$5 Billion Goldmine?

[N2O]

Thinking about the proposed takeover of Qantas, one wonders what in the way of assets is available to the raider to flog off quickly to make their target 20% Return On Asset.
Media comentators suggest quick sales of Qantas holidays, catering and Jetstar as netting around $3.0 Billion. Tidy yes, but there is potentially a much juicer prize, $5+ Billion in investment funds sitting in Qantas Super (http://www.qantassuper.com.au/downloads/SUPERANNUALREPORT2005.pdf).
My understanding of the Ansett collapse was that the liquidators revalued all staff's entitlements for Super to provide the legal minimum, that is 9% since 1992 plus their own contributions, that's it.
The history books of US airlines since deregulation has been one of the shamelessly plunder the staff pension fund.
Could creative financial engineering & restructuring yield a similar revaluation, releasing a torrent of cash to the potential new owners.
I could be completely wrong here, please prove me to me why this cannot occur, I will not be offended. :)
I just see this enormous pile of cash as too tempting for aggressive raiders knocking on the door.

[Going Boeing]

My understanding of the Ansett collapse was that the liquidators revalued all staff's entitlements for Super to provide the legal minimum, that is 9% since 1992 plus their own contributions, that's it.


I'm no expert but I believe that new laws came into effect 01July06 (caused in part by what happened to AN staff) which requires all companies to put aside money to cover all superannuation debts of that company. This money is quarantined and is no longer available in the company's cash flow. In the case of Defined Benefit schemes, the company is required to put in an additional amount (1.28 times (I think)) which takes even more cash out of their cash flow. This is why QF tried to get all the Div 2 and Div 3 staff to move to Div 6 last year. It would have reduced the money that the new laws required them to put aside - not many staff transferred.

I hope that the new laws are strong enough to protect the super money from the corporate raiders. :=

[Ramboflyer 1]

Unless the company is 100% liquidated, which would make financial sense to the new owners , but certainly look bad for Australia.
Maybe someone in the middle east is behind all this.

[numbskull]

As far as staff super entitlements go it depends on what type QF plan you are in.

Qantas some years ago started to move people into accumulation funds. Basically QF gives superannuation guarantee money to QF super and that money is completely seperate and untouchable by QF management.(that is why I moved over some years ago). You bear the investment risk/return

However if you are still in the Defined Benfits scheme (where they guarantee you a percentage of your final salary) then you are completely dependant on QF having the money available to pay your entitlement. QF bear the investment risk/return.

Qf also have a plan which is a hybrid of the two plans. I think if you are in an accumulation type plan then your money is safe. I'd be very worried though if you are in the Defined Benefits plan. Who is going to guarantee your entitlements if your department is sold off???? A shelf company with no assets??? Don't think it can't happen, ask United pilots. They had a defined benifits plan that they suddenly realised wasn't worth anything when the company couldn't pay.

There is a huge list of Australian companies with underfunded defined benefits super plans, Qantas is only one of them. But don't just beilieve me, it is well documented. The Australian government has a massive unfunded defined benefits plan (but that is what the "Future Fund" and the sale of Telstra is designed to address.)

People should seriously consider moving their super over to one of QF's accummulation funds if it is still possible, its not the worth the risk. Going Boeing you probably right about QF having to set aside money for defined benefits plans. It's only once it has all turned to **** that everyone realises that they haven't!! at least in the accumulation funds the money is out of their control from the start.

I've cashed my chips out now but I still have many friends employed at QF. Good luck to all!!

[Howard Hughes]

Maybe someone in the middle east is behind all this.
Or in Singapore...;)

[metrosmoker]

With a major American company behind all this, is there any reason to think that a patriotic bias may see Qantas`s airbus deal put on under more pressure in favour of helping another big american company- Boeing?

[The_Cutest_of_Borg]

...no.....

[Chimbu chuckles]

With all the regulatory hurdles/rules limiting ownership has anyone thought this may just be a clever form of insider trading?

What shareholding does Mac bank have in QF?

It seems to me a little unlikely that a corporate raider would be able to successfully buy QF and then sell off bits...talking up the share price 20- 30% and then selling seems like a more likely scenario.

