BA-Qantas merger a question mark

Australia - Qantas and British Airways (BA) and have confirmed that discussions are ongoing over a potential US$5.6 billion merger, but the deal faces major obstacles.

Both airlines are in talks over a dual-listed merger, a structure that would preserve their separate stock market listings in London and Australia but would strengthen their management so that both firms were run as one.

Alan Joyce, CEO of Qantas told Reuters it was still unclear if there were enough synergies to justify a deal; he would only go ahead with a deal if major benefits were assured but he was unable to give such an assurance as yet.

"We still are in a position where we have significant hurdles to overcome; there is a reasonable chance that this might not go ahead," Joyce said, citing the terms of the proposed share merger, BA's pension liabilities of about US$2.2 billion and the economic outlook.

However, Richard Macomber, chairman of the National Industrial Transportation League's air cargo committee told Logistics Management, "While most consolidations have a downside, this one does not seem to be redundant or anti-competitive. It appears to be complimentary, and may improve existing service.".

Qantas currently runs a LAX-Asia cargo service, which analysts believe is highly coveted by BA.

Such a deal, according to analysts would not only extend BA's global reach, but secure substantial scales of economy by swapping equipment and crews.

If a deal is struck, each carrier would remain a separate legal entity and would have separate shareholders but would have a combined balance sheet and integrated management.

The proposed merger between the airlines has caused concern and anxiety among some of Qantas shareholders and the Australian government.

According to Reuters, the Australian government has threatened to scupper the deal if it amounts to an effective takeover of Qantas, which is protected by special legislation that forbids majority foreign ownership and also ensures that its head office, listing and key facilities stay at home.

"All I can say to all Australians is whatever happens, Qantas will remain majority Australian owned, the vast majority of employees will always be Australian, and Australia will remain our headquarters," Joyce said.