AAP
Qantas sale opens door
September 8, 2004 - 4:39PM
Foreign investors are expected to flock to the share register of Qantas Airways after major investor British Airways said it was selling its stake to pay down debt and focus on consolidation opportunities in the European aviation market.
BA, the most indebted airline in Europe, is offloading its 18.25 per cent stake - 336 million shares - raising a minimum of $1.09 billion with the shares underwritten at no less than $3.24 each.
The decision by Europe's second largest airline severs an 11-year-old financial tie but leaves intact a joint services agreement between BA and Qantas on the all-important Kangaroo route between Australia and the UK.
Qantas chief executive Geoff Dixon said the sale would not affect the airline's commercial operations.
"Neither airline now believes the shareholding is necessary for the ongoing conduct of that relationship," he said.
Qantas shares were placed in a trading halt until Friday when the share sale, which is being underwritten by Citigroup, is expected to be completed. Qantas last traded at $3.33 Tuesday.
Beyond that, Qantas said it is now preparing for consolidation in the Asia Pacific aviation sector.
"The tyranny of distance between Australia and the United Kingdom rules out such consolidation, but not cooperation between Qantas and British Airways," Mr Dixon said.
"We will, however, seek to further strengthen our commercial position to take us to a leading role in any suitable consolidation opportunities that may arise in the Asia Pacific region."
Qantas is pursuing market share and opportunities in India, Vietnam and Thailand and an alliance with Air New Zealand.
The alliance plan has been blocked by competition watchdogs on both sides of the Tasman with the airlines currently appealing against these rulings.
Meanwhile, speculation mounted that rival Singapore Airlines could be interested in buying BA's stake.
But Centre for Asia Pacific Aviation senior consultant Ian Thomas said Qantas would probably prefer to see more benign foreign shareholders enter its books rather than another airline.
Possible airline suitors include Singapore Airlines, one of the three major Chinese airlines or the recently merged KLM/Air France which is looking for opportunities in the southern hemisphere.
"There is a possibility of some sort of equity relationship but whether it is something that Qantas would go into willingly or whether it prefers to keep its shareholdings spread amongst a range of investors is more the issue," Mr Thomas said.
"Qantas has been clear that it wants more foreign liquidity."
Total foreign holdings of Qantas shares is limited to 49 per cent under the Commonwealth Qantas Sale Act introduced in 1995.
The departure of BA frees up a substantial part of that 49 per cent, giving offshore investors a bigger chance to enter the Qantas register.
"We will see some more offshore names coming into Qantas now that BA has cleared out," an transport analyst at a US bank said.
"Short term the share price could be a little volatile, but overall the impact will be neutral and Qantas will go on as it has before, living up to its name as a solid investment in the aviation sector."
Qantas has said previously, the sale act effectively shackles the company by restricting its access to foreign capital and increasing its cost of capital compared to its many government-owned or supported global and regional competitors.
Mr Dixon and chairman Margaret Jackson have tried to convince the federal government to remove the cap.
But Prime Minister John Howard last month said the government has resisted the proposal and wants the airline to remain "quintessentially Australian."
BA's London-based commercial director Martin George said the sale act had deterred it from further consolidating its financial relationship with Qantas.
"There was a sense that if that was to change then that might have been a transaction that would have been evaluated, but the focus now is more on regional consolidation," Mr George told AAP.
BA said it was time to realise its investment in Qantas, which listed on the share market in 1995. The stake was bought in 1993 for $665 million and delivered $600 million in dividends.
"Our shareholders have had a good return from our investment in Qantas," said BA's Australian-born chief executive Rod Eddington.
The proceeds of the sale will be used to pay down part of BA's STG3.8 billion ($A9.7 billion) debt, strengthen its balance sheet and position it for future consolidation in the European aviation market.
"When the original (Qantas) investment was made in 1993 many people assumed that consolidation would be global, but now the wise sages in our industry think that the most likely consolidation will be regional consolidation," Mr George said.
BA will receive a final dividend from Qantas worth $30.3 million in coming weeks.
© 2004 AAP
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