mr Q
8th Sep 2004, 05:59
British Airways to sell Qantas stake
By Daniel Morrissey
SYDNEY (Reuters) - British Airways plans to sell its A$1.12 billion (435.2 million pounds) stake in Australia's Qantas Airways in the next two days to cut debt and take advantage of future consolidation in Europe.
Europe's second-biggest airline, which has undertaken the most radical restructuring among its peers in the past three years, said the sale of the 18.25 percent stake would have no effect on the business relationship between the two carriers.
"We now believe it is in our best interests to sell our shares to pay down our debt and continue to strengthen our balance sheet," Chief Executive Rod Eddington said in a statement on Wednesday. "A strong balance sheet will place British Airways in a robust position for any future European consolidation."
BA told shareholders in July last year its close ties with Spanish airline Iberia would be at the heart of any consolidation in Europe. BA owns about 9 percent of Iberia.
It is unlikely a rival airline such as Singapore Airlines would be interested in buying the BA stake because alliances have negated the need for airlines to take equity stakes in other carriers, investors said.
"Talking to the underwriter, it doesn't seem likely," said Perennial Growth partner Ken West. "My understanding is Singapore Airlines would far prefer to consummate alliances outside of having shareholdings."
BA said the sale of the Qantas stake, which has reaped the carrier A$600 million in dividends over the past 11 years, would be an underwritten offering. The carrier paid A$665 million for the original stake in 1993 and said it expects to make at least A$1.09 billion in gross proceeds from the sale.
Citigroup is managing the sale.
Shares in Qantas closed at A$3.33 on Tuesday, up 1.2 percent for the year, similar to BA's 1.4 percent rise. Qantas requested a trading halt before the market opened on Wednesday.
Ian Thomas, an analyst at the Centre for Asia Pacific Aviation, said Qantas' shares were expected to rise when they began trading again as BA had been a "lame duck shareholder".
Thomas also said Qantas would be free to focus on Asia and develop strategic partnerships without requiring BA approval.
Eddington told reporters in London last year he would like to see the airline's net debt reduced to 3 billion pounds. Net debt stood at 3.8 billion pounds at June 30.
BA in the past month has been hit by threats of industrial action by its front-line staff and flight disruptions due to staff shortages in London. The carrier has slashed about 13,000 jobs since the September 11, 2001 attacks in the United States.
Iberia said in June it would start joint accounts with BA on routes between Spain and Britain from next winter. The move means the airlines will collect revenue from the flights as if they were a single company, and share out profits afterwards.
Australia is too far away for Qantas to take any role in European consolidation. Air France and Dutch carrier KLM merged this year to create the world's biggest airline by revenues.
"The 'tyranny of distance' between Australia and the United Kingdom rules out such consolidation, but not cooperation, between Qantas and British Airways," Qantas Chief Executive Geoff Dixon said in a statement.
The BA announcement came just weeks after the Australian government said it would not lift a 49 percent foreign ownership restriction on Qantas as it was "quintessentially Australian".
Countries around the world jealously guard their airlines with protectionist measures such as foreign ownership caps based on what many investors, aviation economists and an increasing number of airline executives regard as antiquated rules.
By Daniel Morrissey
SYDNEY (Reuters) - British Airways plans to sell its A$1.12 billion (435.2 million pounds) stake in Australia's Qantas Airways in the next two days to cut debt and take advantage of future consolidation in Europe.
Europe's second-biggest airline, which has undertaken the most radical restructuring among its peers in the past three years, said the sale of the 18.25 percent stake would have no effect on the business relationship between the two carriers.
"We now believe it is in our best interests to sell our shares to pay down our debt and continue to strengthen our balance sheet," Chief Executive Rod Eddington said in a statement on Wednesday. "A strong balance sheet will place British Airways in a robust position for any future European consolidation."
BA told shareholders in July last year its close ties with Spanish airline Iberia would be at the heart of any consolidation in Europe. BA owns about 9 percent of Iberia.
It is unlikely a rival airline such as Singapore Airlines would be interested in buying the BA stake because alliances have negated the need for airlines to take equity stakes in other carriers, investors said.
"Talking to the underwriter, it doesn't seem likely," said Perennial Growth partner Ken West. "My understanding is Singapore Airlines would far prefer to consummate alliances outside of having shareholdings."
BA said the sale of the Qantas stake, which has reaped the carrier A$600 million in dividends over the past 11 years, would be an underwritten offering. The carrier paid A$665 million for the original stake in 1993 and said it expects to make at least A$1.09 billion in gross proceeds from the sale.
Citigroup is managing the sale.
Shares in Qantas closed at A$3.33 on Tuesday, up 1.2 percent for the year, similar to BA's 1.4 percent rise. Qantas requested a trading halt before the market opened on Wednesday.
Ian Thomas, an analyst at the Centre for Asia Pacific Aviation, said Qantas' shares were expected to rise when they began trading again as BA had been a "lame duck shareholder".
Thomas also said Qantas would be free to focus on Asia and develop strategic partnerships without requiring BA approval.
Eddington told reporters in London last year he would like to see the airline's net debt reduced to 3 billion pounds. Net debt stood at 3.8 billion pounds at June 30.
BA in the past month has been hit by threats of industrial action by its front-line staff and flight disruptions due to staff shortages in London. The carrier has slashed about 13,000 jobs since the September 11, 2001 attacks in the United States.
Iberia said in June it would start joint accounts with BA on routes between Spain and Britain from next winter. The move means the airlines will collect revenue from the flights as if they were a single company, and share out profits afterwards.
Australia is too far away for Qantas to take any role in European consolidation. Air France and Dutch carrier KLM merged this year to create the world's biggest airline by revenues.
"The 'tyranny of distance' between Australia and the United Kingdom rules out such consolidation, but not cooperation, between Qantas and British Airways," Qantas Chief Executive Geoff Dixon said in a statement.
The BA announcement came just weeks after the Australian government said it would not lift a 49 percent foreign ownership restriction on Qantas as it was "quintessentially Australian".
Countries around the world jealously guard their airlines with protectionist measures such as foreign ownership caps based on what many investors, aviation economists and an increasing number of airline executives regard as antiquated rules.