Qantas will be dead in 6 months
Qantas would have been dead if APA buyout had got up!
Near miss almost tipped Qantas into oblivion - Sydney Morning Herald
Adam Schwab
May 5, 2009
IT WAS the $11 billion mega-deal that promised blue skies ahead for all involved. But its failure by the slimmest of margins exactly two years ago has saved not only Qantas, but billions of dollars of debt finance
IT WAS the $11 billion mega-deal that promised blue skies ahead for all involved.
But its failure by the slimmest of margins exactly two years ago has saved not only Qantas, but billions of dollars of debt finance - supplied by foreign and Australian banks - which would have likely been lost had the private equity-led Airline Partners Australia bid succeeded.
Tourism may also have suffered. The privately owned airline would have taken the axe to unprofitable routes.
The APA consortium - consisting of Texas Pacific Group, Macquarie Bank, Allco Finance and Onex Partners - managed to garner acceptances for only 45.7 per cent of Qantas shares by the close of the takeover. APA would have reached the 50 per cent threshold but for a US billionaire, Samuel Heyman, who over-slept and submitted acceptances for his 4.9 per cent stake in Qantas a few hours too late.
The audacious takeover landed at the zenith of the frenzy in mergers and acquisition. As 2006 drew to a close, the private equity and sharemarket boom was in full swing. Debt was plentiful as companies were encouraged to "gear-up" their balance sheets to boost returns for shareholders.
In this environment one of the largest private equity players, Texas Pacific Group - whose founder, David Bonderman, turned a $US66 million investment in Continental Airlines into a profit of more than $US600 million - decided to team up with Macquarie Bank and Allco Finance.
One of APA's trump cards was its plan to retain Qantas's senior management team. They would oversee a multibillion-dollar capital investment program over five years, along with the introduction of 70 planes to increase capacity by 40 per cent.
Based on the $5.45 a share offer, the acquisition would have cost APA about $10.8 billion. Of that, the consortium had secured commitments from lenders to provide senior secured term facilities worth $US6.1 billion.
APA members would have tipped in some $3 billion in equity but the bidder's statement noted that the company planned capital reductions of about $4.5 billion and the payment of dividends up to 100 per cent of Qantas's retained earnings during the term of its ownership.
The onset of the global financial crisis has turned what looked to be a marginal takeover proposition into what would have been a diabolical mess. To carry out the buyout, APA had planned to assume a debt burden of more than $10 billion. Two years later, Qantas's current market value is $4.6 billion.
But even before APA's mooted capital investment program, courtesy of the company's expanded debt load, Qantas would have been hemorrhaging about $1 billion a year in interest payments alone. Coupled with its expected operating losses, it is highly unlikely the private equity consortium would have been able to meet its financial obligations
Lenders to the consortium included Morgan Stanley, Citigroup, Deutsche, Goldman Sachs, Royal Bank of Scotland and Greenwich Capital Markets: a who's who of the financial crisis.
In its bidder's statement, APA confirmed binding commitments from lenders for $10.7 billion. The financing package even contained a provision for Qantas to "to make interest payments in kind, in lieu of cash".
Little wonder there is a feeling the lending consortium dodged a bullet. But APA's banks are not the only ones breathing a sigh of relief.
The consortium also included equity participation from 11 Qantas managers, including former chief executive Geoff Dixon, former chief financial officer Peter Gregg, the recently retired human resources boss, Kevin Brown, and the current Qantas chief executive, Alan Joyce.
Under the participation agreement, management would have used limited-recourse loans to acquire "time" and "incentive" based shares under a long-term incentive share plan, representing up to 4.5 per cent of the company.
Given Qantas's subsequent financial performance, it is almost certain the equity instruments granted to senior management would have been worthless.
Fortunately for Dixon and Gregg, not only did the bid fail, but the Qantas board graciously offered them significant retention payments, primarily in the form of Qantas shares, to remain with the company. These made Dixon the highest-paid airline executive in the world in cash terms before his retirement at the end of November. In 2007-08 he received $11.9 million, which included his $4.5 million retention payment.
The retention payment to Dixon involved the allocation of 1 million free Qantas shares. The stock was notionally subject to a 10-year holding lock, but Dixon was still able to sell all the free shares within two years.
