The powers and players behind the future of Qantas
By ABC's Ticky Fullerton
Updated July 04, 2012 11:03:01
Earlier this month on the ABC's The Business, one of the more likely participants in any bid for Qantas, financier Mark Carnegie, put on the record:
I think it's inconceivable that there's a full bid for Qantas in the offing given everything that happened, given the state of credit markets in Australia, and all I'd go back to say is it looks like accepting the $5.60 that was offered all those years ago was a pretty smart idea on behalf of the shareholders.
Well, that's that then; or maybe not? Surely it would be unwise to write off a bid at some later stage when markets settle, particularly given the interesting repositioning of players around the Flying Kangaroo?
One scenario in particular is worth a muse, not least because it is remarkably intertwined with the last private equity bid in 2006. And like last time, it may well involve current members of the Qantas board being awfully enthusiastic about a sale.
In 2006, the bidding members of Airline Partners Australia were the two big foreign private equity firms Texas Pacific Group and Onex Partners; Australia's aircraft leasing specialist Allco (then run by David Coe but now defunct); and Macquarie Bank driven by Nicholas Moore.
Crucial to this bid were a couple of Qantas directors: then chief executive Geoff Dixon and chairwoman Margaret Jackson. At the time, this was controversial, with allegations of conflicts of interest for some board members while they were reflecting on their duty to recommend the decision that would be in the best interest of all shareholders.
One Qantas director was James Packer, who was also a top 20 Macquarie Bank shareholder at the time. Advising the board was Mark Carnegie.
Dixon and Jackson were utterly convinced of the benefits of such a takeover for all shareholders including themselves. (And let's admit, with hindsight, for those shareholders, that $5.60 deal looks sweet today with shares at just over $1.)
The attractions were obvious, particularly for a chief executive. It has long been the frustration of CEOs who have little ownership in the company they run that their potential for upside with a rise in the company's fortunes is capped to the executive salary they receive topped with a bit of options icing if they're lucky.
One of the most famous examples of this was John Elliott, who grew Elders IXL into the extraordinarily successful beer giant in the early 1980s. It was Robert Holmes a Court's wealth creation from his Bell Resources at about the same time that was said to have driven Elliott to create the management buyout company Harlin which bid for Elders. Alas, Harlin was super-leveraged in a very bad year, 1987, and it all went to custard.
At Qantas in 2006, Dixon's drive had delivered great success and high in the airline cycle. At the time of the APA bid, it was John Elliott's son Tom, then a fund manager with MM&E capital, who told me during a Four Corners program:
Those executives or those directors who stood to benefit personally from the takeover, and obviously Geoff Dixon was the most prominent, he stood to make anywhere between $60 and $100 million, which he said in advance he would give to charity. But that's not really the issue here. I believe he was conflicted.
It is the extraordinary backdrop of relationships among financiers, advisors and executives that has led to a soup of speculation as to when and how a new bid might be formed, and by who.
We know as of early June that the main financier to the APA bid, Macquarie Bank, is now advising the Qantas board on its defence strategy, or should I say advising the board on the best course to recommend to shareholders – accepting or refusing a bid, should one present itself.
Mark Carnegie last time around was advising members of the Qantas board as to what they should do. This time, he makes good odds as a central player in any new bidding consortium, along with Geoff Dixon (still close to Qantas in his current role as chairman of Tourism Australia), and some of the old APA consortium members, like David Coe from Allco. Another chap, Peter Gregg who was finance director at Qantas and close to Geoff Dixon in 2006, also has ties to Mark Carnegie, the two involved in number of business investments over the years since then.
The next question is, how much garnering of support of today's Qantas board members is underway? Again, plenty of room for speculation, since these directors have a deliciously high level of private equity expertise between them: Leigh Clifford, the highly respected and straight-talking Qantas chairman, is also a senior advisor for private equity firm KKR.
Another director who came on board only last year recently is Corinne Namblard. She spent a decade running the Luxembourg-based Galaxy Fund, a transport equity fund.
Then there's Alan Joyce. The current chief executive is said to be in regular contact with Geoff Dixon. In March this year, the SMH snapped the two of them having a drink in the Rocks reportedly deep in conversation for three hours. Joyce has recently had quite a major management reshuffle, which perhaps makes a takeover and restructure a little easier.
As to what parts of Qantas any consortium might choose to keep, sell or shut down, there are as many theories flying around as there are airlines on the Kangaroo Route these days. Moreover, allegations periodically surface around cost shifting within Qantas, particularly the dumping of costs on the loss-making international division, always categorically denied by the airline. Now we have clear split of the International business under the latest restructure.
When Mark Carnegie wrote off a full bid as currently inconceivable, he also remarked:
There's cash, but there's also a lot of debt, there's a lot of planes, there's a lot of complexity and there's still the unresolved issues of, what are you going do on routes through Asia to Europe when a whole series of countries use their airlines as instruments of national policy rather than companies?
This, of course, is where Alan Joyce's strategy implementation becomes critical. Off-shoring? A new partner in China? Just throwing it out there. Plenty of midnight oil is being burned in the CBD on those unresolved issues.
Ticky Fullerton presents
The Business on ABC News 24 and ABC1. View her full profile
here.