Given the mood of QF staff any foreign fund managers thinking about a 'buy and break up' strategy would likely find themselves with a grounded airline in about 10 seconds...it would be the one scenario most likely to back every QF staff member, both flying and ground staff, into the same corner...and that would destroy the equity/cash flow that any highly leverage M&A strategy relies on.

It would cost LJH the next election without doubt.

[murgatroid]

Unless the company is 100% liquidated, which would make financial sense to the new owners


I don't think you'd pay 10+ billion to then shut it down and sell off assets, (ie liquidate). The asset book value may be around 12 billion, but it would hardly reach that at a fire sale. I wonder what book value those 747 classics have?

QF will be used for cash flow, and cash flow used for purchases. Sell off some businesses like catering, holidays, terminals etc to fill the wallet and then go on a shopping spree for airlines, freight operators etc.

At the same time, continue to cut the core business costs (wages!) and increase outsourcing and pretty soon you'd have a giant of an efficient company.

It is not difficult to see QF double or treble in size in 1-2 years, with huge earnings to boot.

Then some time in the future, take it public again and realise a fortune.

All pretty simple really! :D

[Going Boeing]

I'd be very worried though if you are in the Defined Benefits plan. Who is going to guarantee your entitlements if your department is sold off???? A shelf company with no assets??? Don't think it can't happen, ask United pilots. They had a defined benifits plan that they suddenly realised wasn't worth anything when the company couldn't pay.
There is a huge list of Australian companies with underfunded defined benefits super plans, Qantas is only one of them.

My understanding is that the new laws that came into effect 01July06 forced Australian companies to fund the Defined Benefits Super plans to the tune of 1.28 times the money owed - this is why Qantas tried to encourage staff out of their DB divisions. This money is now out of the reach of the companies as it belongs to the superannuants.

[numbskull]

How do you or QF know what your final average salary is going to be???? The money they put in is simply their estimate. Once the superannuation trustee gets the money then it is out of the hands of QF.

Whether there is enough money in the DB plans now to fund all members is impossible to tell because the exact liability is not known!!

The reports I read several years ago said they were massively underfunded at that time and I can't believe they have caught up their shortfall over the last couple of years. I guess that's what the 1.28 times money owed is designed to address( you just have to hope their not doing their long term calculations on the forecast Jetstar wages).

This quote is from the APRA website (the Authority responsible for Super regulation)

"It is important to note that APRA does not attempt to protect super fund members from all losses. In particular, accumulation fund members are exposed to market fluctuations. Defined benefit fund members may be exposed to fund shortfalls in the event that the employer sponsor fails, or elects to walk away from an underfunded plan.

Its simple really.If you trust them then leave your money there,if you don't then get them to transfer your current entitlement to a defined benefits plan where ALL money is in the hands of the superannuation trustee.

[numbskull]

"Standard & Poor's said on Friday that Qantas's rating remained on watch for a downgrade because a leveraged buy-out meant the company would take on additional debt. The funding would probably be made up of $US3 billion of securities backed by Qantas's 217 aircraft, $US3.9 billion of high-yield, high-risk bonds and $US2.15 billion of loans, the bankers said." Sydney Morning Herald 16 Dec 2006.

You know who is going to get first dibs on all the assets if it all turns to **** (not your underfunded defined benefits plan!!!).

If this takeover goes through then the liklihood of it all turning to custard (Ansett style) is significantly increased with the weight of debt around QF's neck.

"Interest cost increases from $55 million last year to more than $800 million next year, which is most of the company's free cash flow, and any breach of loan covenants caused by a sudden revenue air pocket (as airlines do encounter) allows the banks to send in the receivers and change the locks." Alan Kohler- Sydney Morning Herald 16 Dec 2006.

In the accumulation fund you are not exposed to this risk as the trustee already has the money. I would move it if you get the chance(you probably won't though now because it is underfunded and the new owners won't want all that cash going to the "peasants" super funds.

Maybe the unions could negotiate this choice with QF/Government as part of EBA/ takeover negotiations.

[chimbu warrior]

Pretty simple really...........as numbskull said, who knows what your final average salary will be?

Consider this scenario.........get control of the company, drive down wages, then bingo!, you suddenly have a surplus in the fund. Consequently the employer can get by without making any contributions for a few years, diverting the money instead to other pockets, er sorry I meant other purposes.

I'm sure the consortium have spent months doing the arithmetic on all these possibilities.