Air NZ says BA's sale of Qantas stake won't affect alliance

British Airways' billion-dollar sale of its 18.25 per cent stake in Qantas yesterday is part of a move towards regional, rather than global, airline consolidation.

BA got A$3.24 ($3.51) a share in the A$1.09 billion ($1.16 billion) sale of its shareholding in the Australian national carrier.

Shares in Qantas, which were placed in a trading halt ahead of the news, had last traded at A$3.33.

BA's commercial director, Martin George, said the airline had concluded it was time to realise its 11-year investment in Qantas.

"We just felt it was the right time," George said."It's a purely financially governed decision. As an airline we need to pay down our debt."

With debts of $10.54 billion, BA was the most indebted airline in Europe.

Asked if BA might have been inspired by the recent takeover of Dutch airline KLM by Air France, George said BA, which had a 9 per cent stake in Iberia Lineas of Spain, was looking for consolidation opportunities in Europe.

"When the original [Qantas] investment was made in 1993 many people assumed that consolidation would be global, but now the wise sages in our industry think that the most likely consolidation will be regional consolidation."

BA was deterred from consolidating with Qantas by the Commonwealth Qantas Sale Act, which limits foreign holdings in the airline to 49 per cent.

"Ten years ago, there was a sense that if that was to change then that might have been a transaction that would have been evaluated," George said.

Qantas has lobbied the Government to remove the cap, saying it restricts its access to foreign capital and increases borrowing costs.

But Australian Prime Minister John Howard said last month that the cap would not be removed.

The BA sale of its Qantas shares may also raise more questions about the continued need for equity investments between the different airlines to bind operational alliances.

In the Air New Zealand-Qantas alliance application, the airlines argued that not only should they be allowed to set up an anti-competitive operating agreement, but Qantas should also be allowed to buy a 22.5 per cent stake in Air NZ.

Profits from each of their jointly operated flights would be shared between the airlines, as well as Qantas taking its share of dividends from Air NZ.

Qantas, which enjoys Australian Government protection in the form of barriers to rival airlines, is now expanding its interests in Asia.

Speculation in Australia has suggested that Singapore Airlines may try to snare British Airways' stake in Qantas to gain a hold in the Australian carrier. Singapore Airlines was once also a major shareholder in Air NZ and now owns 6.3 per cent of its shares.

The Australian Competition Tribunal, a federal body, is expected soon to give a decision on the Qantas appeal against the earlier regulatory rejection of its alliance plan.

A similar appeal, before the High Court in New Zealand, is also waiting on a decision, which is not expected before next month at least.

Travel industry publication Travel Today yesterday raised speculation about Qantas' continued membership of the Oneworld alliance and possible move to the Star Alliance, which needs an Australian presence to complete its global network. British Airways is the major European carrier in the Oneworld alliance.

Air NZ said its alliance plans with Qantas should not be affected by BA's decision to sell its shares.

Spokesman Glen Sowry said the airline was surprised by the sale and was "very interested" in how it would proceed.

- AAP, AGENCIES