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Qantas-BA merger will face Govt review: Swan

Posted December 3, 2008 08:07:00
Updated December 3, 2008 11:06:00

Federal Treasurer Wayne Swan says any merger between Qantas and British Airways would need to be examined by the Government's Foreign Investment Review Board before he makes a final decision.

British Airways has confirmed reports that it is exploring a potential merger with rival Qantas.

A combined company would have a market value of $8 billion.

Qantas says it will make a statement on the merger talks later this morning.

"I think any decision in that area would be one that would be one that would come before me as the responsible minister," Mr Swan told ABC Newsradio.

"For that reason as well I wouldn't be speculating about it, but these are matters that are still being discussed between the two airlines."

The two airlines would each retain their names and branding under the agreement, an Australian Financial Review report said.

Analysts say merger talks come as no surprise.

The head of research at Shaw Stockbroking, Brent Mitchell, has told AM that Qantas needs a strong partner to maintain profitability.

"Qantas has to change, move with the times to survive," he said.

"Certainly the competing airlines such as Emirates, Singapore Airlines, have both different ownership structures and different operating cost basis and Qantas needs to adapt to be able to compete with those certainly on the global long haul routes."

Kieran Daly, the editor of Air Transport Intelligence, says changes in the global airline industry mean that Qantas must closely ally itself with other major airlines, and BA would be reluctant to let that alliance be with someone else.

"It's been visited in the past when British Airways had a very substantial minority stake for a long time, even since then the airlines have been extremely intimate partners particularly on the kangaroo route," he said.

"It's not really a surprise that it's happening and I think you would imagine that the talks are pretty cordial in in many senses and there is a real prospect of this happening."

Aviation consultant Neil Hansford from Strategic Aviation Solutions says a combined group would give Qantas dominance over flights from Australia to the United Kingdom through Asia.

"BA has been retreating from Australia, it doesn't extend onto New Zealand, it's reduced the size of some of its aircraft," he said.

"They've reduced services to many Australian ports, so I think it can then put Qantas back into its dominance with BA on the kangaroo route."

Ownership changes

The Federal Opposition yesterday expressed concern by Government moves to relax ownership restrictions on Qantas.

The Government's aviation green paper released yesterday proposed lifting the 25 per cent limit on individual foreign ownership and the 35 per cent limit on ownership by a foreign airline. But it does recommend maintaining the 51 per cent Australian ownership provision for the national carrier.

Opposition transport spokesman Warren Truss is reluctant to see any changes to the foreign ownership limits.

"British Airways once had a significant shareholding in Qantas and that did not work and in the end BA sold down that shareholding in the interest of both airlines," he said.

"We'd need to know why this deal is better than the arrangement that was proposed previously and most importantly why it's better for Australia."

Mr Mitchell says the Government will need to push through the changes if the merger is to be viable.

"I think there'd probably need to be a greater percentage than 25 per cent to enable it to work effectively, otherwise it just really goes back to the old arrangements where British Airways was just a 25 per cent shareholder," he said.

Peter Harbison from the Centre for Asia Pacific Aviation says Australians would not see too many differences if the merger were to go ahead.

"Probably very much from the outside, very much the way it looks now, there's no way you'd lose the two brands, they're both far too valuable," he said.

Tags: business-economics-and-finance, company-news, industry, federal-government, takeovers, air-transport, australia, united-kingdom, england

Comments (48)

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• L Fisher:

  03 Dec 2008 8:42:12am

  A Qantas BA merger would not be in the interests of the Australian traveller or the Qantas shareholder. These days BA standards are just not up to those of Qantas. A recent trip with them between the USA and London was one of the least pleasant long haul trips I have made in recent years. They are just not committed to passengers, not even premium class ones, as they have so 'dumbed down' their service standards.

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  • 9to5er:

    03 Dec 2008 9:05:16am

    I completely agree. I recently did a round the world trip flying with Air NZ, Qatar Air, BA, AA (American Airways), and Qantas, and BA's service standards were abysmal (even compared to Qatar Air and AA).

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  • Lionel:

    03 Dec 2008 9:12:11am

    Possibly. On the "kangaroo route" Qantas & BA are interchangeable. You can find yourself on BA aircraft for some of the legs. I have not noticed much difference between them, but given the choice, I would probably fly Emirates or Singapore.

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  • J Butt:

    03 Dec 2008 9:15:27am

    I have had many an enjoyable flight with BA as well as with Qantas and some that may be regarded as sub-standard, again with both airlines. Remember they will both retain their own unique identity and key selling points if the business sides merge.
    
    My friends from Sydney have just left London, having flown with BA from Aus, and had a super flight. They are on their way home via Tokyo with BA and then Qantas and I am sure they will have pleasant flights.
    
