Australian dollars ($316 M), down from an August forecast of AU$750 million. It also said it would cut flights to cope with plummeting demand, despite a recent easing in the oil price. Analysts have expected greater consolidation in the airline industry after the global economic crisis combined with soaring oil prices earlier this year to severely crimp passenger demand. The International Air Transport Assn. reported int'l. passenger traffic declined 1.3% in October compared to 2007, following a 2.9% drop in September, and forecasts industrywide losses of $2.3 billion this year. Budget airline Ryanair Holdings recently launched a new takeover bid for Aer Lingus, seeking to capitalize on labor unrest at its Irish rival along with the country's economic difficulties. BA already filed for worldwide antitrust immunity from U.S. authorities for a revenue-sharing deal with American and Iberia that would see the trio set prices together and share seat capacity on trans-Atlantic flights. American would be the non-merged member of the BA-Iberia link. The agreement is the closest alliance the trio can form under strict U.S. airline ownership laws that all but rule out a full merger and follows two earlier failed attempts by BA and AMR's American to forge closer ties. Rival carrier Virgin Atlantic Airways has bitterly opposed that proposed deal, claiming it will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers. But American and BA contend the partnership will merely allow the trio to better compete with the other major airline alliances, Star and SkyTeam, which already have antitrust immunity on trans-Atlantic flights and a large presence at other European airports. BA and American failed in the past to win an exemption from U.S. competition laws to work more closely together because of their dominance at London's Heathrow Airport, where the pair have more than half the capacity to and from the U.S. Walsh has argued the competitive situation has changed since the "open skies" agreement between the U.S. and the European Union came into force in March, allowing airlines to fly to and from any point in the U.S. and any point in the EU.