Public Opinion

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Qantas: some questions « Previous | |Next »

December 4, 2008

Why the "potential merger" between British Airways and Qantas? Qantas is profitable, British Airways has financial trouble. Asia is the growth region not Europe. So why a deal of equals rather than a Qantas takeover? How would that merger of equals add value to Qantas? Is it a step towards building a global airline with a former cornerstone shareholder? Or is it simply the economic pressures of rationalisation in a global economy in recession?

The reason for the merger talk would appear to be the economic pressures in a global world to cut costs, rationalise routes, share resources and muscle up in purchasing from the manufacturing duopoly of Boeing and Airbus. Michael West in the Sydney Morning Herald says:

The merger is a good idea in principal. Airlines have extremely high fixed costs - they are capital intensive, labour intensive and fuel intensive - and around the world aviation companies have been battered by high oil prices and are just now getting hit by an acute downturn in the global economy.And while BA has a large pension deficit to fund, Qantas has a fleet to upgrade. This fleet ain't no spring chicken, being as old as any in the developed world...the average age of a jet in the Qantas mainline fleet is 11 years.

West argues that the world must embrace the notion that the era of individual national carriers must soon come to a close. That's the dynamic of globalization.

Yesterday's Government Green Paper on aviation raised the prospect of lifting the foreign ownership cap from its present 25% to 49% so things are moving in favour of the deal. Maybe there are other mergers in the wind---one of its Asian rivals, or a United States carrier? Consolidation looks to be inevitable. Presumably the Macquarie-led private equity consortium that tried to take over Qantas is looking for some action.

| Posted by Gary Sauer-Thompson at 6:24 AM | Permalink

| Comments (4)

Comments

If the Qantas deal with Allco and its Airlines Australia private equity consortium -the one proposed by the regime of Geoff Dixon and Margaret Jackson at Qantas--had gone ahead, then a debt-ladened Qantas would be really struggling to repay the interest on its debt out of its cash flow.

Posted by: Peter S Stock | December 4, 2008 7:15 AM

From what I can see, Qantas takes on Ba's debt load in return for access to Ba's routes. If things get quiet they can always sack a few thousand, saying the decison came from offshore ( yes, I know the govt, says head office ought to stay here, but there would be an "angle").
As Gary says, evangelises almost, wonderful new synergies in this globalised post nation state world that bypass locales and communities.
An extreme example could be Zimbabwe?
ps, wasn't so much of the movie "Wall St" about asset-strippers getting at an airline at the expense of the company and its workers?

Posted by: paul walter | December 4, 2008 9:54 AM

Let Qantas fly free is the cry from those in the financial market. A corporate deal is a corporate deal. To hell with opportunistic nationalism and patriotism. The Government should step out the way and let the market decide on the merits of cross-border mergers. It's a harsh world out there, and Qantas cannot afford to hamstrung by outdated notions of nationalism.

So speakth the Australian Financial Review.

Posted by: Nan | December 4, 2008 12:19 PM

Paul,
It may not happen. British Airways has also been in merger talks with Iberia in Spain. for five months,They had had no knowledge of the BA talks with Qantas, which BA has been running in parallel and in secret.

BA looks to be the vulnerable link as it tries to tie up markets.

Posted by: Peter S Stock | December 4, 2008 4:40 PM