MELBOURNE/CANBERRA - AUSTRALIA left the door open on Wednesday to a merger between national airline Qantas Airways and British Airways, but threatened to slam it shut if it felt Qantas was effectively being taken over.

Australian Transport Minister Anthony Albanese made the comment after Qantas and British Airways revealed on Tuesday they were in talks to form a dual-listed airline, which would be worth almost $6 billion at current market prices.

'The advice to the government is certainly that that (a takeover of Qantas) is not the case,' Mr Albanese told state radio.

'Were that to be the case, the government would certainly not support it ... We would want to be satisfied that any changes are in the Australian national interest and the government is watching closely these negotiations.'

Qantas shares leapt almost 10 per cent on the news, hitting a high of A$2.47 in opening trade, though some of its shareholders voiced a mixture of concern and support for a union.

'I would support that type of move,' said Mr Angus Gluskie, of White Funds Management which owns Qantas shares, citing a need to cut costs given falling demand and the risk of global recession.

But another Australian fund manager, who declined to be identified, said Qantas was unlikely to yield much more cost savings from a merger with British Airways than it could already achieve through its current code-sharing partnership.

On Tuesday, British Airways shares surged as much as 17.5 per cent after it said it was exploring a tie-up with its fellow OneWorld alliance member, of which it once owned 25 per cent.

Possible Iberia tie-up
BA, whose market value of 1.8 billion pounds (S$4.13 billion) is only a fraction smaller than that of Qantas, also said merger talks already underway with Spain's Iberia to form the world's third largest airline were continuing.

A tie-up between BA, Iberia and Qantas would create the world's biggest airline with combined scheduled passenger kilometres flown of almost 270 billion a year, comfortably overtaking American Airlines on 222.8 billion.

Qantas made no mention of Iberia in its short statement.

Analysts said the move was in line with British Airways' strategy of taking a lead in industry consolidation to put itself in better shape to deal with increasingly tough times.

For Qantas, a merger would open up the European market.

'It will be a partnership that is mutually beneficial. It does help Qantas ... get entrenched in that European market more effectively,' said Mr Derek Sadubin, chief operating officer of the Centre for Asia Pacific Aviation, a Sydney-based consultancy.

Analysts said a three-way combination looked a long way off, however, given that talks with Iberia were first announced in July and have stalled on worries over BA's pension deficit.

BA took 25 per cent of Qantas in 1993 in the first step towards the latter's privatisation but sold out 11 years later.

'I would see the priority of things being the Iberia merger talks and the Iberia/American anti-trust immunity before any deal is done with Qantas,' said NCB analyst Neil Glynn.

British Airways, Iberia and American Airlines said in August they had filed for US antitrust immunity in order to cooperate commercially on flights between North America and Europe.

Under Australian law, Qantas, the world's 10th largest airline by market value, cannot be majority owned by foreigners and must maintain its headquarters and its stock listing at home.

An $11 billion private equity bid for Qantas fell apart early last year as shareholders baulked. -- THOMSON REUTERS