Friday, December 19, 2008

BA/Qantas Talks Collapse

The Wall Street Journal reported yesterday that the merger talks between British Airways and Australia's Qantas collapsed after just two weeks of negotiations.  While both sides are blaming each other for premature leaks which seriously impeded the negotiations process, the paper listed "the ownership split of the combined business, the lack of obvious cost savings beyond those already achieved under the two airlines' code-sharing agreement, the need for a complex dual-listing structure to satisfy national ownership restrictions, worries over BA's giant pension deficit and . . . its separate ongoing merger talks with Iberia" as obstacles to the deal.

The breakdown of negotiations strikes a minor blow to those who were hoping to see some concrete progress made on overcoming the longstanding nationality restrictions on airline ownership and control.  However, early reports indicated that the Australian Government was never keen on handing majority ownership of Qantas over to British Airways in the first place.  For starters, it would have meant a forfeiture of the airline's traffic rights to and from Japan due to the nationality restriction contained in the two countries' bilateral air services agreement.  It would also have likely compromised other international traffic rights conditioned on ownership "purity."  Also, the plain fact that the merger would have meant Australia's oldest and most venerable carrier was in the hands of the British would be, perhaps, more than a few Australians could stomach.

It will be interesting to see what, if any, impact the breakdown has on the continuing negotiations between the European Union and Australia for a comprehensive air services agreement.  According to the European Commission, "[t]he negotiations will go beyond the 'open skies' approach."  Whether that means real opportunities for foreign ownership and control of each sides' carriers by the other or more hortatory language which points to some unspecific future point where that may be possible (see, e.g., the recently concluded EU/Canada Air Transport Agreement) remains to be seen.

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