Lucky Qantas, another dud Geoff Dixon deal has passed it by.

This one is the proposed 4.4 billion pound merger between British Airways and Iberia of Spain; it’s so full of holes that it could very well sink without a trace at the slightest bit of opposition.

The deal, announced last week, is highly conditional, depends on sacking thousands of unionised staff, has to deal with BA’s multi-billion pound budget deficit, and carefully navigate domestic and international shoals before it happens.

The absurdity of Qantas management even thinking of the deal can be seen from the relative market caps on Friday.

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Qantas shares closed at $2.74 on Friday (down 8% in about two weeks).

But at that price, Qantas is worth around $6.2 billion, or around 80% of the value of the BA-Iberia bid. It is valued more than either BA or Iberia.

And, unlike Iberia and BA, Qantas has managed to keep one valuable thing during this nasty downturn: its investment credit rating. It is fact only one of two airlines in the world still with an investment credit rating.

That makes Qantas far more valuable than either BA or Iberia, and yet for a while last year, Qantas management and the board were looking as through they would wed BA.

Illogical, but then that was the dominant characteristic of Qantas’ management in the last years of the Dixon reign.

But before that, remember back to May 2007 it was almost snared by the private equity groups, led by TPG (who is now being chased by the ATO over some of its Myer float profits), Macquarie, and led by an enthusiastic management and board, with former CEO, Geoff Dixon, and former chairman, Margaret Jackson leading the charge.

And when that was defeated, Mr Dixon wasn’t sacked by the board, but re-employed on a rich new contract. But he can’t help himself and loves a deal that others of more a more considered and thoughtful nature, might shy away from.

So when British Airways chief salesman, Willy Walsh came a callin’ in mid 2008 with the old ‘merge with us proposal from Qantas’ former imperial masters, Geoff Dixon bit hard (even though the global financial crisis was starting to tear great holes in the world economy and in aviation).

But those tricky chaps at BA were also chatting to Spanish airline Iberia about a possible wedding, and Iberia started throwing its weight around, saying it would decide who would merge with whom.

Alas, it became too hard as investors (the Federal Government), Iberia and BA went cold on the idea which fell over last December, when Alan Joyce replaced Geoff Dixon as CEO of Qantas.

Then the world airline market flopped into recession, dragged down by the crunch and the global slowdown. Qantas’ profits plunged, at BA and Iberia, profits became heavy losses.

Now the desperate BA and Iberia are to merge, subject to quite a few important conditions.

In fact it’s a 4.4 billion pound all share merger that will create an unrated sluggish giant with poor financial strength and lots of headaches.

The first problem for BA and Iberia is that the deal is overly complicated to try and get around the basic rule of the international airline business.

Airlines can’t be taken over by foreign-owned carriers (there is a blanket ban on foreign ownership in the US) because to do so would place all the routes at risk outside the countries. Those rights are awarded by Governments to various airlines, not by other airlines.

If BA was owned by Iberia, it could loose its landing rights in the US, Australia and in many other countries. Iberia could lose as well if it was owned by BA.

So BA and Iberia will continue to be separate airlines, with a third company (called “TopCo” in the merger documents) sitting on top of the arrangement as a sort of holding company. It’s called TopCo in the documents because no one can agree on a new name for the merged airline..

There will be three boards, each of which will be divided equally between representatives of the two airlines. BA investors will own about 55% of the merged company, which will be led by Willie Walsh. The chairman of Iberia, Antonio Vazquez, will become chairman of the enlarged company and the airline will be registered in Madrid, with its main offices in London.

Both airlines are heavily unionised and yet the main UK union has threatened industrial action if there are forced redundancies. The biggest part of the 400 million euros of savings will come from lowering wage and other labour costs.

Britain and Spain are still in recession, even though much of Europe has moved back into the black. Spain may not do that until well into 2010.

BA lost 292 million pounds in the six months to September, Iberia lost 182 million euros in the nine months to September.

Then there’s BA’s huge pension deficit. it could cause the entire merger to be aborted. It could total 3 billion pounds, which would make that figure larger than BA’s 2.5 billion pound market cap.

BA plans to keep the liability for its pension deficit in the BA operating company that would sit as a subsidiary below the merged top company. Iberia had written into the agreement announcement a clause that says if Iberia isn’t happy with the arrangements for BA’s pension deficit, it can call the whole marriage off.

And if Geoff Dixon’s last bright idea had been acceptable, it could have been Qantas haggling over BA’s huge pension problem.

But we will leave it to Michael O’Leary, the aggressive CEO of Ryanair who dismissed the merger with this quote:

“I would characterise it as two drunks holding each other up on the way home,” he said. “All you get when you put two high-fare, loss-making airlines together is even higher fares and even bigger losses.”