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Qantas merger speculation switches to Asia -

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Qantas merger speculation switches to Asia

The World Today - Friday, 19 December , 2008 12:22:00

Reporter: Simon Santow

ELEANOR HALL: It was a headline grabbing courtship but it seems the marriage between British
Airways and Qantas won't be going ahead after all. Both airlines have confirmed that the merger
talks are off, at least for now.

But aviation watchers suggest that the future for Qantas might be better served by a tie up with an
Asian based airline.

Simon Santow has our report.

SIMON SANTOW: With the two airlines worth about the same, it was always going to be a merger rather
than a takeover.

But the problem was that neither British Airways or Qantas wanted to be the junior partner in a new
combined super carrier. So the prospect of creating the world's largest airline hit turbulence very
early on.

PETER HARBISON: Nobody really understood what the logic was of having such a merger in terms of the
upside and then suddenly before we blink it's gone again.

SIMON SANTOW: Then there was BA's pension plan and a huge unfunded liability as well as the fact
there was another suitor with Spanish airline Iberia and British Airways holding separate talks.

Peter Harbison is the chairman of the Centre for Asia Pacific Aviation.

PETER HARBISON: We're on the cusp of a whole new liberalisation of the industry which involves
ownership changes. We're obviously in a very, very dire financial position in most cases in terms
of passenger demand particularly. So these talks will be going on. And it's to some extent it's
really necessary to be out there talking to other people because if you're not, you may miss out on
some long term opportunities.

SIMON SANTOW: Analyst Brent Mitchell from Shaw Stockbroking believes Qantas needs to look to Asia
if it's to pursue a merger.

BRENT MITCHELL: Malaysian Airlines have shown some interest or the Malaysian Government has shown
some interest. But certainly there are certain cost savings and synergies within the Asian area
that could be attractive for Qantas.

SIMON SANTOW: So there's no risk at all in seeking a tie up with an Asian airline of going over the
same ground or of competing with each other?

BRENT MITCHELL: Oh look I think Asia is a slightly different context than Europe and certainly BA,
and BA certainly has that flag carrying representation for the UK. I think the airline industry in
Asia is more competitive. And I think it doesn't necessarily have the same structural impediments
that BA would have.

SIMON SANTOW: And Brent Mitchell says Qantas is already active in the region looking for cost
savings.

BRENT MITCHELL: There are a number of things coming up such as heavy maintenance on the A380s and
the 787s that needs to be determined and to set up a heavy maintenance facility for those new
aircraft requires significant investment and they may seek to have that done offshore and that
would further lower the cost base.

SIMON SANTOW: But when it comes to merger opportunities, Peter Harbison believes Qantas management
is still looking towards Europe despite a shortage of eligible partners.

PETER HARBISON: BA was obviously one and there's a big history there. Other one's though include,
of the big parties, the Air France KLM SkyTeam group. There's Lufthansa who heads the Star
Alliance. That one I think is probably not likely because certainly Lufthansa would want to be a
very dominant partner in that.

SIMON SANTOW: It was Qantas' recently departed boss Geoff Dixon who first advocated the theory that
an airline needs to grow to survive challenging economic times.

If he's right, his replacement Alan Joyce will need to move quickly over the coming months to find
another deal which will ensure the "flying kangaroo" is in no danger of extinction.

ELEANOR HALL: Simon Santow reporting.