It was hardly a ringing endorsement of the Qantas-led marriage plans with British Airways.
Our market punted the Qantas shares up 8.4% by just after 11am to $2.44 after they had touched $2.47. That was a more sedate rise than the 11.7% jump in BA in London when the airline confirmed Crikey’s story of yesterday that merger talks were underway.
The Poms get all excited by big shiny deals involving airlines. No wonder: Qantas is a bigger, stronger and more profitable airline than BA which is struggling with the badly recessed UK, US and European markets.
So Qantas wants to merge, sort of, with British Airways, which wants to merge with Iberia, and American wants to join the dance club too, but without paying a dowry.
Is this another version of last year’s failed Airline Partners Australia bid for Qantas? Instead of private equity groups and Macquarie Bank buying, it’s said to be a “link up of equals”. But Macquarie and UBS are there again with their hands out for fees (they were key players in the APA bid).
It’s yet another example of the mad, bad belief that big is good and consolidation is the only way to go in aviation.
It’s a line that mad enthusiasts like writers on the Financial Times, brokers in London, on Wall Street, in Australia and elsewhere strongly believe, because there’s a fee in it, income of some description, or perhaps its “rational”.
After the experience of the APA bid last year, we should ignore any pro-bid/deal comment from brokers or fund managers. Most didn’t cover themselves in glory.
It’s amusing that Macquarie Bank is still advising Qantas, despite its promoted $11.1 billion Airline Partners Australia bid for the carrier failed last year. Macquarie hasn’t met a fee or income stream it didn’t like. And there’s an added irony with talk UBS is to advise BA. UBS’s local investment arm, when headed by the principled Paul Fifani, helped kill the Airline Partners bid for Qantas. UBS’s investment banking arm was a big supporter of the merger.
This deal is structured differently to the APA bid, along the lines of BHP Billiton and Rio Tinto. Both dual listed structures are not good examples (But Brambles, when chaired by BHP head, Don Argus) abandoned its dual listed structure to save money.
Who will run it? On Tuesday night at the close of trading in London, Qantas had a market cap of $US2.8 billion before today’s rise in Australia and BA jumped 11.7% to be valued at $US2.7 billion. BA has 255 planes, Qantas 220. Qantas will earn a profit of around $A500 million pre-tax this year, BA has already lost 64 million pounds pre-tax in the September half year.
BA’s markets are deeply recessed: the UK, Europe and North America. Qantas at least is based in the still growing Asian airline industry. It’s international business travel has been hurt (especially to the US), but Qantas’ domestic business is solid and it has Jetstar, which outperforms the budget operations of BA.
Ryanair, the dominant budget carrier in Europe has again been rejected by Aer Lingus in yet another takeover offer, but some in London reckon that’s a sign Qantas and BA and others should link up.
BA has been talking to Iberia, but when the chats started mid year BA’s share price was higher than Iberia’s. BA’s share price is now much lower than Iberia, which thinks it will be the dominant partner in that linking (along the lines of Air France and KLM).
British patriots and others reckon that’s a load of cobblers and the UK Government is under pressure to oppose the deal. The Poms have already seen how poor Spanish management can ruin a prize UK asset.
The Spanish construction group and investor Ferrovial is being forced to sell two UK airports it picked up when it took control of BAA, which also owns Heathrow.
Between then Ferrovial and BA have managed to undermine the attractions of Heathrow through the botched opening of the new Terminal 3, and the poorly argued case for a new runway, which has triggered a huge backlash in the London area.
There are questions of whether both airlines can remain British (and European in the case of BA) and Australian to meet local aviation laws and rules. The competition regulator, the ACCC will force the Joint Services Agreement on the Kangaroo Route to London to be undone if the two link up. But the JSA has been undermined by the way BA has abandoned it to just one flight a day into Sydney, got rid of its local frequent fliers and lots of staff.
Then there’s the question of who is running this deal for Qantas: Geoff Dixon, or Alan Joyce. Qantas is supposed to have approached BA in August: Dixon had just confirmed his retirement at last week’s AGM and Joyce had the job. Who had carriage of the negotiations?
And isn’t it handy that the Qantas AGM passed by without it being raised. No chance for at least a year for shareholders to have a go at the board and management and Mr Dixon won’t be around.
Or will he?
Will he be appointed to the BA board?