BA and Qantas in talks on forming new airline; Graeme Evans and Peter Woodman.

BRITISH Airways has revealed it is in talks about a possible merger with Australian carrier Qantas to form a new airline.

The news sent BA shares leaping by more than 14% at one stage yesterday as BA said it was looking to achieve a tie-up through a dual-listed company structure.

Should a merger come about, both airlines - which already jointly market, or codeshare, on some routes - would retain their identities. BA said the Qantas talks would not affect its talks about a merger with Spain's Iberia in a move that could eventually lead to a tie-up with US carrier American Airlines.

BA held a stake in Qantas from 1993 to 2004 but sold its 18% in 2004, while continuing its codeshare agreement.

A BA spokesman said yesterday: "In response to recent media speculation, British Airways confirms that it is exploring a potential merger with Qantas Airways via a dual-listed company structure.

"The discussions between BA and Iberia are continuing. There is no guarantee any transaction (with Qantas) will be forthcoming and a further announcement will be made in due course, if appropriate."

The speculation over a BA-Qantas tie-up comes on the day the Australian Government released a transport green paper considering whether to overhaul foreign ownership rules in Qantas that currently limit a single foreign holding to 25% and 35% in total for all foreign airlines.

The prospect of consolidation in the airline sector has been fuelled by sky-high oil prices and the prospect of a deep global recession.

BA recently announced a 90% fall in half-year profits and said it was axing services from its summer 2009 schedule.

Qantas - which stands for Queensland and Northern Territory Aerial Services - was formed in 1920. It employs around 37,000 people and flies to 145 destinations in 37 countries.

Brian Boyd, national officer of the Unite union, said: "This announcement is further evidence of the current difficulties within the civil aviation industry. BA is continually searching for consolidation partners.

"However, this union's immediate concern is the future employment prospects of our 25,000 members who form the majority of BA emplo yees."

Virgin Atlantic chief executive Steve Ridgway said: "One day it's Iberia, then it's American, and now Qantas.

"The only strategy BA seems to have is to lock-up some of the busiest routes in the world, against the consumer interest."

CAPTION(S):

MERGER TALKS British Airways is in talks about a possible merger with Australian carrier Qantas.