Airline shares jump on merger talk

Shares in British Airways (BA), and Australian-owned Qantas Airways have surged following the announcement of a possible merger between the two airlines, reported Aljazeera.

The chief executives of the carriers have been discussing a merger since August, attributed to increased fuel costs and shrinking passenger demands as the global economy enters a recession.

Shares in BA jumped more than 12 per cent on Tuesday following the initial announcment in London, while Qantas stock rose almost 9 per cent when trading began on Wednesday.

In a statement on Wednesday Qantas said it was "exploring a potential merger with British Airways via a dual-listed company structure".

But the company said that there was no guarantee a transaction would be implemented soon.

However, Qantas did acknowledge that the industry was heading towards a period of consolidation, and last week the company said that it would be in their interests to merge with a rival sooner rather than later.

Wayne Swan, the Australian treasurer, said no proposal had been given to the government, but any merger would have to abide by local regulations restricting foreign ownership of Qantas to 49 per cent.

"Our bottom line is that the 'flying kangaroo' [the Qantas logo] remains majority Australian-owned and based," he said.

But the government has said it will alter other foreign ownership rules, which currently limit individual foreign airlines to a 25 per cent holding and aggregate foreign airline interests to a 35 per cent stake.

Neil Hansford, chairman of Strategic Aviation Solutions said that Qantas' main rivals, including Singapore Airlines, would be unhappy with the news but said that a merger with BA made the most sense.

"Qantas has got a choice, it either gets into bed with somebody like BA or Lufthansa [the German carrier] or it retreats to being an Asian carrier with a couple of routes to Europe," he told the AFP news agency.

"It will allow Qantas to stay servicing Europe meaningfully and will make it [in combination with BA] about the third biggest fleet in the world."

But some traders say that Qantas, which is one of the world's most profitable

airlines, would be unwise to link itself to a carrier with a less robust bottom line.

"Qantas has low debt, a protected US-Australia route and an oligopoly on one of the most profitable short-haul legs in the world between Melbourne and Sydney," Patrick Crabb, a senior trader with Goldman Sachs JBWere, told AFP.

"If I am a shareholder of Qantas, my initial response is cold feet, as the potential groom has a good name but his short-term financial prospects look challenged," he said.

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