Qantas, SIA In Talks To Share Facility

[Wirraway]

Dow Jones
Wednesday August 4

Qantas, SIA In Talks To Share Facility

SYDNEY (Dow Jones)--Qantas Airways Ltd. and Singapore Airlines Ltd. are in talks to combine their new training and maintenance facilities for the super-sized Airbus A380 aircraft, the Australian Financial Review reports Wednesday.

Sharing the costs of hangars, flight simulators and training centers would save hundreds of millions of dollars, the newspaper says, without citing the source of its information.

The potential of such joint cost savings is so compelling that Qantas and Singapore believe a full-blown alliance or even a merger could eventually be an option, it says.

=======================================

[Aussie]

On the topic of A380, does anyone know if the QF A330 pilots will be cross trained to fly the A380 as well?

Thanks


Aussie

[SeldomFixit]

Aussie - pacific barons and above ( can there be anyone ? ) only, need apply :ok:

[Hellsbells]

FINANCIAL REVIEW - UPDATE

Turbulent times unite Qantas, Singapore
Aug 04
Tansy Harcourt



Geoff Dixon has a lot in common with Singapore Airlines chief executive Chew Choon Seng.

The Qantas chief and his Singapore counterpart run two of the most profitable carriers in the world.

Both face growing competition from Middle East carriers such as Emirates Airline picking off lucrative Asian and European routes, and the relentless pressure on costs.


It was unthinkable a few years ago, but now Qantas and Singapore are getting closer and closer.

In fact, the pair are becoming so close that they are in talks to combine their new training and maintenance facilities for the super-sized Airbus A380, sources tell The Australian Financial Review.


The A380 aircraft is capable of carrying 550 passengers, and sharing the costs of expensive hangars, flight simulators and training centres would save hundreds of millions of dollars.

The potential of such joint cost savings is so compelling that Qantas and Singapore believe a full-blown alliance or even a merger - like the recent Air France deal with KLM Royal Dutch Airlines - could eventually be an option.

Qantas and the Singapore government have already hit the dance floor by setting up a new low-cost carrier based out of Singapore to service Asian markets.

This $82 million joint venture, partially backed by Temasek, the government corporation that holds key business interests including 57per cent of Singapore Airlines, is also a sign of the growing mutual interest.

Both Qantas and Singapore Airlines are convinced the days of national flag carriers may be over in a world of trading blocs, low-cost airlines and relentless cost pressure to upgrade fleets and cope with volatile oil prices.

The record $US30 billion of losses incurred by the aviation industry after the September 11 terrorist attacks has improved the arguments for deals to more sympathetic governments and their regulators.

Many aviation analysts believe the merger of Air France and KLM would not have stood a chance of being approved by competition regulators before September 11.

Now, with that merger barely bedded down, Air France-KLM is eyeing off Italy's financially crippled Alitalia. And British Airways has made no secret of its designs on Spain's Iberia. In the US, cash-strapped carriers are lobbying for higher foreign ownership levels.

Dixon, like other airline executives, believes the Air France takeover of KLM irreversibly moved the goal posts on big cross-border airline deals.

The two airlines formed a holding company, Air France-KLM, but remain independently managed and with distinct personalities, retaining their brands and hub airports.

The complicated structure of the deal provided a way for both companies to retain at least some of the benefits of their country's bilateral trade agreements and landing slots at major airports.

For Qantas, the move to tie up with Singapore Airlines would be driven by a need to cut costs and tap into the vast market of people that pass through Asia onto other destinations, rather than Australia's end-of-destination market. For Singapore, the tie-up would help cement the Asian island's status as an airline hub. Aviation is crucial to the Singaporean economy.

Singapore and its flagship airline face increasing competition with Dubai, serviced by Emirates Airline, as a stopover destination for long-haul flights. Improved technology means lighter and faster aircraft that eventually means travellers may bypass Asian stopovers.

