Pressure grows on BA as tie-up talks with Qantas ditched

British Airways' dreams of a three-way merger with Australian airline Qantas and Spanish carrier Iberia were in tatters today after talks with the Aussies collapsed.

BA chief executive Willie Walsh is now under increasing pressure to pull off a major merger deal after he had been criticised for secretly talking to Qantas while at the same time publicly courting Iberia.

BA today said in a brief statement: "British Airways and Qantas Airways are announcing that after detailed discussions about a potential merger, talks have ended.

"Despite the potential longer-term benefits to both British Airways and Qantas, the airlines have not been able to come to agreement over the key terms of a merger at this time."

It is understood talks were called off after Qantas insisted on being the senior partner in a merger, demanding its shareholders have 55% of a merged entity.

It is believed that BA refused to cede ground as it insisted that any deal should be a merger of equals, and that a 50-50 joint venture fairly reflected the respective market valuations of the two companies over the last two years.

Worse for BA, although a proposed merger would have seen the enlarged company quoted in both the UK and Australia, Qantas was insisting that the overall group headquarters should be in Sydney.

"Ultimately, we are not prepared to do a deal that is not in the best interests of our shareholders," said a BA spokesman.

Industry insiders say that new Qantas chief executive Alan Joyce has been playing hardball on the deal because of a nationalistic backlash by the Australian media to the leak of the proposed deal last month.

That was then extended to Joyce rubbishing Walsh's concept of a three-way merger, and to giving the BA boss a them-or-us ultimatum to do a deal with either Qantas or Iberia, but not both.

That and the revelation that Walsh had been talking to Qantas since August have raised questions over the British Airways boss's credibility, and his ability now to do a deal with Iberia - especially as the first that the Spanish airline knew of the Qantas talks was when BA was forced to admit to their existence.