BA prepares for European buy foray

British Airways signalled yesterday that it was preparing for a plunge into the looming consolidation of the European airline industry.

It said the sale of its long-standing minority stake in Qantas, the Australian airline, was aimed at paying down debt to strengthen its balance sheet as a preparatory move.

BA said that it was selling its 18.5 per cent stake in Qantas through an underwritten offering in the Australian market and managed by Citigroup with gross proceeds expected to be not less than A$1.09 billion (€622 million). "A strong balance sheet will place British Airways in a robust position for any future European consolidation," said Mr Rod Eddington, BA chief executive.

"I think there are going to be opportunities in the next 12 to 24 months." He insisted that the Qantas share sale was not linked to any particular deal opportunity, however, and refused to speculate on possible targets.

"Nothing is about to happen, but we must strengthen our balance sheet. I am not ruling anything in or anything out... The game is afoot, and you must make sure you have what is necessary in your kitbag."

BA believes that the competitive landscape in the European airline industry is changing rapidly following Air France's takeover this year of KLM, the Dutch national airline.

Several airlines are in trouble, with Alitalia close to bankruptcy and Swiss International Air Lines and SAS Scandinavian Airlines still loss-making and facing further restructuring.

Separately, outside investment is being considered for Aer Lingus which has been restored to profitability in the last two years.

BMI British Midland, the subject of takeover interest by Sir Richard Branson's Virgin Atlantic last year, is still regarded by many aviation analysts as a prime merger candidate.

BA first acquired a 25 per cent stake in Qantas - since diluted to 18.25 per cent - for A$665 million in 1993 as part of the privatisation of the airline.

The Australian government has refused to remove its block on any majority foreign ownership of Qantas. BA said it intended to use the proceeds to repay part of its existing gross debt, which totalled £5.6 billion (€8.2 billion) at the end of June.