Australia and Singapore's trade links are already strong after the two countries forged a free-trade deal last year to govern $8 billion of trade between the two countries, while Singapore has been the prime driver behind Australia and New Zealand's entry into the Association of South-East Asian Nations.

There are huge obstacles to any deal, notably the necessary government and competition regulatory approvals, which are complicated because mergers between the airlines of two different countries can cast doubt on bilateral air treaties negotiated between their governments over landing rights.

"It is hard for any government to give up their national carriers," Deutsche Asset Management fund manager Shawn Burns said. "Code shares are pretty useful anyway."

Then there is British Airways, which owns almost 20 per cent of Qantas and is part of the same global alliance, OneWorld.

Singapore Airlines is part of the rival Star Alliance, complicating a deal, and British Airways' chief executive, Rod Eddington, is believed to be against selling the Qantas stake, although analysts say that in the long term it does not make strategic sense to keep it.

But these obstacles are not insurmountable.

If Qantas and Singapore Airlines pushed a big cross-border merger, they would look to mirror the Air France-KLM deal, which leaves each airline separately managed.

In the case of a Singapore Airlines/Qantas tie-up, Singapore Airlines is by far the largest of the two, with a market capitalisation of about $US7.73 billion ($11 billion) compared with Qantas on about $US4.56 billion.

In gearing terms, Qantas has equity of $5.2billion and debt of $11.7 billion, compared with the less leveraged Singapore Airlines on $SG11.4 billion and debt of $SG8.23billion.

Qantas has a 49 per cent cap on foreign ownership plus a 25 per cent restriction on the stake of any single overseas airline.

The complex ownership structure of the Air France-KLM model underscores how difficult true consolidation is for flagship carriers such as Qantas and Singapore Airlines, which are often seen as a symbol of their nation's identity and are subject to government-negotiated bilateral treaties on landing rights.

The European Commission is trying to convince European governments to renounce their individual air treaties with the US because the agreements, negotiated before the creation of the European Union, treat each nation differently rather than follow the EU's single-market principle.

Consolidation in the airline sector has largely taken place in the form of global alliances such as OneWorld and Star Alliance, which allow code-sharing and check-through baggage arrangements among members, because of the difficulties getting mergers past competition authorities and complex bilateral air rights.

Qantas is among the most powerful members of the OneWorld alliance and Singapore Airlines is among the strongest in the Star Alliance, so a tie-up of the two would be strongly opposed by the respective groups.

While the commercial logic of contemplating a cross-border, big-bang merger has merit, the idea of an Australian icon such as Qantas losing its individual identity would today horrify politicians, unions and the public.

Rupert Murdoch moving News Corporation to New York is one thing, but the flying kangaroo in a joint venture with Singapore Airlines is a much harder sell.

Government sources said nothing had been flagged. But it was noted that Dixon had been more vocal that usual recently on his desire to see the 49 per cent foreign ownership cap on Qantas removed.

Qantas employees, who are represented by 14 individual unions, would probably fight a tie-up because of the inevitable job losses caused by shifting many operations to Singapore where staffing costs are lower.

Any deal might also be opposed by Richard Branson's Virgin Atlantic, which hopes to begin flying the Australia-London kangaroo route via Hong Kong by the end of the year.

Showing the each-way bets global carriers take, Singapore Airwlines owns 49 per cent of Branson's London-based Virgin Atlantic airline.

Australia's competition regulator would be looking closely at how a merger would affect competition on certain routes, particularly Perth-Singapore and Adelaide-Singapore where Qantas and Singapore Airlines dominate.

However, the regions where Qantas and Singapore Airlines compete the most, such as the kangaroo route and into Asia, are strongly contested by such other airlines as Thai Airways, Cathay Pacific, and Emirates Airline.

The proposed Qantas/Air New Zealand alliance was rejected by competition regulators in both countries because of a lessening of competition, particularly on trans-Tasman routes. Qantas and Air New Zealand have appealed against the rulings and are expecting a decision on whether they can proceed within the next few months.

