Page last updated at 07:48 GMT, Thursday, 18 December 2008

BA and Qantas scrap merger talks

Qantas and BA planes at Heathrow
BA and Qantas failed to resolve their differences

British Airways and Qantas have ended talks after failing to reach a deal on a potential $6.4bn (4.1bn) merger.

Earlier this month the two airlines had said they were in talks about joining forces through a dual-listed company.

In a joint statement the airlines said that despite the "potential longer term benefits" they had "not been able to come to an agreement".

The two said they would continue to co-operate on their joint business between Australia and the UK.

Qantas chief executive Alan Joyce had warned last week that the merger faced major hurdles and would only go ahead if Qantas could secure major revenue and cost benefits.

He also said he regretted the fact that news of the talks had become public knowledge.

Merger obstacles

A tie-up between BA and Qantas faced several challenges, particularly over how ownership of the combined business would be divided between the two carriers.

It was always going to be a difficult marriage and clearly there are a lot of pressures from outside the relationship that are being applied
Ian Thomas, CAPA Consulting

The idea was for the two airlines to come together as a dual-listed company - in both the UK and Australia.

BA said in a statement on Thursday that it would not agree to Qantas owning more than 50% of the combined firm - even though Qantas is currently the larger company by market value.

Under Australian law, Qantas must remain majority-owned by Australian investors and its head office and major facilities must stay in Australia.

Other complications included BA's pension-fund liabilities and also BA's separate merger talks with Spain's Iberia, as Qantas had ruled out a three-way merger.

"It was always going to be a difficult marriage and clearly there are a lot of pressures from outside the relationship that are being applied - not least from Iberia and also within Qantas's institutional base," said Ian Thomas, of aviation consulting firm CAPA Consulting.

Despite calling off their talks, the two airlines will still work together as part of the 10-airline Oneworld global alliance.

The prospect of consolidation in the airline sector has been fuelled by high oil prices and the prospect of a deep global recession.

BA recently announced a sharp fall in its half-year profits and said it was cutting services from its summer 2009 schedule.



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