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Spanish Airline A Barrier To Qantas Merger

Posted in Airline News, Iberia Airline, QantasNo comments

A MOOTED $8 billion Qantas merger with British Airways would be structured to ensure compliance with the Qantas Sale Act, but any deal could be jeopardised by BA choosing to merge first with Spanish airline Iberia.

Federal Transport Minister Anthony Albanese said yesterday that Qantas had to remain Australian-owned for national security reasons.

He cited bilateral aviation agreements — for example, the arrangement with Japan restricting landing rights to a “51 per cent Australian-based airline” — as well as the importance of a national carrier during emergencies, such as last week’s shutdown of Bangkok’s international airport.

“There are national security issues, particularly for an island continent located on the globe where Australia is, for having a national airline,” Mr Albanese told the ABC Television’s Inside Business program.

The minister noted, as well, that he had been able to pick up the telephone last week and ask Qantas chief executive Alan Joyce for extra flights out of Thailand.

It is understood, however, that any Qantas-BA deal would involve a dual-listed company structure that would comply with the act, which requires Qantas to be based here and have two-thirds of its board seats occupied by Australians, including the chairman’s position.

Qantas has yet to start lobbying the Government about the transaction, preferring to wait until the proposed merger terms are finalised, which is unlikely before Christmas.

Share market trading over the past 12 months suggests Qantas would be the senior merger partner by a ratio of 55:45.

The airline’s recent 2009 profit downgrade to about $500 million has, however, narrowed the gap to 52:48.

Mr Joyce and his BA counterpart Willie Walsh met in Hong Kong midway through last week.

Instead of making headway with the merger, they spent most of their time responding to an early leak of their merger plans to the media.

Both parties have done due diligence but the process has not been completed, although $US500 million ($771 million) in synergy benefits have been identified. One source said the major unresolved issues were the airlines’ relative values, a pound stg. 2 billion ($4.5 billion) deficit in the pound stg. 16 billion BA pension scheme and BA’s outlook given its heavy exposure to a downturn in trans-Atlantic flying because of the global financial crisis.

On the upside for BA, the performance of its new Terminal 5 at London’s Heathrow Airport had been “encouraging”, the source said.

The structure of the deal is understood to be fairly well advanced, and will approximate that of BHP Billiton-DLC.

In the current dislocation of debt markets, both parties are keen to avoid any trigger for a refinancing.

A potential spanner in the works, though, is the fate of BA’s scrip merger discussions with Iberia. Last July, the airlines said their boards “unanimously” supported the talks.

In an embarrassing revelation, Iberia chief executive Fernando Conte said last week he had not known that BA had been conducting parallel negotiations with Qantas.

Qantas sources said the involvement of Iberia did not necessarily kill a Qantas-BA deal.

The Spanish airline, though, could only be introduced to a three-way merger after a Qantas-BA deal took off first.

The reason was that a BA-Iberia deal would be a full merger, including board seats for Iberia directors.

A merger of that entity with Qantas would make it hard to comply with the Qantas Sale Act and its board requirements.

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