But some analysts believe a Qantas-Singapore deal would be easier for competition authorities to approve than the Qantas/Air New Zealand deal.

The European Commission approved the Air France-KLM merger only after the two airlines agreed to give up 94 take-off and landing slots in order to maintain a level of competition on routes they dominate.

What the deal might mean for open-skies negotiations between the Singapore and Australian governments remains uncertain.

Singapore has been pushing for an open-skies deal with Australia for about a decade, giving its airline the right to fly from Australia to the US and Qantas unlimited rights to fly from Singapore to other Asian cities.

But Qantas has opposed a deal, arguing that its ability to take advantage of reciprocal rights to fly beyond Singapore would be limited by constraints on the capacity it can operate to other destinations in Europe and the US.

A Qantas-Singapore Airlines merger would be ironical, given Dixon has spent many years trying to keep the Singapore carrier out of the Australian aviation market. His clever lobbying of the Australian government through the protracted rescue of Air New Zealand and the subsequent collapse of Ansett forced Singapore to drop its plans to invest in the embattled carrier to compete directly with Qantas in its own market.

For now, Dixon and Chew are closely watching how Qantas's low-cost carrier, heavily backed by the Singaporean government's investment arm Temasek, goes.

Qantas has taken a 49 per cent stake in the as yet unnamed no-frills carrier. Temasek and two Singaporean businessmen own the other 51 per cent, which gives the carrier local status to operate out of Singapore to serve countries within three hours flying time. The airline is due to start flying in November.

The venture is giving Dixon a first-hand taste of doing business in Singapore - but more importantly, an opportunity to contemplate a deal that would reshape global aviation.

[Night Watch]

Have not known Qantas to make a smart decision for some time..... having said that, if this rumour is true, it would be a very smart business move on behalf of both airlines.

[Johhny Utah]

Yeah, what a bunch of dummies.... GD should give himself an uppercut! :rolleyes:

NightWatch, that's a pretty big call in light of the record profit tba in just over 2 weeks time. Admittedly, not everything that QF management touch turns to gold, but based on the financial results, you would have to agree that they are far out-performing the rest of the aviation market around the world.

Given the problems facing some of the low cost darlings in Europe at the moment, and Qantas being lumped with the 'legacy' tag, I eagerly await your response. Not to mention of course the earnings warning from Virgin issued this week... :rolleyes:

If you are looking for management who have had a very easy ride to date, and who must now be under intense scrutiny to actually work for their massive pay & bonus deals, you should look no further than the Virgin HQ in Brisbane.

An objective comparison between the 2 managements teams in terms of Company performance over the last 12 months should make for some interesting reading.:rolleyes:

[Wirraway]

Wed "Australian Financial Review"

Carriers such as Emirates Airline and Qatar Airways are striving to make the Middle East the stopover destination of choice, rather than Asia, for travel between the hemispheres.

For a place like Singapore, which derives so much of its income from aviation, it is a scary prospect. Singapore has developed its aviation business through its flagship carrier and its world class Changi Airport as a crucial part of its economy.

But now the tiny island nation faces a growing threat from the Middle East where a few nations have chosen aviation as their next source of revenue to replace oil when their reserves run dry.

In the past few years, Dubai-based Emirates Airline has emerged as a global superpower among airlines, ordering new planes from a seemingly endless money supply.

Qantas and Singapore Airlines have accused Emirates Airline of operating on an uneven playing field. They believe the airline does not pay for its fuel, or gets "mates rates" on the commodity that usually accounts for about a third of airlines' costs.

Just last month, the airline ordered another $US3 billion ($4.3 billion) worth of aircraft, on top of $US19 billion last year.

And if the threat from Emirates Airline wasn't big enough, another virtually unknown Middle East airline is making an aggressive move.

