British Airways has begun merger talks with the Australian carrier, Qantas.

British Airways said last night it was exploring a potential merger with Qantas, four years after selling its 25 per cent stake in the Flying Kangaroo.

The announcement of the talks came as the Rudd Government launched its aviation green paper yesterday, ahead of a white paper due out next year.

The green paper launched by Transport Minister Anthony Albanese included a change to the Qantas Sale Act that would retain the 49 per cent limit on foreign investors but consider removing restrictions on individual investors and airlines.

BA said in a statement last night: “In response to recent media speculation, British Airways Plc confirms that it is exploring a potential merger with Qantas Airways Limited via a dual-listed company structure.

“The discussions between British Airways and Iberia are continuing. There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate.”

British Airways and Spanish airline Iberia announced in July they were holding merger talks to create the world’s third-largest airline in terms of income.

The aviation sector is seeking consolidation as airlines fight for survival, having been crippled by record high oil prices and as the world faces a deep recession.

BA was also a cornerstone investor in the 1995 float of Qantas, but sold the stake in September 2004.

In 1998, Qantas co-founded the Oneworld alliance with American Airlines, British Airways, Canadian Airlines, and Cathay Pacific. The alliance commenced operation in February 1999, with Iberia and Finnair joining later that year.

Oneworld markets itself at the premium travel market, offering passengers a larger network than the airlines could on their own. The airlines also work together to provide operational synergies to keep costs down.