December 18, 2006
I've got a deja vu feeling around the current private equity deals ---2006 feels like the 1980s. Boom times. Only this time around we are talking in terms of excess global financial capital, not the Australian banks tossing money around after the deregulation of the financial markets in the 1980s. There is lots of money in private equity consortiums floating around looking for a home, there is the loading up companies with heaps of debt, and the debt, which if all goes to plan, is to be paid out of future cash flows. Wiil there be a sell off of parts of Qantas (eg., catering, frequent fliers etc) to realize value as well as the standard cost cutting? Private equity looks like financial trickiness, leverage, engineering and speculation to me.
The private equity consortiums are out to make money from capital gain. So who suffers? Will there be job losses? Less attractive working conditions (eg., less pay)? Reduced services for consumers? The costs of running Qantas are going to be cut for sure, and changes will be forced on the workforce. Jetstar is the future. There is no doubt about that. Who, then is making the money from the deal---the fund managers or investors? Macquarie Bank is looking increasingly rapcious and arrogant these days.

Bruce Petty
I have lots of questions about Qantas because there is some crafty spin around this deal to lull us into its just 'business-as-usual.' Does the private equity deal of $11.1 billion-- a buyout to all intents and purposes --- add value to Qantas, Australia's national carrier, in the long term? It may well mean an end of government protection for Qantas in international air routes. That would trim earnings. And how does the vertical integration between Qantas and Sydney airport by Macquarie Bank foster competition? What happens to cash flow and debt repayment for Qantas if oil prices soar with high debt ratios? Or if there is a global recession and there is reduced demand for airtravel?
Why not see the private equity consortiums as private equity raiders, or leveraged buy-out firms-- looking to make money from companies that are underperforming, have low debt levels, or are underpriced by the market. The funds borrow a high proportion of the money needed to pay for the takeover and, once completed, this debt finds its way onto the books of the target company. So the company becomes a lot more highly "geared" and this debt needs to be serviced. The private equity players hope to make their killing by refloating the company for a lot more than they paid.
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Same old Chestnut...Nobody complains when Australian companies go out in the world and buy up profitable businesses....Well no complaints from Oz anyway.
Yes there will be carve ups and job changing in the industry but this has been going on for a while now and at the end of the day it will be profits or losses that decide this as with any business.
Personally I dont care if the airplane has a kangaroo on it or Kiwi or a badger. As long as it gets there. Australia has very strict air safety regulations and this will not change.