Etihad Airways, the national airline of the United Arab Emirates, shocked the aviation world last month by placing a $US7 billion order for 24 new Airbus aircraft, including four of the double-decker A380's which will seat as many as 550 people.

The airline is owned by the government of Abu Dhabi, capital of the United Arab Emirates the world's fifth-largest oil producer.

These threats to Singapore as a premier long-haul stopover hub come even before new technology advances are taken into account.

If the world's two biggest aircraft manufacturers, Airbus and Boeing, have their way, future flights from Australia to Europe and to the east coast of the US won't even require a stopover.

FIN review

========================================

[Buster Hyman]

And this joint facility will be...where exactly????:rolleyes: Like we don't know already!

[Wirraway]

crikey.com.au

Qantas kite flying in the AFR
Pemberton Strong
Crikey's aviation expert

An intriguing story of Qantas and Singapore playing kiss and make up
04 August 2004

Readers of Wednesday's Australian Financial Review would have noticed a story on the front page about Qantas and Singapore Airlines, with this headline, "Turbulent times unite Qantas, Singapore" (the story is in the premium section of the website).

It was an unusually well informed story about the burgeoning "love affair" between Qantas CEO, Geoff Dixon (known to Qantas staff as GOD) and Singapore Airlines, for years the company Dixon and his predecessors have done most to keep out of Australia.

Now they are all palsywalsy, according to the Tansy Harcourt story, co-operating on the infrastructure to train people and service and maintain the new Airbus A380 super airliner, for example. But it's also a story full of code. Take the third paragraph which reads, "both face growing competition from Middle East carriers such as Emirates Airline picking off lucrative Asian and European routes and the relentless pressure on costs".

This new code was first exposed in a letter last month to the AFR by Mr Dixon which was discussed at length by Crikey. In it Mr Dixon hits out at unfair competition from foreign government-owned carriers, such as Emirates, and how the international playing field isn't level. (And it isn't level in Australia either, GOD).

Now in a report, that was obviously based on a good briefing, the same code word pops up. Emirates, and the sort of airlines it represents, are the new bogeymen at Qantas, replacing the giant low cost operators, which was always code for Singapore (and to a lesser extent Cathay and the bankrupt carriers of the US and Europe).

There's a touch of "Reds under the Bed" paranoia in all of this. That Qantas is now openly talking of or suggesting closer relations with Singapore is a sign of how quickly the new campaign has swung into gear. Expect a lot more of this when the company produces a very good profit on August 19.

It's as though the ambition to secure a foothold over Air New Zealand is rapidly passing and GOD and the Qantas board are looking very much to a newer and bigger playing field, and doing what every ambitious business tries to do, tilt the field in its favour.

So if Air New Zealand's case gets the greenlight after the current appeal in New Zealand ends, and Qantas persists with an appeal in Australia, there could be quite a difficult decision for the airline to make.

So what else comes out of the article. Well its amazing how long it's taken for the penny to drop about Qantas' ambitions in Singapore. This is what Crikey said in April when the low cost Asian airline idea was announced.

"So with Temasek on board, Qantas' move into Singapore has the blessing of the Government and more importantly, the Lee family And while the new airline has to get a Singapore air operating certification, the new start-up is not expected to have any hiccups and will start operations later in the year."

Here (Strange Qantas alliances in Singapore) that was the first overt sign that Qantas was trying to make peace in Singapore.

But there will be a cost, and it will test the resolve of Qantas to this new 'friendship'.

Singapore (and Cathay) want to fly to Australia, and then onto the US west coast. When the so-called Open Skies Agreement was signed with Singapore, Qantas managed to get any discussion of that put off indefinitely.

There are now reports that Singapore Airlines and the Government are wanting to progress those talks again.