    Their son was not so lucky, he had a five hour hold up in Singapore, on his way home, last week and his luggage was lost. He was flying with Qantas, niether factors were the fault of Qantas but it may temper his judgement when he next books his flight.

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  • Pen Pal:

    03 Dec 2008 9:31:35am

    I completely agree to L Fisher - when we last travelled from London to Sydney with them, they didn't even have a blanket on board for anyone - service is their last concern no matter whether you are "up the front" or "down the back.

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  • Peter:

    03 Dec 2008 10:07:43am

    While the idea doesn't sit well with me either, it is an unfortunate result of the new market we are in. IF Qantas doesn't team up with someone else, then eventually the will be a lot smaller, and will have moved 80% of their jobs offshore. Even worse, they could go down the drain like many other carriers. Petrol is low now but it won't stay like that forever, once the crisis is a couple of years past and demand comes back it will be back up there, and Qantas needs to change it's business plan to manage that risk.
    
    It will either be BA or some other airline, either way they will eventually have to merge with some international carrier.

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  • AJ:

    03 Dec 2008 10:49:32am

    Have you travelled Qantas lately? I've found in the last 12-18 months their standards have dropped quite significantly - especially their telephone and check in counter customer service.

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• Ishmael:

  03 Dec 2008 9:04:58am

  Reading the mumbo jumbo there is absolutely no reason why such a merger should take place..EXCEPT for the fact that a few people will make an awful lot of money out of it, by this I mean stock broker's commissions and the like. This sort of thing is wasteful in the extreme - beware the vested interests.

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  • Andrew:

    03 Dec 2008 9:44:27am

    Exactly, well said, and God forbid anyone make any money in business.

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    • wmc:

      03 Dec 2008 9:55:51am

      Yes, the problem with people making money in business is that...they might create other businesses that do things like, employ people.
      
      And business is a scourge that needs to be stamped out. Just ask the ABC, which never presents business in a positive light.
      
      Australia can be thankful it has the ACTU to protect it by hampering business growth and stamping out entrepreneurship.

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      • Somewhat Perplexed:

        03 Dec 2008 10:10:30am

        Yep.
        And when they employ people and grow you start to get CEOs earning 480 million dollars a year whilst overseeing the collapse of the company.
        
        I agree that one should extremely sceptical of this.
        
        I assume it is for the company directors and being spun into to something else. There is plenty of past history to support this. On the basis of that, I believe government interference is required. Big business cannot be trusted to do the right thing.
        

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  • AJ:

    03 Dec 2008 10:50:37am

    It's business it's all about making a lot of money.

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  • mlad:

    03 Dec 2008 11:09:24am

    or you could even make money if you learnt the market, but its much easier having a cry on the internet than it is to take responsibility for your own finances

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• Roland:

  03 Dec 2008 9:05:35am

  Qantas really shouldn't merge with BA.
  
  I'm shuddering to think of the service standards then compared to what's been happening recently...
  
  It's only a matter of time...

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• bitrich:

  03 Dec 2008 9:06:47am

  Its not what they say, its what they do.

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• NWABP:

  03 Dec 2008 9:08:40am

  L Fisher: couldn't agree more. Long haul on BA is made tolerable only by the sleep you get.
  Let us hope that continued QF cost cutting does not see QF services and cabin standards dragged down even further, down to the level inflicted upon passengers by BA.
  

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• wmc:

  03 Dec 2008 9:11:19am

  This merger is being driven partly by concern over Labor's IR regime.
  
  Qantas vocally supported WorkChoices and has a history of problems with the unions (that's why Jetstar was set up).
  
  Tony Blair was sensible enough to keep Thatcher's labour laws, so the new merged entity will have its HQ in the UK and minimise its presence in Australia.
  
  It's a clever corporate strategy to purchase the Qantas brand but jettison a unionised workforce.

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  • Andrew:

    03 Dec 2008 9:45:53am

    And this will be happening with many other companies, watch this country fall apart when our money heads overseas.

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• dollas:

  03 Dec 2008 9:13:22am

  Sell off another piece of the farm? Why not, there won't be much left soon for genuine Aussies anyway. At rock bottom prices, the rest of the world will soon swoop in to buy our bargain stocks. When the big miners have stripped the outback and left behind their pollution, when the Great Barrier Reef has been killed off by farm run-off, there won't even be much point in flying into Australia anymore.

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  • wmc:

    03 Dec 2008 9:29:05am

    That's right. With Labor's IR regime, there'll be even less incentive for people to start businesses in Australia. Why would they?

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• Tom Riddle:

  03 Dec 2008 9:26:32am

  British Airways service standards have been among the lowest in the world for a long time but Qantas isn't far off. They are the last in a long list of preferred airlines I would fly with.
  
