Qantas CEO says BA merger faces major hurdles
Qantas Airways Ltd (QAN.AX: Quote, Profile, Research, Stock Buzz) warned investors its proposed $5.6 billion merger with British Airways Plc (BA) (BAY.L: Quote, Profile, Research, Stock Buzz) faced major obstacles over the terms of the deal and stressed there was a reasonable chance talks would fail.
Qantas Chief Executive Alan Joyce, in his first public comments on the proposal since it was revealed last week, said he would only proceed if major revenue and cost benefits for Qantas were assured and that he was not yet able to give such an assurance.
“There is a reasonable chance that this might not go ahead,” Joyce told reporters on Monday after speaking at a business lunch.
“We still are in a position where we have significant hurdles to overcome,” he added, citing the terms of the proposed share merger, BA’s pension liabilities, which total about $2.2 billion, and the economic outlook.
The world airline industry cut capacity aggressively this year as fuel prices rallied to record highs in July. Energy prices later retreated, pushed lower by economic crisis that also dampened demand, forcing many airlines to consider joining forces.
“In order to survive for the longer term, it does potentially make sense for groups to get together if there is synergy benefits to be had,” said Paul Xiradis, CEO of funds manager Ausbil Dexia, referring to ongoing consolidation efforts in the aviation sector. Ausbil does not own Qantas shares.
NO THREE-WAY DEAL
British Airways is also in merger talks with Spain’s Iberia (IBLA.MC: Quote, Profile, Research, Stock Buzz) to form the world’s third-largest airline, but Joyce said a BA-Iberia combination would not go ahead if Qantas and BA merged. “BA are conscious, I think as Iberia are and as we are, that only one of the transactions could take place,” Joyce added instant pay day loans.
Other airlines looking to deal include Germany’s Lufthansa (LHAG.DE: Quote, Profile, Research, Stock Buzz), which is vying with Air France KLM (AIRF.PA: Quote, Profile, Research, Stock Buzz) to secure a tie-up with bankrupt Alitalia (AZPIa.MI: Quote, Profile, Research, Stock Buzz), and plans to buy Austrian Airlines (AUAV.VI: Quote, Profile, Research, Stock Buzz).
Market ignored Joyce’s warning and pushed up Qantas shares 7.2 percent to A$2.38. Traders said thin volume aggravated the stock up which was partly supported by easing oil prices. The broader market rose 4.1 percent to a one-week closing high.
Joyce, in a speech to the lunch, said a BA merger had the potential for major revenue benefits and cost savings but, when later pressed by reporters on the issue, added it was still unclear if there were enough synergies to justify a deal.
He said BA and Qantas had only revealed the existence of the talks last week because they had been leaked, noting that it was not ideal to pursue discussion in the full glare of news media.
“There’s absolutely no guarantee that transaction will be forthcoming. That’s why I think we felt that the leak was a bit premature,” he said.
Joyce met his BA counterpart, Willie Walsh, in Hong Kong on Saturday to discuss the merger proposal, the Australian Financial Review said on Monday, adding that Joyce was due to brief the Qantas board on his latest talks on Wednesday.
Joyce declined to comment on the talks and gave no time frame for the negotiations, saying the remaining obstacles were major.
Filed under: economics by Specialist