Likewise Cathay. When Qantas won the right to fly Hong Kong London (with Virgin Atlantic also approved) Qantas again managed to fight off an attempt by Cathay to fly to the US from Australia. Should Singapore now win approval because its new best friend is Qantas, then you can expect Cathay to come calling very quickly. How will Qantas play that one? How will it justify hopping into bed with a Star Alliance giant like Singapore, while spurning a One World fellow carrier?

Then there's the question of why Qantas doesn't service the Middle East any more. The Red Roo likes flying the Kangaroo Route through Singapore, with the other main route through Bangkok, because of the number of Australians who want to travel to Thailand.

Both are very profitable, the Kangaroo Route immensely so at the moment. From both Bangkok and Singapore, people wanting to travel into the Middle East can go Thai, SIA, Emirates, Gulf Air or a number of other carriers. Qantas used to fly into the Middle East years ago. It is well within its capabilities to return and compete with Emirates and Gulf and others, but it seems to be choosing to play the injured party, with the 'unfair competition and titled playing field line". That's a phoney argument, but one that seems to have been swallowed by the AFR.

Then there's the question of the Joint Services Agreement with British Airways that covers the Kangaroo route to London via Singapore. By hinting at closer relations with Singapore, Qantas is saying to BA that the JSA is not as important as it once was and that if it cuddles closer, a new agreement could be quickly struck with Singapore.

BA owns around 18 per cent of Qantas. Could a spurned BA, which needs the cash, sell to Singapore?

That way there would be no problems with the Qantas (Foreign Shareholdings Act) that limits total foreign holdings in the Australian airline to 49 per cent.

Having Singapore join BA on the Qantas register and board would be fraught with tension. And would in all likelihood be rejected by the Government, the ACCC and probably shareholders.

Getting BA off and its shares into Singapore's hands would be a much simpler way to go.

So what can be done to convince BA boss, Rod Eddington, that it should happen. Well, Rod's returning home to Australia in the next year, so he might not be around to frustrate any sale.

And finally, Qantas seems to have put a lot of trust in dropping this new line to the AFR. But then for the past couple of years or so the Airline had a receptive ear in journalist Jane Boyle, who managed to get a number of scoops and good stories. She left the AFR and went to work in Qantas.

But there's another fascinating link to remember. AFR editor Glenn Burge is good friends with John Alexander at ACP and PBL. They worked together at John Fairfax. JA is close to Geoff Dixon, and James Packer is on the Qantas board (and Qantas chair, 'Dame Margaret Jackson has just decided to bail from the Fairfax board).

An intriguing network and a fruitful basis for speculating at just how well based the AFR story was.

Whether Qantas and Singapore do kiss and make-up, or whether this is just an 'unholy alliance' created to fight these big nasty foreigners from the Middle East, will take time to emerge.

Certainly Qantas wasn't backward in frustrating Singapore's ambitions with Air New Zealand and Ansett, so there would be a lot of "don't mention the war" if an Alliance is to happen.

But will a deal be done if it involves any diminution in the Australian control and shareholding of Qantas?

Not under a Mark Latham Government.

===========================================

[Curved Approach]

Night Watch

Have not known Qantas to make a smart decision for some time..... having said that, if this rumour is true, it would be a very smart business move on behalf of both airlines. All of Qantas' decisions have been smart ones I think you will find ;) if only smart business moves :yuk:

[Taildragger67]

Well, it would make some sense replacing BA on the register. They started with a 25% stake but it's been progressively watered down due to BA's inability to take part in Qantas' capital raisings. SIA, with its healthier bank balance, would be able to kick in the required cash.

Aside from the A380 bizzo (which could be purely commercial - QF has been known to send aircraft to competitors for maint now & then), could this be a bit of a fishing trip to see who else might be interested in a tie-up? What would prevent a tie-up between QF and, say, CX - as an Asia-Pacific counterweight to SIA? It'd possibly get a better hearing from competition regulators, as well as opening up China & north Asia a bit more for QF.

Just a thought, not a rumour/news so please don't bite too hard...