May 29 (Bloomberg) -- Shares of British Airways Plc, Europe's third-largest airline, rose the most in more than six months on speculation the carrier may attract a private-equity bid.

Shares of the airline advanced 21.5 pence, or 4.7 percent, to 482.5 pence, the greatest gain since Nov. 15, 2006. The stock has fallen 8.5 percent this year, giving the company a market value of 5.56 billion pounds ($11 billion).

British Airways may be a takeover target because first- and business-class travel is growing and U.K. passenger taxes are unlikely to hurt the carrier, Goldman Sachs Group Inc. said May 17. Passenger revenue rose 4.9 percent last year, primarily on premium seats. Goldman, the largest securities firm, raised its stake to 5.1 percent last week from less than 3 percent.

``Takeover speculation is what is driving it,'' said Andrew Evans, a Dresdner Kleinwort analyst in London who has a buy rating on the shares. Some investors are buying because Goldman increased its holding, Evans said.

The airline declined to comment on the rising share price, said Laura Goodes, a British Airways spokeswoman in London.

British Airways said May 22 it may back a takeover bid for Iberia Lineas Aereas de Espana SA that is led by TPG Inc., the U.S. buyout firm formerly known as Texas Pacific Group. Goldman, the world's largest securities firm, is advising Iberia on potential takeover bids.

`Open Skies'

Airlines are takeover targets in part because carriers are preparing for wider access to transatlantic routes under an ``open skies'' treaty between the European Union and the U.S. Deutsche Lufthansa AG, Europe's second-largest airline, could ``easily finance any attractive offer'' after buying Swiss International Air Lines Ltd. in 2005, Chief Financial Officer Stephan Gemkow said in April.

Air France-KLM Group SA, the continent's largest carrier, reaped savings of 525 million euros over three years by combining purchasing, sales and information technology after its 2004 takeover of KLM. The last acquisition for British Airways was French carrier Air Liberte in 1997, which it sold to Swissair, the predecessor of Swiss International, in 2000.

Two British Airways leaders bought shares on May 24, the carrier said in a statement. Chief Executive Officer Willie Walsh bought 10,000 shares at 464.3 pence a share and Chairman Martin Broughton purchased 20,000 shares at 462.5 pence.

Biggest Investors

The largest British Airways shareholder is Standard Life Plc, the U.K. insurer, with a 7.1 percent stake, followed by Barclays Plc, the London-based bank, with a 6.8 percent holding and Amvescap Inc., an investment company, with 6.7 percent, according to data compiled by Bloomberg News. Goldman has jumped ahead of Merrill Lynch & Co., owner of 4.6 percent of British Airways.

Goldman analyst Hugo Scott Gall, who said British Airways may be a takeover target, stopped rating the shares after the airline expressed interest in Iberia. He has a ``buy/neutral'' rating on shares of Air France-KLM and does not rate Lufthansa.

British Airways shares are ``recovering some lost ground and speculation about a private-equity bid may be a factor in that,'' said Gert Zonneveld, a Panmure Gordon analyst in London who has a ``hold'' rating on the stock.

``There was a large fall recently after the results, so this looks like an investor-inspired move,'' said Tony Shepard, a Charles Stanley analyst with an ``accumulate'' rating on the stock.

Quarterly Loss

British Airways reported its first loss in eight quarters May 18 after setting aside 350 million pounds ($691 million) to pay antitrust fines related to fuel charges and canceling flights because of a labor dispute. Walsh succeeded Rod Eddington as chief executive officer in October 2005.

Shares of British Airways rose 4.7 percent on Feb. 7 after Merrill Lynch upgraded its rating to ``buy'' from ``neutral.''

The airline's move into Terminal 5 at London's Heathrow Airport should be better reflected in the share price, said Samantha Gleave, a London-based Merrill analyst who reiterated the rating May 18. The airline expects the move in March to lead to lower costs because it currently operates from several terminals.

Credit-default swaps based on the equivalent of 10 million euros ($13.5 million) of British Airways debt were unchanged at 77,500 euros, according to Deutsche Bank AG. The price has fallen from 102,000 euros in the past two months.

Swaps, Bonds

Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. A decrease indicates an improvement in perceived credit quality.

The yield premium, or spread, investors demand to hold British Airways's 100 million pounds of 10.875 percent bonds due 2008, compared with similar-maturity government bonds, rose by 1 basis point to 66 basis points, according to RBC Capital prices.

The spread on 250 million pounds of 8.75 percent bonds due 2016 was unchanged at 214 basis points, or 2.14 percentage points, its lowest in at least two years. The 2016 bonds include a clause allowing investors to sell them back if an acquisition occurs. The debt due in 2008 doesn't include such terms.

To contact the reporters on this story: Emmet Oliver in London at eoliver4@bloomberg.net.

Last Updated: May 29, 2007 12:09 EDT