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by Danny John
July 31, 2007
A RADICAL shake-up of Qantas suddenly has appeared on the agenda which could mean the airline's operations are split into four separate businesses.
Speculation yesterday mounted that an announcement about the reorganisation could be unveiled by outgoing Qantas chairman Margaret Jackson within the next three weeks, when the airline is due to report its full year results.
The airline has been under increasing pressure to unlock perceived value in the business ever since an $11 billion private equity bid, by a consortium headed by Macquarie Bank and the Texas Pacific Group, failed to get across the line three months ago.
The $5.45 a share offer collapsed after a revolt by institutional shareholders who claimed the price was too low, prompting Qantas chief executive Geoff Dixon and finance chief Peter Gregg to lay claim to many of consortium's plans to re-structure the airline's operations.
Their review is now said to be close to completion and involves the creation of up to four individual businesses under the Qantas parent company:
■ Qantas Lite, which would own the main airline and Jetstar brands and be responsible for its 37,000 flight and ground crew staff, terminal facilities and route network of 143 destinations.
■ Fleet Co, an aircraft leasing business that would control the 154 planes owned by Qantas, worth a total of $US3.8 billion ($4.47 billion), which would be leased back to the airline.
■ Loyalty Co, a new subsidiary which would be responsible Qantas' frequent flyer loyalty program which analysts estimate makes pre-tax profits of $175 million a year.
■ Freight Co, which would take up Qantas's equity stakes in air freight operators Australian Air Express and Startrack Express into a stand-alone operation which could also own or manage the space allocated for freight on the planes used on its international routes.
Analysts indicated the re-organisation could add between $1.20 and $1.70 a share to the value of Qantas, boosting its total current market capitalisation of just over $11 billion by between $2.3 billion and $3.3 billion.
In detailed investment reports yesterday, brokers JP Morgan and UBS significantly raised their targets which they expect Qantas's shares to reach by the end of the year to $6.26 and $6.70 respectively in anticipation of the new structure.
While Qantas may keep 100 per cent ownership of all four businesses, it has been suggested the value of each of them could be boosted by bringing in new investors.
Linfox, owned by trucking tycoon Lindsay Fox, is touted as the likely partner for the freight company which, in turn, would buy his logistics operation, whilst failed Qantas bidder and aircraft leasing company Allco Finance Group could take a 30 per cent stake in the subsidiary owning the planes.
Aeroplan, the operator of Air Canada's frequent flyer program that was spun off and separately listed on the stockmarket, has been suggested as a likely investor in Loyalty Co.
Taken together, the analysts believe this could free an extra $1.4 billion that could be returned to shareholders either through a special dividend or a buyback to boost the value of the shares.
This would be on top of the $2 billion that the company is expected to hand over in a capital management program that could involve Qantas taking on more debt.
Qantas's shares, which have been trading above the terms of the private equity bid for much of the time since its failure three months ago, slipped 2c yesterday to $5.54.