Private equity houses willing to ignore concerns about investing in the volatile airline industry will find British Airways an alluring target.
The airline’s attractions include successful branding, coveted landing slots at Heathrow and comparatively low levels of debt. Unlike many of its global peers, British Airways’ Willie Walsh has been successful in reducing the airline’s debt burden to just £1.1 billion.
On average, most global airlines have debt equivalent to more than 40 per cent of their market value.
Yet even the bravest of private equity houses are unlikely to take a tilt at British Airways until management resolve the present stand-off with unions over attempts to reduce the airline’s $2.1 billion (£1.1 billion) pension deficit.
Keith Williams, the airline’s chief financial officer, is hopeful that BA can end its talks with the unions by the end of the year.
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That would enable the airline to proceed with plans to replace its ageing aircraft fleet.
However, analysts say that the Qantas deal could signal that Texas-Pacific and Macquarie expect to see an increase in cross-border deals.
These are blocked at present by international rules stipulating that 51 per cent of a carrier must remain in national hands, but airline executives have often given warning that the industry must merge to tackle overcapacity and heavy losses, or see its fortunes continue to falter.
Speculation about consolidation in the American airline industry has been spurred by US Airways’ unsolicited $8 billion bid for its rival Delta Air Lines. The deal would create the world’s largest airline.
It comes just a year after US Airways emerged from Chapter 11 bankruptcy protection and merged with America West.
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News of the potential bid for Qantas prompted investors to snap up shares of airlines across Europe on optimism that a bid could be tabled for BA. Shares in the British carrier climbed 2.1 per cent to 491p, extending a gain of 61 per cent in the past year.
EasyJet rose 15p to 573p.