Air Transport

The Australian government's draft national aviation policy paper has opened the doors to a potential merger between Oneworld alliance partners British Airways and Qantas.

The draft policy signals that the government would be prepared to look at ownership restrictions on the Australian flag carrier, which confirms it is in tentative merger talks with its UK ally.

Although little detail about the exploratory discussions have emerged, a combination of the mainline carriers - including their regional divisions - would create an operation with a fleet of 430 aircraft, handling more than 60 million passengers.

Qantas primarily operates services within the Asia-Pacific region, with a few connections to major European cities, as well as transpacific connections to the USA.

BA has an extensive route network across Europe and numerous transatlantic links to the USA - where it partners American Airlines through Oneworld - as well as connections to points in Asia, the Middle East and Africa.

BA, which once held a 25% stake in Qantas but gradually disposed of it, finally divesting the remaining shares in 2004, operates to Australia via points in South-East Asia and a tie-up with Qantas would cement the airlines' dominance on the "kangaroo" routes.

The two airlines already co-operate through a joint services agreement on routes between the UK, Europe, South-East Asia and Australia.

BA and Qantas say the merger mechanism under discussion is that of a dual-listed company structure, whereby the two carriers would agree contractual obligations but remain separate, with individual stock exchange listings.

Formally outlining the Australian government's position, transport minister Anthony Albanese says that he "believes in an Australian-based and majority Australian-owned Qantas".

His comments come after concerns that a deal between the airlines could effectively amount to a takeover of Qantas by BA. "Qantas must remain Australian based and majority Australian owned - that will not change," says Albanese.

Australian law limits foreign ownership in Qantas and other Australian international airlines to 49%. For Qantas there are also other restrictions which cap total foreign airline ownership at 35% and the ownership by a single foreign airline at 25%.