British Airways and Qantas in merger talks

While airlines have seen one of their biggest expenses, fuel, come down in price, they are still struggling to find demand as the world's major economies contract, and tis the season of industry consolidation.

British Airways on Tuesday said it's holding merger talks with Australian national carrier and fellow OneWorld alliance partner, Qantas Airways, in a deal that could combine two of the world's best-known international carriers.

British Airways, in a brief statement, said

In response to recent media speculation, British Airways Plc confirms that it is exploring a potential merger with Qantas Airways Limited via a dual-listed company structure.

The discussions between British Airways and Iberia are continuing.

There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate.

British Airways shares shot up 12.1% in London. Qantas shares ended 4.3% lower in Sydney.
Iberia shares added 5.3% in Madrid.

British Airway possessed a 25% stake in the early 1990s which it sold in 2004. The British Airways talks with Iberia have languished because of Iberia's concerns about the U.K. airline's pension liabilities.

British Airways has been a very busy airline lately. In addition to the Qantas and Iberia negotiations, it is seeking antitrust immunity, from U.S. and European regulators, on its proposed partnership with American Airlines for which it is seeking. A proposal vehemently opposed by arch rival Virgin Atlantic.

Virgin has a presence in Australia in the form of low cost carrier, Virgin Blue. It will be interesting to see how the rivalry will carry over down under.

Like in the United States, Australia limits foreign ownership of domestic carriers. But the BBC was reporting that that may change:

It [the merger statement] follows indications from the Australian government earlier in the day that it may be prepared to relax the rules on foreign ownership.

Under current Australian law, Qantas must be at least 51% Australian-owned.

Any individual foreign airline can only own up to 25% of it and only a total of 35% may be owned by foreign airlines.

Transport Minister Anthony Albanese proposed earlier on Tuesday that the rules be changed so that while 51% must still be Australian-owned, the remaining 49% may be owned by a single foreign airline.

The Australian government recently released a key industry blueprint that would cap foreign ownership at 49% in a bid to keep Singapore Airlines out of the lucrative U.S-to-Australia route.

The possible BA-Qantas link-up occurs as the industry consolidates. Delta has recently merged with Northwest, and on Monday, Ryanair Holdings launched a fresh offer for fellow Irish carrier Aer Lingus, which was rejected by the Aer Lingus board.

The Air France-KLM combine have shown the aviation industry how to combine functions while maintaining separate brands.