It’s all go for the Mangled Roo. Not only are the private equity sharks sniffing around the airline, nicely boosting the fortunes of the management and shareholders but the recent fall in oil prices and the slowness to ease its fuel charges have boosted earnings.

The airline announced today that it was now expecting 2007 earnings before tax to be “30 per cent” above what they were in 2006 when the airline earned $671.2 million EBIT.

That was down 26.5% on the $914 million earned in 2005, so a 30% rise this year would take earnings back to 2005 levels. The shares jumped back over the $5 mark, trading around $5.04 at 12.30pm

“As a result of strong trading conditions and subject to fuel prices remaining around current levels, (Qantas) expects its reported profit before tax for 2006/07 to be 25 to 30 per cent above the 2005/06 result,” the airline said in a statement.

The airline lifted profit expectations at the AGM in October when shareholders were told it expected its 2007 result to exceed the prior year’s, but no firm numbers were provided.

At the time, Qantas chairman Margaret Jackson said trading conditions had improved since the company’s earlier forecast in August for fiscal 2007 pre-tax earnings in line with the prior year. The improvement will also put the weights on the Macquarie Bank/Texas Pacific group which is trying to snuggle up to the airline for a friendly buyout deal.

A decision could come next week from the airline’s board on whether to give the buyout group access to the accounts and books to do due diligence. It has been reported that the group would offer $5.50 a share for that right but after today’s upgrade there would have to be some doubt on the bid.

The other complication is the falling value of the US dollar which increases the cost to the buyout group and improves Qantas’ operating margins because its fuel and many of its day to day operating costs are priced in US dollars.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey