Macquarie Bank has had some big earning deals in its days, but if it can pull off the Qantas play it stands to make as much as $1 billion on a $525 million investment in 3-5 years.

JP Morgan have had a crack at breaking down the multiple roles played by Macquarie and assessing the Qantas assets that it will flog off. This morning’s report includes the following:

On the initial A$11.1bn takeover offer Macquarie Bank will act as advisor to the APA consortium, joint equity underwriter to the A$682m capital raising by Allco Equity Partners (AEP) and debt arranger to the APA consortium for the estimated A$9.25bn of external non-recourse debt raised. Net we estimate this would see Macquarie earning upfront advisory/underwriting/arranging fees of circa 1.2% of the A$11.1bn QAN takeover offer which equates to A$130m to be booked when the Qantas transaction is completed.

However in 2007-08, given a sizable asset divestment program by the APA consortium, Macquarie could be expected to generate additional fees from this deal of circa A$300m to A$400m.

So what exactly are these Qantas assets that Macquarie will sell for the private equity owners? JP Morgan breaks it down as follows:

Airport terminals: up to $700m

Freight assets: up to $700m

Frequent Flyer program: up to $1.2 billion

Catering: $475m

Qantas Holidays: $295m

Total: $3.37bn

This total figure is close to the $3.5 billion of equity that is being put up by Airline Partners Australia. However, rather than paying off debt, most of which is non-recourse, the suggestion is that the proceeds from these asset sales would be used to make early capital returns or dividend payments to the investors.

If Macquarie Bank is receiving huge fees to sell off assets where the proceeds are then returned to the bank as equity, it would be very sweet indeed.

That said, the holders of $15 billion-plus in Qantas debt and liabilities would want to make sure the $900 million in annual tax deductible interest payments are well and truly covered.

And for that to happen, Geoff Dixon will need to really maintain all the government protection he can get whilst screwing the unions big time by replacing Qantas routes with his low-cost Jetstar alternative.

Peter Fray

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