Back in December 2008, talks of a merger between British Airways (BA) and Qantas dominated the headlines of the aviation industry. With a £3.5bn merger on the horizon, BA and Qantas were on the cusp of creating a “truly global airline”.
However, merger talks soon broke down and a deal could not be concluded. In the following years, negotiations did not restart and a merger never materialized. So what actually happened?
Why the merger talks failed
While there was an air of secrecy surrounding the negotiations at the time, it is believed Qantas broke off talks over disagreements of their company valuation by BA. Although the deal was described as a “merger of equals”, Qantas had a slightly higher market capitalization at £1.9bn compared to BA’s £1.6bn in 2008.
Additionally, Australian government officials were keen to prevent the nation’s flag carrier from being taken over. While the merger aimed to form a dual-listed airline, many felt it effectively amounted to a takeover in all but name. Australian Labour Party Treasurer Wayne Swan declared:
“Our bottom line is the ‘Flying Kangaroo’ remains majority Australian-owned and based”.
BA was grappling with a pension fund problem while negotiations were ongoing which caused complications. Economic uncertainty also contributed to the eventual scrapping of talks. As Qantas chief executive Alan Joyce stated:
“There were a number of significant matters that still need to be resolved, including agreeing an appropriate merger ratio and resolving issues around BA’s pension fund and the broader economic outlook.”
Aims of the deal
The deal came about primarily due to the financial downturn in 2008, which severely hit the aviation industry. At the time, the International Air Transport Association (IATA) projected collective losses of £9.3bn across 2008 and 2009.
The merger aimed to soften the financial impact of the crisis, combining over 470 aircraft and 230 destinations worldwide. Despite this, the minutia of the deal simply didn’t materialize. After the breakdown of talks, both airlines clarified in a joint statement:
“Despite the potential longer-term benefits for Qantas and BA, the airlines have not been able to come to an agreement over the key terms of the merger, at this time”.
During the discussions, BA was concurrently pursuing an ultimately-successful merger deal with Spanish carrier Iberia, valued at £5bn. Additionally, talks were ongoing with American Airlines regarding an alliance.
Merger talks in the future
While both airlines were keen to explore a merger to mitigate the impact of the 2008 financial crisis, prospects look unlikely in the present day. A couple of years after the failed talks, Qantas chief executive Alan Joyce was asked about the likelihood of future discussions. He told the Daily Mail,
“That certainly isn’t on our radar screen at this stage. We have been there, done that. We are not interested.”
The economic impact of the COVID-19 pandemic has hit airlines particularly hard, so mergers may be on the horizon across the industry. However, Qantas recently announced huge losses of $2bn, while BA has projected downsizing at the company due to the coronavirus. In all, merger discussions between the two airlines look extremely unlikely.
Do you feel a merger between BA and Qantas could still benefit the industry? Do airlines need to come together to overcome the coronavirus pandemic?