Qantas Airways remains on the look out for merger opportunities

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SYDNEY – Qantas Airways Ltd.

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SYDNEY – Qantas Airways Ltd. Chief Executive Alan Joyce said Wednesday that the Australian carrier remains on the look out for merger opportunities but he doesn’t expect any deals to occur between Asian airlines in the short term because regulatory hurdles are too high.

The delivery of new Boeing 787 aircraft to Qantas is still expected to occur from mid-2012 and Joyce said their arrival will help open up opportunities for its low-cost offshoot JetStar to fly to new Asian destinations.

Joyce said that consolidation is the “right thing” for the global aviation industry to do, noting recent big deals in Europe and North America, including United Airlines’ proposed merger with Continental Airlines Inc.

“There are clearly too many players,” he said at an aviation conference in Sydney. “But mergers are all happening in regulatory markets that become a common aviation market and where the regulatory environment is conducive to that occurring,” he said.

“Asia is very different.”

Apart from regulatory difficulty, Joyce said that some state-backed Asian airlines may lack the same level of commercial desirability to merge as their privately-owned counterparts.

His comments show that Qantas remains very bearish on corporate activity since its attempt to merge with British Airways Plc failed in 2008. Qantas has also held merger discussions with Singapore Airlines Ltd. and Malaysian Airline System Bhd.

Joyce told reporters later Wednesday that Qantas will also continue to face complexities merging with airlines outside of Asia.

“None of the major mergers that we’ve seen have been trans-continental mergers,” Joyce said.

“The Europeans and the Americans are working on opening up the regulatory environment to allow that to happen between airlines and that’s a possibility eventually when that does occur.”

Joyce said at the same conference last year that Qantas learned from its experience with British Airways that mergers between national airlines are “extremely hard” to achieve on commercial terms acceptable to both parties.

Tough regulatory hurdles and the potential for management to become distracted also presented difficulties, he said at the time, adding that he didn’t expect Qantas to merge with another airline for at least a decade.

When asked about opportunities in the Chinese market, Joyce said Wednesday Qantas would like to fly between China and Europe but doesn’t yet have permission from European regulators. “The Australian government has that on the agenda and we’re hoping at some stage that will be facilitated,” he said.

As for divestments, Joyce said Qantas doesn’t want to sell any assets apart from its 46% stake in Fiji carrier Air Pacific, for which negotiations with the Fijian government are continuing.

He acknowledged that Qantas’ interests in two freight joint ventures with Australia Post–Star Track Express and Australian Air Express–aren’t performing to their full potential.

“They haven’t been giving us the returns we would expect. We think there’s a way of that occurring and there’s no plans to divest ourselves of those shares,” Joyce said.

A spin-off of Qantas’ frequent flyer business is still off the agenda, Joyce said, adding that the business helped diversify the airline’s earnings during the global financial crisis.

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