Qantas is up another couple of cents this morning after enjoying a strong run yesterday on the rumour printed in the AFR that a private equity mob is running the ruler over it, with Qantas giving a firm an exclusive month of due diligence.

Qantas is saying nothing but there’s no shortage of speculation on just how and if it could be done. The thinking mostly goes that while it would be difficult to get around the foreign ownership restrictions the airline has been lobbying against for years, it wouldn’t be impossible thanks to the Channel Ten and PBL Media precedents of using convertible notes to pretend they don’t have ownership.

The bigger question remains: why? There are plenty of airlines that need better management and restructuring, but that’s what Geoff Dixon has been paid his millions to do for the Roo. As the AFR ventures today, airlines are not classic leveraged buyout targets, but it has been done:

Indeed, Texas Pacific Group (whose executives have been in town this week to see their Myer investment) has put money into several US airlines in the past 15 years, including Continental Airlines and US Airways. Generally, those airlines were in dire straits at the time. Qantas is in better shape and would not be the easiest company to take over.

Well if the Qantas pilots and unions think the present regime is tough, they could find a whole new level of bottom-line awareness with private equiteers.

And there is another option of course. Qantas, with or without the A380, has some major capital expenditure coming down its runway. The airline has long complained the foreign ownership restrictions mean a higher cost of capital.

Geoff Dixon sits on the PBL board and has just seen how a partial sale can bring in the dollars and how willing banks are prepared to lend to funny structures on a non-recourse basis……

Yes, unlikely but not impossible.

Peter Fray

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