Qantas ripe for Private Equity takeover

[fishers.ghost]

A LEADING airline investor believes Qantas is the ''perfect scenario for private equity'' firms making a takeover bid because it has attractive assets in Jetstar and is considerably cheaper than a year ago.
Richard Branson's right-hand man, David Baxby, said it would make sense for large investors to be ''running the numbers over [Qantas] because it has come down so far, so fast''.
Qantas shares have lost almost three-fifths of their value since the start of last year.
''Structured the right way, with the right management team and the right vision, [Qantas] is the perfect scenario for private equity,'' he said yesterday.
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''TPG, the people who were involved last time, must be opening the books again and having another look at it because those guys have a fabulous track record in making money in aviation.
''We have done some co-investments with those guys in the past, and I know how they think.''
A Texas Pacific Group-led consortium unsuccessfully made an $11 billion bid for Qantas in late 2006.
More than five years later, the plunge in Qantas' share price has prompted
While he represents the largest shareholder in Qantas' rival, Virgin Australia, Mr Baxby is seen as an authoritative voice because of his stint as an investment banker at Goldman Sachs and his oversight of several airline investments. The aviation assets of Sir Richard's Virgin Group include Virgin Atlantic.

[SOPS]

anyday now, anyday now its coming.

[StallBoy]

Yeh right plummeting traveller numbers and countries going broke, just the right time to be buying an airline!!!!
The same old "If it's australian it must be the best in the world " syndrome

[Flyingblind]

If the annalists thinking is correct then good. Get rid of the darn thing.

[Romulus]

Does it meet the basic criteria?

1: Is it a strong brand?
2: Does it have a lot of assets that can be sold (and leased back if need be)?
3: Can it sustain a lot more debt allowing funds to be taken out?
4: Is it experiencing an "image" problem with investors?
5: Does it appear to be badly managed so a "we will supply strong management" line will win over shareholders?
6: Is there an obvious exit strategy available via a trade sale, refloating or somesuch?

Tick those boxes and you have a target.

[scandistralian]

Hit the nail on the head Romulus.

I guess another alternative would be they sell off Jetstar to the Texans to boost cash and use it to weather the global doldrums for the next few years. It would be very interesting to see how Jetstar would perform without the backing of Qantas.

[swh]

Originally Posted by scandistralian

It would be very interesting to see how Jetstar would perform without the backing of Qantas.

Likewise, it would be very interesting to see how Qantas would perform without the profit from Jetstar.

[Sonny Hammond]

Ah yeah, swh, showing a massive lack of knowledge on this topic there buddy.

Any J* profits are entirely at QF mainline expense. J* has been gifted its very existence.
Read up, then post.

[Sunfish]

Could I be forgiven for thinking that Qantas has been deliberately "managed" into becoming a perfect morsel for private equity to purchase?

All the boxes Romulus mentions are ticked:

1: Is it a strong brand?
2: Does it have a lot of assets that can be sold (and leased back if need be)?
3: Can it sustain a lot more debt allowing funds to be taken out?
4: Is it experiencing an "image" problem with investors?
5: Does it appear to be badly managed so a "we will supply strong management" line will win over shareholders?
6: Is there an obvious exit strategy available via a trade sale, refloating or somesuch?

As I have said repeatedly before, all the Qantas problems are of its own making and are easily fixed.

I don't buy the line that Qantas International is "unprofitable" given the constant allegations of dodgy cost allocations from Jetstar to International.

I don't buy the line that Jetstar is "profitable".

The Qantas employee relations strategy is a disgrace - easily fixed.

The fleet problems can be solved - easily fixed, just go to Boeing like Ansett did around 1977 and ask for a complete makeover.

The U.S. Thirty year Treasury Bond rate is 2.57% today. Qantas can load up with cheap debt tomorrow - because its a strong brand and it has the Australian domestic market - and both sides of Parliament for the forseeable future - by the balls. Easy money.

Qantas management is bloated with multiple layers, including a "Group General Manager" level. - Easily fixed.

* Once Qantas is taken private, simply roll Jetstar and all the other "departments" back into one Airline - Qantas. Jetstar has served its purpose - Virgin has now moved up market.

* End the loss making foreign Jetstar programs - they just irritate Asian players, consume too much management time and attention and will never make money.

* Since the business is now private, no one needs to know about the cross subsidies Jetstar was receiving, nor the real state of profitability of the entire airline.

Polish the entire airline up with new lean management and a new lean management structure, buy off the unions, load it up with cheap debt, produce a credible fleet renewal plan and business plan and Voila!

......Qantas II. Refloat and walk away with billions.

Leaving the Australian general population still thirsting for decent cheap direct flights to the destination of choice.

[troppo]

and all this is based upon the premise that Qantas continues to exist

[Keg]

Maybe it's being managed this way to put real pressure on the government to change the Qantas Sale Act and perhaps some of the tax law relating to aircraft depreciation amongst other things. Once that's done then PE steps in and snaps it up.

Heck, even AIPA is campaigning in Canberra re the taxation issues!

