Australia open to British Airways/Qantas merger

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Melbourne: Australia said it is open to a $5.9 billion merger between Qantas Airways Ltd and British Airways as long as it's not a takeover, sending the Australian carrier's shares up nearly 10 per cent.

Qantas and BA said on Tuesday they were in talks to form a dual-listed airline, a latest move in an industry desperate to slash costs as recession-hit businesses and tourists curb travel.

In Europe, Germany's Lufthansa is vying with Air France KLM to secure a tie-up with bankrupt Alitalia, and plans to buy Austrian Airlines, while in the United States, Delta Air Lines is trimming capacity.

But Australia's Labor government, which traditionally relies on trade unions for its power base, threatened to slam the door shut if it felt Qantas was effectively being taken over.

Our bottom line is the 'Flying Kangaroo' remains majority Australian-owned and based," Treasurer Wayne Swan told reporters.

Ministers flagged any deal would have to meet the national interest and should not amount to a takeover of Qantas.

"Were that to be the case, the government would certainly not support it," Transport Minister Anthony Albanese told state radio.

Qantas shares last traded up 4.4 per cent at A$2.35, off a 3-week high hit earlier. The broader market rose 0.2 per cent.

"I would support that type of (merger) move," said Angus Gluskie, of White Funds Management which owns Qantas shares, citing a need to cut costs given falling demand and the risk of global recession.

Airline industry body IATA has warned the airline industry could lose more than $5 billion this year.

But another Australian fund manager, who declined to be identified, said Qantas was unlikely to yield much more cost savings from a merger with BA than it could already achieve through its current code-sharing partnership.

Others said it was too early to comment without knowing the terms of any deal.

"In principle, there's nothing wrong with it. The issue is what's the merger ratio. Does it reflect the value of the Qantas franchise, and how big are the synergies?" said Paul Fiani, managing director of Integrity Investment Management.

Fiani, then at UBS Asset Management, was one of two fund managers who scuppered an $11 billion private equity bid for Qantas last year.