Allco, of which APA's main spokesman Bob Mansfield later became chairman, has slipped into administration, crippled by its own debt burdens and controversial related-party transactions involving its founder, David Coe, who was also at the forefront of the Qantas takeover.
Had the APA bid succeeded, Allco would have held an 8.4 per cent economic interest in Qantas, while its listed offshoot, Allco Equity Partners, would have owned 25.9 per cent. AEP, a separate ASX-listed entity, has since run a mile from Allco and wants to change its name to Oceania Capital Partners. Macquarie, of course, has survived and moved on, albeit having just experienced a rough year in which its profits halved.
The previously invincible Texas Pacific Group has also had a difficult patch. It headed an ill-fated equity injection into US bank Washington Mutual last year that led to losses of $US1.3 billion for the group.
And Qantas? While its shares rose shortly after the takeover failed, reaching $6.06 in December 2007, it has since fallen to $2.13 - 60 per cent less than the APA offer price after fuel prices and then the global recession shredded its bottom line.
It faces a second half loss in its current financial year. As a result, Joyce has said 1750 Qantas workers will lose their jobs.
But one suspects that had the APA bid succeeded, far more Qantas employees would be seeking work, there would be some very sorry financiers, several far poorer former Qantas executives and most likely a renationalised icon.
Adam Schwab is a corporate lawyer.
Adam Schwab
May 5, 2009
IT WAS the $11 billion mega-deal that promised blue skies ahead for all involved. But its failure by the slimmest of margins exactly two years ago has saved not only Qantas, but billions of dollars of debt finance
IT WAS the $11 billion mega-deal that promised blue skies ahead for all involved.
But its failure by the slimmest of margins exactly two years ago has saved not only Qantas, but billions of dollars of debt finance - supplied by foreign and Australian banks - which would have likely been lost had the private equity-led Airline Partners Australia bid succeeded.
Tourism may also have suffered. The privately owned airline would have taken the axe to unprofitable routes.
The APA consortium - consisting of Texas Pacific Group, Macquarie Bank, Allco Finance and Onex Partners - managed to garner acceptances for only 45.7 per cent of Qantas shares by the close of the takeover. APA would have reached the 50 per cent threshold but for a US billionaire, Samuel Heyman, who over-slept and submitted acceptances for his 4.9 per cent stake in Qantas a few hours too late.
The audacious takeover landed at the zenith of the frenzy in mergers and acquisition. As 2006 drew to a close, the private equity and sharemarket boom was in full swing. Debt was plentiful as companies were encouraged to "gear-up" their balance sheets to boost returns for shareholders.
In this environment one of the largest private equity players, Texas Pacific Group - whose founder, David Bonderman, turned a $US66 million investment in Continental Airlines into a profit of more than $US600 million - decided to team up with Macquarie Bank and Allco Finance.
One of APA's trump cards was its plan to retain Qantas's senior management team. They would oversee a multibillion-dollar capital investment program over five years, along with the introduction of 70 planes to increase capacity by 40 per cent.
Based on the $5.45 a share offer, the acquisition would have cost APA about $10.8 billion. Of that, the consortium had secured commitments from lenders to provide senior secured term facilities worth $US6.1 billion.
APA members would have tipped in some $3 billion in equity but the bidder's statement noted that the company planned capital reductions of about $4.5 billion and the payment of dividends up to 100 per cent of Qantas's retained earnings during the term of its ownership.
The onset of the global financial crisis has turned what looked to be a marginal takeover proposition into what would have been a diabolical mess. To carry out the buyout, APA had planned to assume a debt burden of more than $10 billion. Two years later, Qantas's current market value is $4.6 billion.
But even before APA's mooted capital investment program, courtesy of the company's expanded debt load, Qantas would have been hemorrhaging about $1 billion a year in interest payments alone. Coupled with its expected operating losses, it is highly unlikely the private equity consortium would have been able to meet its financial obligations
Lenders to the consortium included Morgan Stanley, Citigroup, Deutsche, Goldman Sachs, Royal Bank of Scotland and Greenwich Capital Markets: a who's who of the financial crisis.