[Cockpit Door-Closed]

As AJ let slip during an interview last year, it could be the Singleton/Dixon connection..........John Singleton and Qantas

[parabellum]

Singapore Airlines (SIA) have been trying to get into the Australian market for years, (they could have saved Ansett, in one form or another, had they not been blocked by NZ). SIA have the kind of equipment that QANTAS needs, B777 and A380 but above all they are cash rich with over 14billion dollars in the bank. If it ever got to a bidding war I suspect SIA would pay over the odds just to secure a major interest but I think Australian law prohibits a majority interest?

[TheWholeEnchilada]

"Never let a crisis go to waste" was the catch-cry of the previous iteration the pre-private equity management.

Or as a training Captain told me once, during a candidates training, if a "crisis" didn't appear, one would be engineered.

All the plans are sitting in the bottom draw, just awaiting the next crisis, real or engineered.

[Baileys]

Plenty of better uses for private money than buying a legacy airline that's only going backwards. It's a losing bet. Have a look at the competition. Qantas is getting killed on just about every front. You guys are wishing and dreaming. It's just going to bump along the bottom for years now going sideways or backwards.

[swh]

Originally Posted by Sonny Hammond

Ah yeah, swh, showing a massive lack of knowledge on this topic there buddy.

Any J* profits are entirely at QF mainline expense. J* has been gifted its very existence.
Read up, then post.

Sonny,

That is what QF drivers think to give themselves a nice warm feeling. Fact is J* makes a profit for QF as it has a much lower cost structure, and returns a greater return on the investment than QF international does. J* is an investment, it is not a gift, it returns real money, money that is paying for the inefficiency in QF mainline.

No route ever "belonged" to QF, the QF group can put whatever service it like on a route to generate the greatest amount of profit. Frankly I do not understand why QF domestic still exists these days, about time to ditch them all and bring back TAA.

If QF put all the cash it has invested in QF international in a term deposit, they would make more money, that is not the case with J*. QF pilots have no idea what real word terms and conditions are these days, you guys already signed your own demise. You got senior captains working what 15 out of 60 days, doing 600 hours a year, and SOs doing less, you could get rid of 400 pilots and still have enough crew to legally fill the roster.

Sounds unrealistic ? that is what QFs competition is doing, they have their crews working harder, their cost structure is much lower. Sad thing is, you cannot see it coming, you think you won. If Akbar Al Baker gets in, he will rip you guys a new $$$##### like he has done in Cargolux. Your heads will spin.

If QF does have a private equity takeover, the efficiency experts will be in, and terminations and redundancies will be given out freely until costs are under control.

Ever wonder why Qatar have advertisements in the back of every Flight International ? People do not last, you are worked like a dog, and sacked for anything from taking extra fuel, to being slightly fast on approach. No tolerance given, unless you are a local.

You will be nothing more than a taxi driver on some Arabs magic carpet.

This post was supposed to provoke you, people in QF still are living in another world. Be part of the process to secure your future, or roll over.

[Keg]

QF pilots have no idea what real word terms and conditions are these days, you guys already signed your own demise. You got senior captains working what 15 out of 60 days, doing 600 hours a year, and SOs doing less....

swh, I don't dispute that Qantas is not without it's issues.

However, if the above is an example of what you understand to be the 'normality' of the Qantas operation then I have to call into question the rest of your assertions if they're based in part or in full on the above. Your information way, way off the mark for 'normal' times. I'd also question where you're getting that information from? Wherever it is, you need to reappraise the reliability of said source given how inaccurate the information you've quoted actually is. If you're so far off the mark with these comments then what else are you off the mark on?

Of course, at the moment we are hardly in 'normal' times. There are some of us who are flying only 500 hours a year (although none of the crew on those hours would be 'senior captains', rather they're likely to be the junior ones) but that's as a result of a transfer of flying rather than any degree of inefficiency on our behalf. Any senior captain flying less than 500 hours a year is probably taking heaps of annual or long service leave and thus it's a liability the airline has been happy to accept over the years when the numbers were tight and they weren't farming flying out to the subsidiaries.

[Keg]

Further,

You will be nothing more than a taxi driver on some Arabs magic carpet.

So Qatari is held up as the beacon of aviation as a successful airline, and yet......

....people in QF still are living in another world. Be part of the process to secure your future, or roll over.

Being part of the process and securing our future to making a successful airline results in us being nothing more than a taxi drive on some Arab's (or Irishman's) magic carpet. You can't have it both ways here.

[Tankengine]

Only a few years ago the 747 guys were all pushing the 900 stick hour per year limit. How is that so inefficient? Wage differences would not be enough to bridge the gap between Qantas on high load factor and yield versus Jetstar with lower load factors and presumably yield. The difference in fuel due to old aircraft and the bloated ground staff of Qantas [some of whom do Jetstar work on Qantas pay] does make Qantas inefficient.

[swh]

Keg,

The info came from 74 skipper, he has only been in QF around 20 years, that must make him junior.

I have already flown 80 hrs this month, and I have another trip and a week on call yet to go, I will end up doing over 100 hrs this month. We would have 50+ guys and gals off work at the moment on my fleet as they have hit their max.

Make any excuse you like about things not being normal, in the mean time other airlines are expanding in and around Australia.

To me it is a classic example of QF not being able to adapt, and the work practices are part of that. The bid line system makes it hard for the airline to be flexible, when you are competing with airlines that do not have it.