Australia says BA-Qantas merger faces a long haul

BA says the negotiations are aimed at creating a company listed in both London and Sydney.

The two airlines would have a combined market value of about £3.69 billion. Under the terms of the deal being discussed, each carrier would retain its own brand.

BA and Qantas already have close commercial ties and are founder members of the Oneworld global airline alliance.

Qantas shares today surged in Sydney by 9.8%, the most in more than two years, on news of the talks.

Chief executive Alan Joyce, who has been at the helm of Qantas for less than a week, is under pressure to slash costs.

Qantas has flagged a merger along the lines of the KLM-Air France tie-up.

"Alliances don't get you the synergies you can of a single entity," Joyce said last week.

"What Air France and KLM have done is show the structure is workable and can be done. Consolidation is a good thing and needed in the industry."

However, the Australian government has indicated that it would keep 51% of Qantas shares in Australian hands, a position Joyce says he supports.

Legislation enacted before the government sold its 75% stake in the carrier in July 1995 enshrines Aussie majority control. Joyce said such a structure may allow Qantas to retain bilateral flying rights between Australia and other nations.