Officials insist Qantas must stay Australian owned

SYDNEY — A merger of Qantas and British Airways wouldn't pass muster without control of the "Flying Kangaroo" remaining in Australia, officials insisted Wednesday, as Qantas shares surged on hopes a deal would see it emerge a stronger competitor to big regional rivals like Singapore Airlines.

Australian government and union officials greeted with caution news of talks between BA and Qantas Airways Ltd. — dubbed the Flying Kangaroo because of its bright red logo depicting a hopping marsupial that's indigenous to Australia.

Both airlines said Tuesday they are exploring a "potential merger" with each other "via a dual-listed company structure" in which each company would retain its name and branding.

"We haven't had a formal proposal put to us, so all I can do is indicate the government's very strong view that the Flying Kangaroo remain majority Australian owned and based," said Treasurer Wayne Swan.

Other government officials agreed a merger could ensure that Qantas remains competitive, but any deal would have to be in the national interest. Transport Minister Anthony Albanese said a merger would probably have to be approved by the Foreign Investment Review Board.

Neither BA nor Qantas — already code sharing partners in the 10 airline Oneworld global alliance — provided any further details on the structure of a potential deal in their statements. Both said there was "no guarantee that any transaction will be forthcoming."

BA said talks began in August after it was approached by Qantas, Australia's largest airline.

Qantas shares were up 4.4 percent at Australian dollars 2.35 ($1.51) Wednesday after surging as much as 9 percent. British Airways closed 12.5 percent higher at 157.10 pence ($2.33) in London trading Tuesday.

Majority foreign ownership of Qantas is banned by law to protect the airline's iconic status, though the Australian government announced Tuesday that it was considering increasing the level of foreign ownership allowed to 49 percent. That would allow Qantas and BA to swap equal stakes in each other.

Australian law currently limits a single foreign holding to 25 percent, while a group of foreign holdings can total 35 percent.

Andrew West, general manager of CMC Markets Stockbroking in Sydney, said a tie-up between the carriers would be a positive development for Qantas.

"If the deal goes through it will create a formidable airline that has a major share of major routes to the U.S., UK and Asia," he said.

Analysts have been expecting consolidation in the aviation industry because the global economic crisis combined with soaring oil prices earlier this year has severely crimped passenger demand.

The International Air Transport Association has reported international passenger traffic declined 1.3 percent in October compared with 2007, following a 2.9 percent drop in September, and forecasts industrywide losses of $2.3 billion this year.

Qantas last month slashed its full-year profit forecast to around 500 million Australian dollars ($316 million), down from an August forecast of AU$750 million, and cut flights to cope with plummeting demand. BA last month reported a first-half net loss of 49 million pounds ($77 million).

Tony Sheldon, national secretary of Australia's Transport Workers Union, is concerned about the job security of 38,000 Qantas employees in Australia.

"There needs to be a transparent community interest test put into this bid and if it's appropriate, and it stacks up, there is a strong argument for it to go ahead," Sheldon said, but urged the government to be sure it was in Australia's national interest.

Associated Press business writer Jane Wardell in London contributed to this report.

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