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Qantas shares surge as British Airways merger talks commence.

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7.30 Report Qantas shares surge as British Airways merger talks commence


Qantas shares surge as British Airways merger talks commence

Broadcast: 03/12/2008


KERRY O'BRIEN, PRESENTER: Shares in the national carrier Qantas surged today after the airline issued a statement overnight revealing it was in advanced merger talks with British Airways. But the announcement has set the political hairs running after the Government's release only yesterday of its green paper on Australian aviation, proposing a relaxation of regulations that currently restrict British Airways from owning any more than 35 per cent of Qantas. It's all against a landscape of an international aviation industry that's struggling with the world downturn and a massive restructure ahead. Greg Hoy reports.

GREG HOY, REPORTER: It's an issue of great national pride. By its own volition, there's nothing more true blue than the flying kangaroo. So what do you get when proposing to marry an Australian icon to that most British of Her Majesty's brands, British Airways itself. Well before you can get down to business, you get a lot of noise about whether we really need a national carrier at all.

ANTHONY ALBANESE, TRANSPORT MINISTER: Qantas, in having a national airline, is important not just for aviation and for the economy. We think in terms of Qantas as a brand. It is an iconic Australian brand. And to think that the ‘flying kangaroo’ would disappear is a bit like thinking that the Sydney Opera House will be bulldozed.

WARREN TRUSS, OPPOSITION TRANSPORT SPOKESMAN: We need airline to support our country in times of trouble. We need people who are committed to Australia and make decisions about the operation of their airline business on the basis of this nation's interests.

GREG HOY: We should have seen this commotion coming of course - the warning signs have got louder in recent days, even months.

GEOFF DIXON, QANTAS CHIEF EXECUTIVE (Australian Network, Oct. 29): I do think Qantas is an end-of-line carrier in a country that's not that big, although it's a very rich country, would do better if it could merge with a compatible type airline.

GREG HOY: The minister wasn't available for us to interview today, but it appears the Government has long been aware of Qantas' courtship of British Airways which began back in August. That might explain the suggestion yesterday on the eve of revealing the then secret marriage proposal. And in releasing its green paper on the future of Australian aviation, the Government flagged that it will review foreign ownership limits that would have precluded any such major merger.

ANTHONY ALBANESE: Currently there's a 25 per cent individual foreign ownership limit and a 35 per cent foreign airline limit restriction. By removing that, but maintaining the 51 per cent Australian ownership of Qantas, I think you would achieve an outcome that is balanced in terms of why should Qantas be discriminated against because they were first, basically? - which is what's there at the moment. And achieve an outcome that balanced the Government's view that having national airlines are important.

GREG HOY: What is it about Qantas that its management always seems to want to leap into the arms of someone else? Last year, it was the foreign private equity-backed Airline Partners of Australia. Now, it's a far less profitable airline with far greater debt on its books, which may explain why British Airways shares shot up 12.5 per cent overnight while Qantas shares rose less than half as much, but rose nonetheless.

BRENT MITCHELL, SHAW STOCKBROKING: I think there are benefits from both sides of the merger. For Qantas, it links in with another major airline and makes them the largest airline globally. There are certainly advantages in terms of purchase of aircraft, cost savings along crewing, IT, bookings, and maintenance, and certainly gives them access to substantial end markets such as the rest of Europe, east coast USA and Latin America.

GEOFF DIXON (Australian Network, Oct. 29): I think there's far too many airlines. I'm on the record about that. Far too many airlines. And I think some will have to merge.

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DEREK SADUBIN, CENTRE FOR ASIA PACIFIC AVIATION: This is a deal that I think could be quite groundbreaking for the industry. It will certainly create other waves, other shock waves through the industry. So if they can get this deal done and put the building blocks in place for a potential global carrier, then I think that they'll be satisfied that they've made a very positive step forward for both of their airlines and for the industry as a whole.

GREG HOY: But others question if the case for marriage is so compelling.

WARREN TRUSS: About a decade ago, there was a lot of talk about airline mergers around the world. In fact, the common view was that by this time, there'd only be half a dozen mega-airlines operating in the world. But it didn't happen. A whole series of issues, national interest issues, but also the difficulty of various airlines actually working together meant that very few of these mergers actually occur.

GREG HOY: The proposal is the mega-airline be dual listed in Australia and Britain, retaining, where possible, both brands. But what realistically are the chances of this marriage going ahead?

BRENT MITCHELL: We believe that it's only a less than a 50 per cent chance of succeeding.

GREG HOY: Problem is, Qantas has 220-odd aircraft; British Airways, 255. So the first stumbling block is who gets to wear the trousers in this family? Here, the Australian Government has drawn a firm line.

ANTHONY ALBANESE: Qantas's main operational base and headquarters must remain in Australia. The name of Qantas must be preserved and total foreign ownership must not exceed 49 per cent.

BRENT MITCHELL: That would need to be changed, it would need to satisfy FIRB and certainly be in the nation's interest. There are a number of vested interests that'll be against this, including the unions and some nationalistic elements.

GREG HOY: So would, pray tell, the British be happy to submit to the superiority of Australian rule? Hardly likely. Which gives rise to an even more confusing prospect.

WARREN TRUSS: My understanding is that Qantas believe that they can undertake this merger without compromising the current law in relation to Qantas ownership. They're obviously using some quite adventurous accounting methods. They're looking for ways in which a UK airline can remain 51 per cent UK owned, and an Australian airline remain 51 per cent Australian owned, and yet be one.

GREG HOY: It's all about as clear as a London fog. Sadly, with the minister and the national carrier unavailable for us to interview today, it leaves us all guessing how such major marital difficulties could ever be resolved.

KERRY O'BRIEN: Greg Hoy with that report.

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