BA Share Hike Fuelled By Talk of Merger With BMI

By DAVID BLACK

BRITISH Airways shares jumped yesterday on speculation over possible deals and mergers in the airline industry.

Soon after trading began there were reports that BA was in talks with Sir Michael Bishop on a possible takeover of British Midland.

BA said: “We are not in talks”, and BMI declined to “comment on speculation”.

The furore, which at one point saw BA shares rise over 1.5per cent, followed the announcement of a transatlantic tie-up between Air France and Delta Airlines on Wednesday, and was fuelled by BA admitting that the UK carrier would like “a closer relationship” with its oneworld alliance partner, American Airlines.

BA and American already have code-sharing agreements for certain flights. Both BA and American have twice previously tried to cement a closer relationship through a profit-sharing arrangement covering transatlantic routes. These attempts failed as US regulators wanted the carriers to cede too many landing slots, particularly at London’s Heathrow Airport.

Currently only four carriers – BA, Virgin, American Airlines and United Airlines – are allowed to operate transatlantic services from Heathrow. That changes next March with the implementation of the EU- US “open skies” deal permitting new carriers on to the routes.

To capitalise on this, Air France-KLM and Delta Air Lines will start their revenuesharing joint venture next year on their transatlantic operations, including flights out of Heathrow.

Analysts watched developments closely. Andrew Fitchie at Collins Stewart said: “BA’s chief executive has recently begun hinting that industry consolidation is about to pick up pace and that there are transformational deals out there.

“There are rumours that BA might be talking to BMI, at a cost of GBP750m-GBP1bn. This could be funded through debt and would transform BA’s position at Heathrow.

“Whilst there would be regulatory hurdles and Lufthansa and SAS to deal with (BMI part-owners), this is a real possibility on a 12- month time horizon.

“A renewed attempt to tieup with American is likely, but not until Open Skies has bedded down. Or maybe a dual-hub merger with Lufthansa might be a possibility. Either way, consolidation should improve industry returns and BA with its 42per cent share of the Heathrow is in pole position to participate.”

Virgin Atlantic, the airline controlled by Sir Richard Branson, has vowed to fight any renewed attempt by BA to pull off a transatlantic deal with American Airlines.

Steve Ridgway, Virgin Atlantic’s chief executive, said: “They would be incredibly dominant in terms of market power. I don’t think people would be very happy about it at all.”

Ridgway claimed the pair would control 70per cent of Heathrow slots for transatlantic services. He said: “There would be too much concentration. To argue that such a level of concentration is good for consumers is very hard. It would require very close scrutiny by the competition authorities.”

BA shares closed up 1.47per cent, or 6.25p, at 430p.

Originally published by Newsquest Media Group.

(c) 2007 Herald, The; Glasgow (UK). Provided by ProQuest Information and Learning. All rights Reserved.