Could be interesting.....
ANDREW CLEARY AND JAMES CHESSELL
Former Qantas Airways finance chief Peter Gregg and venture capitalist Mark Carnegie have held discussions with key investors and unions as they consider a rival plan to challenge chief executive Alan Joyce’s strategy for the national carrier.
It is understood the pair, who have been linked to a loose consortium including advertising mogul John Singleton, former Qantas chief Geoff Dixon and trucking billionaire *Lindsay Fox, would push for the sale of Qantas Frequent Flyer and a *partial float of Jetstar to return capital to shareholders if the plan was *formalised.
While the situation remains “very fluid” according to market sources and no firm proposal has been formed, Mr Carnegie and Mr Gregg have talked to key unions which may help in gaining the support of superannuation funds. They are believed to have told people in the meetings that they were approached by disenchanted investors and have the *support of about 20 per cent of the *Qantas register to agitate for a rival strategic plan.
Mr Dixon, Mr Gregg and Mr Carnegie worked on the failed private equity bid for Qantas in 2006 pitched at $5.60 a share. The stock has fallen 26 per cent over the past 12 months compared with a 2 per cent rise in the broader benchmark index.
A full takeover of Qantas is not being considered by the group. It is more likely it would consider buying a stake that would allow it to push** *for an alternative strategy that would include a more aggressive expansion of the mainline carrier into Asia.
The plan would add more direct routes and frequencies between Australia and Asia’s booming business capitals. The group of investors is understood to recognise the benefits of the recent alliance with Emirates for solving Qantas’s network issues in Europe, but questioned the financial returns. They are more focused on securing a tie-up with an Asian carrier such as Cathay Pacific to lock down the regional market. They would also give priority to delivery of the fuel-efficient Boeing Dreamliner to Qantas International rather than Jetstar.
Sources close to the plan have said the decision on whether to proceed was not dependent on funding. It is more about whether the group can gain enough support to formulate a new strategy for the struggling carrier. A 10 per cent stake in Qantas would cost $284.3 million based on Friday’s closing price.
It is believed Mr Gregg and Mr Carnegie about two months ago held a series of briefings with union groups, including those representing Qantas pilots, engineers and ground workers, in a bid to secure their support. Core Qantas investors to have been briefed on the plan include Balanced Equity Management. It is understood the asset manager stressed its support for Mr Joyce and his five-year restructuring program for the loss-making Qantas International division.
Mr Gregg, who is now the chief financial officer at Leighton Holdings, and Mr Dixon declined to comment. Mr Fox did not return calls. Mr Fox is the financial backer most recently linked to the group, while Mr Singleton is a long-term associate and co-investor of the trio. Qantas shares closed at $1.26 on Friday.
Qantas head of government and corporate affairs Olivia Wirth said the airline had received no formal or informal approaches regarding a takeover of any description. “Qantas is often the subject of speculation and there has been takeover speculation for at least the past 12 months,” Ms Wirth said.
She said the company’s strategy was “geared towards sustainable shareholder value”, citing the $100 million share buyback and early debt repayment announced last week. Qantas is considered vulnerable to a destabilisation strategy because of its weak share price. The stock is trading at roughly half book value and touched a record low in June after a surprise profit warning. Qantas posted its first loss since privatisation in 2012, with one-off restructuring costs and losses at the international unit tipping the company to a $244 million net loss.
“Management remains focused on building a stronger Qantas, which it is doing through the proposed Emirates partnership, investing in new aircraft, growing Jetstar in Asia, maintaining a profit-maximising domestic market share of 65 per cent and tackling its legacy cost base.”
With close to $4 billion in cash on its balance sheet, the company has ample room to continue buying its own shares should the share price remain near current levels. Mr Joyce is in the second year of a five-year turnaround strategy that he has said will restore Qantas International to profit by the end of year three and return its cost of capital on an ongoing basis on conclusion.
The alternative strategy promoted by Mr Gregg and Mr Carnegie and their backers revisits some of the tenets of the failed private equity buyout of Qantas in 2007.
When asked last week about the prospect of a group of former Qantas executives and related parties taking a stake in the airline, Emirates president Tim Clark backed Mr Joyce’s strategy and said many of the problems the Qantas CEO was tackling were the legacies of his predecessors. “They will always be in the wings,” Mr Clark said of the group. “If they have retired, retire.”
Under the strategy, the company has slashed capital expenditure at the unit, pushing back or cancelling aircraft deliveries and cut jobs across engineering, catering, cabin crew and lower management to bridge the cost gap between Qantas and its offshore-based competitors such as Singapore Airlines, Emirates and Cathay Pacific.
Mr Clark said he expects other groups may be considering a destabilisation strategy given how low the share price is. “If this is one, it will definitely not be the last,” he told reporters in Dubai last week.
“They will gain traction I suppose if they talk to the union organisations who don’t necessarily agree with what is going on. But I assure you, within three years someone will be eating their words because within three years, given the Qantas strategy, given the link to Emirates and us to them, things will be completely different.”