In its bidder's statement, APA confirmed binding commitments from lenders for $10.7 billion. The financing package even contained a provision for Qantas to "to make interest payments in kind, in lieu of cash".
Little wonder there is a feeling the lending consortium dodged a bullet. But APA's banks are not the only ones breathing a sigh of relief.
The consortium also included equity participation from 11 Qantas managers, including former chief executive Geoff Dixon, former chief financial officer Peter Gregg, the recently retired human resources boss, Kevin Brown, and the current Qantas chief executive, Alan Joyce.
Under the participation agreement, management would have used limited-recourse loans to acquire "time" and "incentive" based shares under a long-term incentive share plan, representing up to 4.5 per cent of the company.
Given Qantas's subsequent financial performance, it is almost certain the equity instruments granted to senior management would have been worthless.
Fortunately for Dixon and Gregg, not only did the bid fail, but the Qantas board graciously offered them significant retention payments, primarily in the form of Qantas shares, to remain with the company. These made Dixon the highest-paid airline executive in the world in cash terms before his retirement at the end of November. In 2007-08 he received $11.9 million, which included his $4.5 million retention payment.
The retention payment to Dixon involved the allocation of 1 million free Qantas shares. The stock was notionally subject to a 10-year holding lock, but Dixon was still able to sell all the free shares within two years.
Allco, of which APA's main spokesman Bob Mansfield later became chairman, has slipped into administration, crippled by its own debt burdens and controversial related-party transactions involving its founder, David Coe, who was also at the forefront of the Qantas takeover.
Had the APA bid succeeded, Allco would have held an 8.4 per cent economic interest in Qantas, while its listed offshoot, Allco Equity Partners, would have owned 25.9 per cent. AEP, a separate ASX-listed entity, has since run a mile from Allco and wants to change its name to Oceania Capital Partners. Macquarie, of course, has survived and moved on, albeit having just experienced a rough year in which its profits halved.
The previously invincible Texas Pacific Group has also had a difficult patch. It headed an ill-fated equity injection into US bank Washington Mutual last year that led to losses of $US1.3 billion for the group.
And Qantas? While its shares rose shortly after the takeover failed, reaching $6.06 in December 2007, it has since fallen to $2.13 - 60 per cent less than the APA offer price after fuel prices and then the global recession shredded its bottom line.
It faces a second half loss in its current financial year. As a result, Joyce has said 1750 Qantas workers will lose their jobs.
But one suspects that had the APA bid succeeded, far more Qantas employees would be seeking work, there would be some very sorry financiers, several far poorer former Qantas executives and most likely a renationalised icon.
Adam Schwab is a corporate lawyer.
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Dixon still walks away with millions despite not knowing , as a CEO that his company was engaged in price fixing cartel. How could a company be so big that the CEO does not know that it is engaged in price fixing?
yet few sick days and you have managers hounding you and calling you and sending you letters...and clause 11 for trivial matters such as nuts and chocolates
But price fixing, a criminal offense was left unchecked?
The judgement from the European courts will be out next month on how many millions in Euros will Qantas be fined , followed by New Zealand Authorities on how much Qantas will be fined.
The European fine will hurt Qantas bottom line, EEC have been known to hand down very very painful fines for price fixing.
precedence in the past included a percentage of the profit as fines during the entire period of the criminal offense. With Euro so strong as a currency, that could mean more than the US fines.
yet few sick days and you have managers hounding you and calling you and sending you letters...and clause 11 for trivial matters such as nuts and chocolates
But price fixing, a criminal offense was left unchecked?
The judgement from the European courts will be out next month on how many millions in Euros will Qantas be fined , followed by New Zealand Authorities on how much Qantas will be fined.
The European fine will hurt Qantas bottom line, EEC have been known to hand down very very painful fines for price fixing.
precedence in the past included a percentage of the profit as fines during the entire period of the criminal offense. With Euro so strong as a currency, that could mean more than the US fines.
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The economic cycle has turned, they'll get the crew now. But once we emerge from the downturn. Those who have gained experience will look to greener pastures.
Those who have gained experience ?? ..........like flipping burgers after they've lost their flying jobs.
