British Airways potential merger with Qantas

The Qantas board has given airline executives a green light to continue talks on the $8 billion merger with British Airways.

Chief executive Alan Joyce yesterday gave what one airline insider described as a “pretty standard, straight up and down” report on the progress of the discussions.

It is understood that the board has endorsed the continuation of talks — subject to concerns about shareholder value, the merger ratio, BA’s defined benefits pension plan, governance and Australian regulatory requirements being addressed. The talks come amid deep recession and the most challenging revenue environment in 50 years. Airline losses are expected to more than double in the Asia-Pacific next year with passenger traffic, revenues, yields and cargo tonnages heading south.

The grim prediction from the International Air Transport Association shows airlines in the Asia-Pacific region swinging from a cumulative $US2.1 billion net profit in 2007 and a $US500 million loss in 2008 to a $US1.1 billion ($1.67 billion) loss next year.

The Asia-Pacific is expected to suffer the highest losses of any region as passenger traffic falls by 2.5 per cent and its dominance in the air freight market sees it disproportionately affected by falls in cargo.

Middle Eastern and Latin American carriers are each expected to see regional losses double to $US200 million while losses in Europe are predicted to increase tenfold to $US1 billion.

North America is the only region forecast to escape the red ink as low hedging allows airlines to gain the full benefits both of falling fuel prices and of their early substantial cuts in capacity.

Those two savings will allow North American carriers to produce a small overall profit of $US300 million, or about 1 per cent of revenue.

This and a falling oil price — IATA is tipping that a lower average price of $US60 a barrel in 2009 will reduce the airline fuel bill by $US32 billion — is expected to reduce overall global losses from $US5 billion this year to $US2.5 billion in 2009.

But global industry revenues are expected to drop by $US35 billion to $US501 billion, marking the first fall for two consecutive years since 2100-02, and yields are forecast to decline by 3 per cent.

Global passenger traffic had been forecast to grow next year by 2.9 per cent but is now expected to fall 3 per cent — the first drop since 2001.

Worldwide cargo traffic is expected to decline by 5 per cent, following a drop of 1.5 per cent in 2008.

The IATA forecast said the Asia-Pacific’s biggest market, Japan, was already in recession and it noted the major changes in the growth markets of China and India.

China this week urged its airlines to cancel or postpone aircraft deliveries in 2009 — a move that could have a major impact on manufacturers who have relied in Chinese carriers to offset cancellations elsewhere.

“Chinese growth will slow as a result of the drop-off in exports,” IATA said.

“India’s carriers, which are struggling with high taxes and insufficient infrastructure, can expect a drop in demand following on from the tragic terror incidents in November.”

Describing the 2009 outlook as “bleak”, IATA director-general Giovanni Bisignani said airlines had done a remarkable job in restructuring since 2001.

“But the ferocity of the economic crisis has overshadowed these gains and airlines are struggling to match capacity with the expected 3 per cent drop in passenger demand for 2009,” Mr Bisignani said.

Yeah Aussies get bit antsy when you talk about flying Roo, the logo is a huge icon here so even with promise that brand will stay, they would never allow majority foreign ownership.

This could be problematic for any type of merger.

QANTAS will remain in majority Australia ownership even if it merges with British Airways, federal Treasurer Wayne Swan says.

British Airways has confirmed that it is in merger talks with the Australian carrier.

The news came as the Federal Government indicated it was considering lifting from 35 per cent to 49 per cent the holding foreign airlines can have in Qantas.

But it won’t budge on a requirement that insists the airline be 51 per cent locally-owned.

“Our bottom line is that Qantas remains in majority Australian ownership,” Mr Swan told ABC Radio.

The Federal Opposition is yet to be convinced about plans to allow foreign airlines a bigger stake in Australian carriers.

The Opposition wants the Government to explain why the move would benefit Australia.

Opposition transport spokesman Warren Truss said British Airways once had a significant shareholding in Qantas and that did not work.

“In the end BA sold down that shareholding in the interest of both airlines,” he told ABC Radio.

“We’d need to know why this deal was better than the arrangement that was proposed previously, and most importantly why it’s better for Australia.”

AAL
BAW
QFA

Now that would be an interesting combination!