BY OUR AVIATION CORRESPONDENT

21 July, 2005: Singapore-based budget airlines Valuair and Jetstar are going ahead with their merger, despite officially calling it off during the last week. While a deal is yet to be finalised, the merger plans as per the earlier schedule and merger would help both the airlines in controlling spiralling fuel costs and contain operational expenses.

Initial talks had failed as shareholders of Valuair, including Star Cruises, Asiatravel.com and former Singapore Airlines executive Lim Chin Beng, did not agree to Qantas` demand to holding a majority stake in the merged company.

If the merger takes place, Qantas would inject over S$50 million as capital into the new company.

The merger would also be the first sign of consolidation in South East Asia`s crowded low-cost airline industry,

At present, Singapore government`s investment arm Temasek Holdings has a 19 per cent stake in Jetstar. Temasek is also expected to inject fresh capital but it is not clear what the final shareholding structure would be.

Low-fare airline industry in South East Asia has been under pressure to consolidate due to tough competition, soaring jet fuel costs and reluctance by governments to open up their domestic aviation sectors.

Singapore Airlines-backed Tiger Airways, the third budget carrier based in the city-state, has said that it would survive the high tides.

Earlier, Singapore Airlines Chief Executive Chew Choon Seng said the global airline industry needs to consolidate as soaring oil prices damage profits.

Singapore Airlines said in May its net profit hit a record S$1.39 billion ($817 million) in financial year ended March 31, 2005, due to increase in jet fuel prices and rising competition from Asia`s growing number of budget carriers.