This crisis is in for the the long term and if anyone is going to get experience at, well, this is going to be at...............looking for a job.
A mate of mine working for QF has been telling me this story eversince Pornstar started and it doesn't take a Phd to figure that one out.
It'll be QF colours with Jetstar pay......................and people will be stampeding to grab a job with Qanstar.
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Whilst the CAPA statement:"
Is arguably misleading and well short of the full story, a next generation mega-deal promising blue skies ahead may yet be what Qantas needs to survive?
During the next decade, the Roo will need to finance thirty billion dollars worth of next generation aircraft.
Can only hope those responsible for the next restructure have learnt from the APA fiasco and Qantas won't be at risk of being tipped into oblivion next time round.
QANTAS will no longer exist in its current form if the downturn that is crippling the industry lasts another six months.."
Is arguably misleading and well short of the full story, a next generation mega-deal promising blue skies ahead may yet be what Qantas needs to survive?
During the next decade, the Roo will need to finance thirty billion dollars worth of next generation aircraft.
Can only hope those responsible for the next restructure have learnt from the APA fiasco and Qantas won't be at risk of being tipped into oblivion next time round.
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Me Myself.
Have QF mainline, made any crews redundant yet? Nope.
Have the crews surplus to existing requiremets be quantified? Yep
Is the company currently working with AIPA to exhaust all avenues to avoid redundancies? Yep
Is there currently a open vote for an variation to the certified agreement? Yep
Are there remuneration increases in the agreement on offer? Yep
The GFC is certainly having it's effect to airline operations, but unlike post September 2001 or SARS/Birdflu the company has not approached mainline crew to accept pay freezes. Why haven't they?
Have QF mainline, made any crews redundant yet? Nope.
Have the crews surplus to existing requiremets be quantified? Yep
Is the company currently working with AIPA to exhaust all avenues to avoid redundancies? Yep
Is there currently a open vote for an variation to the certified agreement? Yep
Are there remuneration increases in the agreement on offer? Yep
The GFC is certainly having it's effect to airline operations, but unlike post September 2001 or SARS/Birdflu the company has not approached mainline crew to accept pay freezes. Why haven't they?
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Master Caution
You obviously have more inside info than I can possibly have, not working for QF.
However QF is, in my knowledge the only major operating 2 business models. Weren't the 787 going to Jetstar ?
I am not saying this is going to happen tommorrow, but in the long term certainly.
Still, hoodles of people will still want to work there...............and I would be one of them. Even if prices in Sydney and Oz have become totally insane, it remains in my view one of the best places to live.
I have really never understood Aussie pilots leaving Australia to burry themselves in the sand or get buckets of water during the monsoon. ( I'm talking about those who DID have the choice to stay ).
So, copy your post but this remains QF least kept secret eversince your irish boss was hired.
You obviously have more inside info than I can possibly have, not working for QF.
However QF is, in my knowledge the only major operating 2 business models. Weren't the 787 going to Jetstar ?
I am not saying this is going to happen tommorrow, but in the long term certainly.
Still, hoodles of people will still want to work there...............and I would be one of them. Even if prices in Sydney and Oz have become totally insane, it remains in my view one of the best places to live.
I have really never understood Aussie pilots leaving Australia to burry themselves in the sand or get buckets of water during the monsoon. ( I'm talking about those who DID have the choice to stay ).
So, copy your post but this remains QF least kept secret eversince your irish boss was hired.
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to maximise tax advantages and boost the numbers in the books, any sort of drastic action that would have been taken would be done before june 30 which is the end of this financial year. All redundancies payout is a tax advantage for the company as an operating expense.
This together with the European courts announcement of the amount of fines in millions of euros for criminal price fixing next month would fit nicely into the balance sheets as operating expenses for tax credit.
The fines will be way way more than the total cash payout for all redundancies combined from last years 1500 and this years 1750.
This together with the European courts announcement of the amount of fines in millions of euros for criminal price fixing next month would fit nicely into the balance sheets as operating expenses for tax credit.
The fines will be way way more than the total cash payout for all redundancies combined from last years 1500 and this years 1750.
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This together with the European courts announcement of the amount of fines in millions of euros for criminal price fixing next month would fit nicely into the balance sheets as operating expenses for tax credit.
