If the APA bid for Qantas seemed unwelcome in Canberra in an election year, wait until a post bid campaign to get the foreign equity cap lifted hits the fan.

A determined attempt by Dixon and Jackson to overturn the 49% foreign domiciled shareholder limit is the only thing that would save the share price and perhaps their credibility if the deal is dropped.

In 1997 just after News appointed him CEO of Ansett for the purpose of selling it, Rod Eddington said a Qantas without an equity cap was a $10 share.

The lust for a “properly valued” share price saw James Strong as CEO and Gary Pemberton as chairman rail against the absurdities of the Qantas Sale Act of 1992 with as much ferocity as the Dixon and Jackson team.

All to no avail.

But then along came Texas Pacific Group principal, general partner and founder David Bonderman with the makings of sweet revenge, a buyout that would give Qantas the share price it “deserved”, and make the stubborn old fool in Canberra pay for it with political blood.

The core argument that Qantas unsuccessfully tried to make about the foreign equity cap was that in time it guaranteed the airline would fail.

Playing a global game with the handicap of a local instead of global share price and consequentially larger and more costly borrowings would see carriers like Singapore Airlines, and more recently Emirates and Etihad, eat it alive, a process that the Jetstar International strategy has in its early stages shown no sign of stopping.

If, the argument goes, there had been no foreign equity cap, the higher valuation of Qantas stock would have encouraged rather than diluted Australian ownership, the overdue modernisation of fleet and product would have started sooner, the earnings per share would have climbed higher faster, and the share price would have never been within reach of private equity raiders.

But now, Qantas has little political capital left to spend in Canberra. It is “on its own” as Costello warned the APA partners would be the case in February.

Toll, or whomever ultimately owns its controlling stake in Virgin Blue, will never be limited by a foreign equity cap to curb whatever funds it might direct into its domestic and international operations.

Some evidence of the new reality for Qantas can be seen in the Canberra office of transport minister Mark Vaile, where the collection of Qantas models has been joined by a Virgin Blue Boeing 777-300ER of the type that will make its new international division the second Australian flag carrier to the US next year.

Vaile says he will fully support any Virgin Blue application for capacity to other markets, such as the kangaroo routes to Europe if it wants them as the traffic rights come up for reallocation.

Virgin Blue’s commitment to $1.5 billion worth of new Embraer jets, the largest investment any airline has ever made in regional aviation in Australia might have helped a little. The political card that Qantas has always played over guaranteed country services has been cancelled.

And David Bonderman, portrayed inaccurately as being a source of “patient capital” by APA, may yet do what he did to the Lew-Fox Tensa bid for Ansett two weeks before it imploded, and decide the figures no longer stack up and pull out.

Peter Fray

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