A jumbo-sized deal is in the air as the industry turns sour, so what are British Airways and Qantas up to? Matt O'Sullivan and Scott Rochfort report.
THE Europeans showed everyone that they knew how to throw a party. And the boss of Qantas, Geoff Dixon, along with his heir-apparent, Alan Joyce, glided from table to table making the most of the largesse.
Before them and several hundred guests in the giant showroom of the European aircraft manufacturer Airbus sat their prize. After two years of waiting, the Airbus boss, Thomas Enders, had finally handed over the keys to Qantas's first A380 superjumbo. The ceremony in the rugby-mad city of Toulouse, in the south of France, included a razzle-dazzle light show beamed upon the plane's gleaming white exterior.
The arrival of the double-decker aircraft, heralded as the flagship of the Flying Kangaroo fleet, marked a high-note in Dixon's final year as boss.
But the Wagga Wagga native and the pint-sized Joyce were not about to step aboard the A380 for its 30-hour inaugural flight to Sydney on this balmy September evening. They had much bigger games on their mind.
The next day the gregarious pair skipped off to London to meet the boss of British Airways, Willie Walsh. For more than two weeks Dixon and Joyce had been criss-crossing Europe on an "investor roadshow". Now the pair were going to meet Walsh to nut out ambitious plans to merge the two airlines.
The negotiations had been under way since June when Dixon and Qantas's no-nonsense chairman, Leigh Clifford, first made advances on Walsh and BA's chairman, Martin Broughton.
THREE months on, the talks have morphed into fully fledged merger negotiations with two 40-something Irishman at their epicentre. The lives of Joyce and Walsh have been intertwined since they first worked together in the 1990s at the Irish carrier Aer Lingus. They're even family - Walsh's wife is the second cousin of Joyce's mother. "It's a long-distance relationship," Joyce quipped during the A380 handover in September, quickly adding that he wished he hadn't let that secret out of the bag.
Should the Dubliners' jig succeed, a merger of Qantas and BA will create the world's first transcontinental mega-carrier. Until now it has been a pipe dream; airlines have been unable to dance around stiff foreign ownership limits on national carriers.
"The cultural fit, I think, is very important," says the managing director of Integrity Investment Management, Paul Fiani, whose firm has a stake in Qantas. "It's not about what deal gives you the most synergies - it's choosing the best overall deal for shareholders."
But it will take the luck of the Irish to get this $8.4 billion deal flying.
Many people already struggle to see the rationale for a tie-up of carriers at opposite ends of the earth. Why would Qantas want to merge with a loss-making airline that services two continents which are facing the biggest recession since the Great Depression?
Not only does the deal expose Qantas shareholders to a deficit in BA's pension fund, but analysts calculate that the cost savings from a merger are unlikely to be more than 1 to 2 per cent of their combined revenues. That equates to between $400 million and $700 million, just a drop in the ocean of $36 billion that the mega-carrier would accumulate in revenue.
A tie-up is also unlikely to yield significant synergies on the sole route they share - the Kangaroo route from Australia to London - because they have had regulatory approval to jointly fly on it for more than a decade.
So far Joyce, the Qantas chief executive of just one week, has publicly been silent on the benefits, leaving it to his counterparts at BA to sell the deal.
Airlines worldwide are cutting routes and slashing workers as they struggle to stay in the air in what is shaping up to be the sharpest downturn in aviation since the jet age began. Continued…