  They should both take a leaf out of Saudi or Singapore Airlines books. Their cabin staff actually show a bit of care and consideration, the last thing you will get from Qantas.
  
  This merger will only inflict the desparately low standards of one onto the other. It will do nothing for customers.

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  • chalkie:

    03 Dec 2008 10:35:00am

    How tellingly typical: when faced with a matter of great economic importance, people instantly focus on how it affects the speed of the drinks arriving at their seats. Again, self over community.
    
    Perhaps we deserve to lose assets to offshore interests as the majority of these posts prove how incapable we are of sustaining complex thinking beyond the most banal winging about our immediate comforts.

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    • AJ:

      03 Dec 2008 10:54:09am

      I hate to say it but Qantas and BA are providing commercial air travel, the experience is all about the speed of your drinks, how badly the food upsets your stomach (all plane food seems to these days) and how friendly the air stewards are.
      
      It really doesn't matter who owns the company as long as they provide the product people want.

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• ray good:

  03 Dec 2008 9:32:13am

  this merger should not be allowed on security reasons alone if people want to target british planes our planes will be part of their fleet as well and targeted as british it is beter to be seperate

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  • chalkie:

    03 Dec 2008 10:32:10am

    Newsflash 3 October 2011:
    
    Outrage sweeps Australia as BA/ QANTAS selects British passport holders over Australian ones in the mad rush to escape escalating civil disorder in India. WHen asked to comment, the London-based BA-Q boss replied that "As majority owner we simply have to look after the interests of those citizens from the nation we are based in. We continue to enjoy strong British govt support and this is part of our reciprocal relationship". Latest reports indicate 43 Australian dead with many more feared injured or dead . . .
    
    

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  • AJ:

    03 Dec 2008 10:55:03am

    What do you mean 'our' planes. Just because a company is Australian doesn't mean that the company's assets belong to the whole contry. We do have a system of property rights you know.

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• Jeff:

  03 Dec 2008 9:46:41am

  As quote in a comment by "dollars" There isn't much left of Australia to sell off anyway
  Maybe we should look combining the Australian government with the British one as well

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• Mick J:

  03 Dec 2008 9:52:59am

  The vast majority of the population who takes an interest in these sort of things will say NO to this merger for many reasons. Some of these valid reasons already appear in these replies.
  
  But no the merger will in all likelihood go ahead and the peoples wishes will be ignored because several people will make big bucks in the process.
  
  This will be a real test for the treasurer. Many believe he is well over his head in his job and maybe this will prove it to be so.

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  • Pennee:

    03 Dec 2008 10:55:55am

    Hate to say it but at the end of the day the only people who get to have a say in how good or bad they think it is are the shareholders.

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• John D:

  03 Dec 2008 9:57:58am

  Time for Labor to sell off more government assets

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  • Green:

    03 Dec 2008 10:18:35am

    And how exactly is Qantas a government asset?!?

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• Pravda:

  03 Dec 2008 10:00:19am

  Is this another one of Geoff Dixon's bright ideas? If he and the Board had of succeeded with the last hair brained scheme to sell out to Airline Partners, Qantas would mostly likely now be in major crisis or even in receivership under a mountain of debt.
  
  Why is it that managements of these corporations (like BHP Billiton) are so obsessed with megers and aqisiations, rather than actually running the business successfully and profitably?
  
  I guess it is a lot earlier to shuffle around bags of money and pieces of paper, that actually run a business and generate growth through innovation, and customer service.
  
  As someone has said here earlier, it all about ego (mine is bigger that yours) and also personal greed.

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  • wmc:

    03 Dec 2008 10:36:07am

    Here's a lesson in financial economics for you.
    
    Companies merge primarily to cut costs and by cutting costs, they become more profitable and more successful.
    
    Sometimes, companies de-merge and sell assets but they do it for the same reason: to increase profitability and the likelihood of success.
    
    The value of de-merged assets is sometime better recognised than if those assets were part of the selling entity.

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  • Pennee:

    03 Dec 2008 10:58:19am

    There are lots of reasons to merge with other companies. It takes a competitor out of the market, it makes it easier to increase production capacity, there are often greater economies of scale and often greater efficiencies can be produced to waste less resources. They're also a good way to branch out into a new area (ie Australian domestic travel) without the start up costs and owning an existing brand without starting from the bottom.

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• Bingo:

  03 Dec 2008 10:13:15am

  Will Australia own any business of international standing after this? Queensland Gas, Golden Circle, Arnotts... now Qantas. "Ladies and Gentlemen, welcome to the Banana Republic of Australia!"

