The decision by British Airways to sell its 18.25% stake in Australia's Qantas Airways represents a shift in strategic priorities for BA and allows both airlines to address other concerns.

Eleven years ago BA outbid Singapore Airlines (SIA) to become a 25% shareholder in Qantas. At that time, two years before Qantas was privatised, global alliances had not yet emerged and airlines saw equity links as a key to strategic alliances. Not only are BA and Qantas now partners in the oneworld alliance, but they have operated for nine years under a joint services agreement with antitrust immunity on the Kangaroo route linking the UK and Australia.

BA's original stake has been diluted by other Qantas offerings, but the decision in August by Australia's competition commission to approve the BA-Qantas joint services agreement for five more years was a major reason why BA decided it could now sell its Qantas stake. Rod Eddington, BA's chief executive, says the agreement captures the key common interests of both airlines "very sensibly".

BA says the primary reason for the move is to pay down debt, which stood at £5.6 billion ($10.1 billion) in June this year. However, the sale of the Qantas stake has given new life to speculation that BA will raise its 9% stake in alliance partner Iberia. Eddington said when announcing the sale that while reducing debt was the priority, "a strong balance sheet will place BA in a robust position for any future European consolidation".

The sale of BA's stake has fuelled Australian speculation that SIA could step into BA's shoes as a major Qantas shareholder. Qantas and SIA have some overlapping interests and Qantas chief Geoff Dixon has hinted at closer co-operation.

But it is not clear that Qantas needs another airline shareholder. Moreover, BA directed Citigroup, which handled the A$1.1 billion ($770 million) sale of its stake, to sell no more than 5% to any one buyer. Singapore-based Temasek Holdings, with ties to SIA, reportedly bought 5%, but there is no sign that it has any other aim than as a passive investor.

Nor is Qantas likely to encourage anything more. Dixon has long complained that Australia's 49% foreign cap restricts share liquidity, citing investment bank estimates that Qantas shares would sell 10-20% higher absent that cap. Dixon sees an open share register, rather than another major investor, as the way for Qantas to cut its cost of raising capital.

At least with BA and Qantas, other concerns now seem to overshadow the importance of equity links.


Source: Airline Business