Merger of British Airways and Caledonian Called Off

The proposed merger of the nation’s two largest airlines, British Airways and British Caledonian, was called off Thursday after the government said it would send the bid to a commission for study.

Trade and Industry Secretary Lord Young said the proposal would be sent to the Mergers and Monopolies Commission, which will take two months to complete its review.

A statement from British Caledonian, which British Airways offered to take over for $372 million, said: “The merger agreement now lapses automatically with the referral. The board of British Caledonian Group will meet during the next few days to consider as a matter of urgency our future strategy.”

But British Airways said that although the deal was halted, it would submit a new bid depending on the outcome of the review.

“It is our intention, subject to the findings of the Monopolies Commission being satisfactory to us, to make an offer for the entire share capital of British Caledonian as soon as possible after the commission’s report,” the company said.

Other companies, including some of Britain’s smaller airlines, have said that they would take the opportunity to launch their own bids for money-losing British Caledonian. British Caledonian had said in July that it would be forced to pursue talks with foreign airlines if the British Airways merger was delayed.

The merger was intended to save British Caledonian, which reported a $30-million pretax loss last year. It also was intended to create what the two airlines called a “megacarrier,” capable of competing with overseas airlines, especially from the United States. The combined airline would have had 95% of the international market among British carriers.

The airlines also are facing a European air market that is poised for deregulation. That will likely mean sharp fare cuts, ending a major source of steady profit for British and other European airlines.