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Qantas Says Significant Issues Tied To Merger Talks

Posted in Airline News, British Airways, QantasNo comments

Qantas Airways Ltd., Australia’s biggest airline, says “significant matters” need to be resolved before a merger with British Airways Plc can be achieved.

These include “an appropriate merger ratio,” issues connected with British Airways’ pension fund and the global economic outlook, Chief Executive Officer Alan Joyce said today in Sydney at a business lunch, the 42-year-old’s first public speech since taking the CEO role Nov. 28.

Qantas revealed the merger talks with its London-based rival last week as Joyce seeks to cut costs amid mounting losses for the airline industry. Combining with British Airways would create a company with about $23 billion in annual revenue, carrying more than 71 million passengers on almost 500 planes.

“Qantas comes to these negotiations from a position of strength,” Joyce said today. “We are in these discussions because a merger has the potential to create the global scale that would allow us to grow and enhance our services, and deliver significant revenue and cost synergies.”

Concern about pension fund liabilities has delayed progress on British Airways’ proposed tie-up with Spain’s Iberia Lineas Aereas de Espana SA, analysts at Citigroup Inc. said in a Nov. 21 report.

British Airways, which will complete a tri-annual actuarial review of its pension program in 2009, said Sept. 18 that the annual funding deficit widened to 1.5 billion pounds ($2.2 billion) as of March 31, the end of its last fiscal year.

Qantas shares rose 16 cents, or 7.2 percent, to A$2.38 at the close of trading in Sydney, paring this year’s decline to 56 percent.

No Guarantee

Joyce said there was “no guarantee” a transaction will proceed, adding that British Airways can link with Qantas or Madrid-based Iberia but not both.

“BA are conscious, as Iberia are and we are, that only one of the transactions could take place,” Joyce told reporters after the speech. “When you explore dialogue with any carrier the likelihood is that the carrier has multiple dialogues going on, that’s the way it takes place.”

The Australian carrier will look at opportunities in Asia if the British Airways talks don’t result in a deal, he said.

Merger discussions began under former CEO Geoff Dixon, who retired from the role last month and will remain a consultant to Qantas until the end of March.

Joyce said the Qantas name on airplanes is a “non- negotiable” item in the talks as he prefers to maintain existing brands, similar to what was done at Air France-KLM when the French company bought KLM Royal Dutch Airlines NV in 2004.

Australian Headquarters

Qantas will retain an Australian headquarters and any deal will comply with rules preventing majority foreign ownership.

The carrier has “flexibility” to do more cost cutting and improve productivity, Joyce said. The airline last month said 2009 profit may fall 64 percent to A$500 million as slowing demand for international travel forces it to cut passenger capacity and sideline planes.

Joyce said the airline, which spends A$1.4 billion ($911 million) on maintenance each year, hasn’t lowered safety standards. He made the comment in relation to incidents this year, including a mid-air plunge that injured 40 and an exploding oxygen tank which blew a hole in the fuselage of another flight.

Customer confidence in Qantas’ safety record has fallen after the incidents, with nearly two thirds of Australians saying its standards have worsened in recent years, the Australian newspaper said today, citing a survey by UMR Research.

“A confluence of events have shaken that safety perception,” Joyce said. “The most important thing is that safety is the number one priority.”

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