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Last Updated: Wednesday, 8 September, 2004, 07:21 GMT 08:21 UK
BA to sell off 18% Qantas stake
Qantas jet over Sydney
BA and Qantas say their strong relationship will continue
British Airways is to sell its stake in Australian airline Qantas in the next two days, the company has said.

The sale of the 18.25% stake in Qantas is expected to land BA at least A$1.1bn (425m; $753m), the UK airline added.

"We now believe it is in our best interests to sell our shares to pay down our debt," BA chief executive Rod Eddington said.

BA bought its stake in Qantas in 1993 for A$665m (304m at the time) and has since received A$600m in dividends.

Qantas requested a trading halt for its shares before the Australian market opened on Wednesday.

Neither airline now believes the shareholding is necessary for the ongoing conduct of that relationship
Geoff Dixon, Qantas

Shares in the group closed 1.2% higher on Tuesday at A$3.33.

BA's original stake was 25% of the Australian airline, but this has since been diluted as Qantas sold shares to fund expansion.

"BA has been a supportive shareholder over a period of some 10 years and both airlines have formed a strong and constructive relationship," Qantas chief executive Geoff Dixon said.

"Neither airline now believes the shareholding is necessary for the ongoing conduct of that relationship," he added.

Bid rumours

There has been speculation in Australia that regional heavyweight Singapore Airlines may be interested in the sell-off, as it has been hunting for a strong foothold in the Australian market for some time.

However, analysts expect institutional investors to snap up most of the stake.

Both airlines said that the sale would have no effect on their current "joint service agreement" (JSA) .

The agreement includes joint flight schedules, sales, and operations between Australia, Europe, South East Asia and the UK.

The two airlines operate the so-called "kangaroo route" between London and Australia which allows them to co-ordinate schedules and fix prices.

The airline industry has been battling tough conditions in the past three years - struggling to recover from heavy losses after terrorism, the Iraq war, and Sars virus outbreak cut travel.

Heavy competition from no-frills rivals and rising fuel costs are also taking their toll.

Cost cutting

In an effort to cut costs BA has slashed 13,000 jobs and cut costs by 869m. It will put the money raised from the Qantas stake sale towards reducing its 5.6bn ($10bn) debt mountain.

Meanwhile, Qantas also announced plans to lower its commission to travel agents for all flights sold in Australia.

"Distribution costs remain high and the current base-commission structure is simply not sustainable in such a low fare environment," head of sales and distribution, Rob Gurney, said.

Commissions paid on domestic flights will fall to 1% from 5% in January, as will cash paid out for flights to and from New Zealand.

For international fares, commission payments will drop to 7% from 9%.

Brent Mitchell, analyst at Shaw Stockbroking, told news agency Reuters that the move could be designed to shift more bookings to the internet where costs are cheaper.

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