BRITISH Airways and Australia's Qantas Airways yesterday called off talks over a A$6.4 billion (£2.9bn) merger, with the Australian group's demand for a majority stake emerging as a key sticking point.
City analysts said the foundering of the talks was a setback for BA in a rapidly deteriorating climate for airlines as they try to consolidate to fend off the recession. But analysts also noted BA's comments that its long-running merger talks with I
beria of Spain were continuing, and said it would be far worse if those broke down as well.
One City airline expert said: "The industry is consolidating, and if BA wants control of shaping its future they obviously want to be driving (consolidation].
"It was a bit of a surprise when they announced the merger talks with Qantas. But the onus is on BA now to conclude the other deal.
"If the Iberia talks failed as well, the City would probably be asking 'what is going on?'"
Another analyst, Panmure Gordon's Gert Zonneveld, said: "On paper, Iberia is a deal that is less complex – we see more synergies. But it depends on whether the two companies can agree on who gets what slice."
BA said in a stock exchange statement: "Despite the potential longer-term benefits to both British Airways and Qantas, the airlines have not been able to come to agreement over the key terms of a merger at this time."
BA's shares initially lost 4 per cent on news of the ending of talks with Qantas. But they later recovered, to close up 0.5p at 172.5p.
A BA spokeswoman said a sticking point included a Qantas demand for more than 50 per cent of the merged business.
BA said it would not agree to this, although Qantas is the larger company by market value. Qantas is worth about A$3.3bn and BA about A$3.1bn, based on latest exchange rates and share prices.
A BA spokesman said a leak that revealed the talks between the two "created an expectation about the merger ratio that could not be delivered".
Asked if Qantas wanted more than 50 per cent of the combined entity, she replied: "Yes."
Jonathan Wober, airlines analyst at Société Générale, said: "This is not wholly unexpected considering the hurdles that had to be overcome."
The mooted marriage was meant to be a dual-listed merger where the two firms would have kept their existing listings but be managed as one group.
The BA spokeswoman confirmed that the British carrier was not planning to take an equity stake in Italy's Alitalia.
The CAI group that owns Alitalia has said it was looking for a potential airline partner to take an equity stake, but the BA spokeswoman said it was only interested in a commercial deal.
Air France and Lufthansa are also vying for a tie-up with Alitalia.
The full article contains 492 words and appears in The Scotsman newspaper.
