A British Airways aeroplane parked at Heathrow Airport in London, in this August 1, 2007 file photo. - AP

British Airways (BA) PLC said Tuesday it was in talks with Australia's Qantas Airways Limited about a potential merger, sending its shares soaring as it confirmed expectations of consolidation in the hard-hit aviation industry.

BA, which is already pursuing a revenue-sharing deal with American Airlines and Spain's Iberia SA, said that it was exploring a "potential merger" with Qantas "via a dual-listed company structure."

In a brief statement released in response to market speculation, BA did not provide any reasoning for the prospective deal, but chief executive Willie Walsh has long advocated industry consolidation, arguing that closer cooperation would help airlines cut costs in the current difficult economic climate.

BA added that its discussions with Iberia on a potential merger were continuing.

No guarantees

"There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate," BA said in the statement to the London Stock Exchange.

It provided no further detail on the structure of the potential deal with Qantas.

The London-based carrier's stock jumped more than 10 per cent after the announcement to 154 pence (US$2.32).

The two airlines are already partners in the oneworld global alliance, which brings together 10 of the world's carriers including Japan Airlines.

The confirmation from BA on the talks comes a day after the Australian government revealed that it planned to increase the level of foreign ownership allowed in Qantas, but will not permit a takeover. Australian law currently limits a single foreign holding to 25 per cent, while a group of foreign holdings can total 35 per cent.

A federal government policy paper released Monday proposes lifting the foreign-ownership limit - whether by one company or a group of companies - to 49 per cent.

That would allow Qantas and BA to swap equal stakes in each other.

Antitrust immunity

BA has already filed for worldwide antitrust immunity from US authorities for a revenue-sharing deal with American and Iberia that would see the trio set prices together and share seat capacity on trans-Atlantic flights. American would be the non-merged member of the BA-Iberia linking.

The agreement is the closest alliance the trio can form under strict US airline ownership laws that all but rule out a full merger and follows two earlier failed attempts by BA and AMR Corp's American to forge closer ties.

Rival carrier Virgin Atlantic Airways has bitterly opposed that proposed deal, claiming it will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers.

But American and BA contend that the partnership will merely allow the trio to better compete with the other major airline alliances, Star and SkyTeam, which already have antitrust immunity on trans-Atlantic flights and alarge presence at other European airports.

BA and AMR Corp's American have failed in the past to win an exemption from US competition laws to work more closely together because of their dominance at London's Heathrow Airport, where the pair has more than half the capacity to and from the US.

Walsh has argued that the competitive situation has changed since the "open-skies" agreement between the US and the European Union came into effect in March, allowing airlines to fly to and from any point in the US and any point in the EU.

- AP