British Airways and Qantas in merger talks

By Dan Lalor

LONDON (Reuters) - British Airways and Australia's Qantas Airways said they were in merger talks, signalling further consolidation in an industry desperate to cut costs in the global economic downturn.

BA, whose market value of 1.8 billion pounds is only a fraction smaller than that of Qantas, also said merger talks already underway with Spain's Iberia to form the world's third largest airline were continuing.

A tie-up between BA, Iberia and Qantas would create the world's biggest airline with combined scheduled passenger kilometres flown of almost 270 billion a year, comfortably overtaking American Airlines on 222.8 billion.

Blue Oar Securities airline analyst Douglas McNeill said BA's latest move was in line with its strategy of taking a lead in consolidation in an industry battling wild swings in fuel prices and falling demand as global recession looms.

"They are out to create a global player, which is an audacious goal that would be difficult for any management team to pull off," he said.

Analysts said a three-way combination looked a long way off, however, given that talks with Iberia were first announced in July and have stalled on worries over BA's pension deficit.

Qantas made no mention of Iberia in its statement.

"Qantas Airways Ltd confirms that it is exploring a potential merger with British Airways plc via a dual-listed company structure," the airline said in a statement early on Wednesday, adding there was no guarantee they would agree on a deal.  Continued...