Being Up Over and not Down Under I am not aware of this Qantas fine story. Would you care to enlighten me. This kind of news is usually all over the tele. The european commission loves to appear mean and strong.........thus essential to our welfare ( just jesting, in fact they are ) , specially now with the european parliament election coming up.
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I have read many news sources in the past about price fixing crimes in EEC, there has been precedence set where the fine is actually a percentage of the profit made during the period the crimes was committed. This was like a 3 year period the price fixing occurred. I would say with elections coming up (I am unaware which country) then it would be fair to say they would be even tougher on crimes to win more votes. After all, no citizens in their right mind (unless it is Australia, that's why Dixon got off a criminal sentence) would allow corporate criminal activities go un punished.
There are other threads on this forum that discuss the Qantas price fixing crime committed, it plead guilty to American courts so got off lightly with a business expense fine and a scapegoat who will go to jail for 6 months. It has also got off very lightly in Australia because the law in Australia did not deem price fixing as a criminal act. Now it is awaiting for the EEC courts judgment and NZ authorities judgment, The guilty verdict is a foregone conclusion.
There are other threads on this forum that discuss the Qantas price fixing crime committed, it plead guilty to American courts so got off lightly with a business expense fine and a scapegoat who will go to jail for 6 months. It has also got off very lightly in Australia because the law in Australia did not deem price fixing as a criminal act. Now it is awaiting for the EEC courts judgment and NZ authorities judgment, The guilty verdict is a foregone conclusion.
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Just bumming this thread as I think this is the most relevant. It seems the stand off between Qantas and the engineers last year has caused more problem. Air New Zealand has moved their contract for engineering to Cathay Pacific.
Air New Zealand to replace Qantas for engineering work | The Australian
Air New Zealand to replace Qantas for engineering work | The Australian
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Qantas Price Increase
Qantas has been bumping up what it charges for Ground Handling and Engineering for other carriers.
Many of these carriers have decided not to accept these increases and have either gone elsewhere or are in the process of setting up an in house alternative.
Qantas felt that they were providing these services on thin margins.
Its all about jobs.Many of those servicing other airlines but working for Qantas may sadly be out of a job.
Many of these carriers have decided not to accept these increases and have either gone elsewhere or are in the process of setting up an in house alternative.
Qantas felt that they were providing these services on thin margins.
Its all about jobs.Many of those servicing other airlines but working for Qantas may sadly be out of a job.
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Qantas has been raising charges to purposely price itself out of the third party ground handling market, thereby creating a situation where it "needs" 
to make staff redundant.
to make staff redundant.
Qantas has been bumping up what it charges for Ground Handling and Engineering for other carriers
Maybe I've just been lucky everytime I pass through. Or is this the norm and thats why they have to increase their charges?
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"How come when you go to Ausi it takes three guys to push you back when everywhere else it's one or two?"
Job building.
Jobs for the boys.
Industrial fat.
Blackmail.
Stupidity really. These inefficiencies are built into every facet of the way they operate aircraft. Such outdated practices are pushing QF to extinction.
Except the brand of course, it will survive. But the staff on current conditions will not.
Job building.
Jobs for the boys.
Industrial fat.
Blackmail.
Stupidity really. These inefficiencies are built into every facet of the way they operate aircraft. Such outdated practices are pushing QF to extinction.
Except the brand of course, it will survive. But the staff on current conditions will not.
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Job building.
Jobs for the boys.
Industrial fat.
Blackmail
Jobs for the boys.
Industrial fat.
Blackmail
Just look at the expenses that were incured with the previous segmentation strategy, multiple managements, administrative staff, inefficiencies due to lack of scale.
How many millions were flushed down the toilet with that now abandoned strategy?
The last publicly disclosed figure was there were approx 920 executives working for the Qantas Group.
In relation to the year ended 30 June 2004, Shares will be offered to approximately 920 Qantas
executives because Qantas achieved certain “balanced scorecard” targets set by the Board in
2003.
executives because Qantas achieved certain “balanced scorecard” targets set by the Board in
2003.
Managment numbers only expanded from there with the segmentation strategy.