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• Leonah:

  03 Dec 2008 10:15:28am

  QANTAS problems started when they move there technical operations off shore and until they have resolved those issues merging with another company is not going to 'help' much. Their reputation used to be the highest globally, now that this has fallen they want to toss everything in rather than put money, time and effort into getting it right. So much for an Australian icon. They fought all manner of Australian challengers to keep them out of Australian skies and maintain a monopoly, now they want to sell our sky ways to an international. Great Mate!

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  • Sammy:

    03 Dec 2008 10:44:44am

    I agree. QF has been getting noticeably poorer with its service over the past few international flights I've had with them. In the past 4 return flights, they have lost my luggage 5 times (to USA once, from USA twice, the way to AND from USA once). One of those times when arranging returning my luggage to me (in AUS), they were incredibly rude on the phone, and even the delivery person was rude.
    The delays seem longer, the general way I'm treated on-board seems generally poorer (though still well above UA standard). Not to be too petty or anything, but I'd say 7 of 10 flights, the entertainment system has failed completely. Only a handful of times did they get it working on some simplified version many hours into the flight.
    On a more serious note, in the past year, their seemingly spotless flight record has been tarnished numerous times. That's just in this one year!!

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• chalkie:

  03 Dec 2008 10:27:17am

  SOme legal advice please: a dual listing effectively means there is no Aust oversight by the Foreign Investment Review Board and thus we lose all control over foreign ownership as takeovers simply happen on the London exchange?? Is this the case?

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  • Pennee:

    03 Dec 2008 10:59:57am

    Dual listing means that there is both Australian and UK scruitiny of the company and it will be subject to the laws and regulations of both.

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• spewbag:

  03 Dec 2008 10:30:28am

  this is probably more of a takeover rather than a merger which is much needed given Qantas' deplorable service, increased safety risks and unwarranted arrogance.

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• Ron:

  03 Dec 2008 10:32:49am

  It is interesting to see yet again an attempt to get these two carriers together-it is more in BA's interests than QANTAS-Asia is the growth hub after all.
  QANTAS competes with Government owned and funded carriers-Singapore, Emirates etc-Australia may rue the day that QANTAS and Australian Airlines were merged then sold-yield on airlines cannot be maintained-they are capital intensive, fuel cost dependent and will have a high carbon impost!! They should be seen as infrastructure

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• John:

  03 Dec 2008 10:35:45am

  Does it really matter? As soon as the low cost carriers out of Singapore and KL (Air Asia X, Tiger, ...) start providing a service to the UK people will be flying with them, unless BA/Qantas match them.

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  • Pennee:

    03 Dec 2008 11:01:59am

    Not really. Both BA and Qantas are actually highly dependent on customer loyalty more than anything to sell tickets as they both have appaling service and both are expensive for what you get.

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• AJ:

  03 Dec 2008 10:48:36am

  Qantas has been struggling for a while, it does seem an obvious take over target.

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• Larry:

  03 Dec 2008 11:15:53am

  If you are a shareholder and disagree with the merger, sell your holding. If you do agree with it, continue holding.
  
  If service levels of the merged entity drop, fly with a competing airline. If they remain the same or improve, continue using their services.
  
  Why become emotionally attached to an investment or airline service? Focus is better placed on what will offer the best outcome to you personally.
  
  All companies & people both make and lie in their own beds.

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• Q.Parker:

  03 Dec 2008 11:18:46am

  I have flown BA and Qantas regularly for 20 years they are both decent airlines and I have had good and bad experiences in equal measure beween then but they are different. I have definitely noticed a significant decline in Qantas service over the last 18months however. BA and Qantas share flights, lounge facilities and are part of the one-world alliance. Major mergers in the industry are happening as only the strongest will survive in the current climate. Provided it is a true merger and not a take-over I believe there is much merit in keeping the flying kangaroo strong and globally competitive in this way - we need to get over our introspective nationalistic sentiment and secure the future of this great airline.

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• Blind Freddie:

  03 Dec 2008 11:26:22am

  I hae done a great deal of international travel over many years with many of the world's major airlines. Time for some facts: (1) Jetstar was set up because of the competitive pressures exerted by Virgin Blue, (2) BA offers below standard service (3) Emirates and Singapore Airlines are both greatly over rated, (4) Qantas stands up well to international benchmarks.
  
  We need more, not less, competition in international aviation. A QF/BA merger may strengthen Qantas to allow it to compete more strongly against state financed entities such as Singapore Airlines. Believe me, Singapore Airlines is not as good as people make it out to be.

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• tarrawal:

  03 Dec 2008 11:29:18am

  Having flown on Both BA and QANTAS in the past, BA had about a 5 % chance of me flying with them again if the merge with QANTAS the will have a 0 % chance. Both airlines are equally the worst I have ever flown. But if QANTAS employees thought Dixon was bad just wait and see what awaits them!

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