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Airline Partners Australia may turn attention to British Airways -analysts

21-May-2007

Sydney (XFN-ASIA) - The Macquarie Bank Ltd led Airline Partners

Australia (APA) consortium may turn its attention to British Airways Plc following

its failure to gain control of Qantas Airways Ltd, analysts said.

They said speculation of such a move has intensified following Goldman Sachs issuing a research report ahead of British Airways' full year profit report on Friday.

The report saw BA as the 'jewel in the crown' in terms of attractiveness to potential private equity and M&A predators.
Adding to the speculation was the announcement by APA on Thursday that it would not mount a fresh offer for Qantas following its 11 bln aud offer failing two weeks ago.

The consortium also includes Australian listed companies Allco Finance Group Ltd, Allco Equitypartners, US buyout firm Texas Pacific Group and Canada's Onex Corp.

Centre for Pacific Aviation Derek Sadubin said British Airways is an attractive target, especially because of the number of gateways it has at London's Heathrow Airport, putting it in a key position to be a major player when the "open skies" deal between the US and Europe comes into effect next year.

Sadubin said private equity players could well be eyeing BA which, like Qantas, will require large amounts of capital when it embarks on a major fleet renewal program.

"That would be a fascinating play but I think the big issue for British Airways is that, like Qantas, they've got a huge capital expenditure requirement coming up and they need to be able to finance their new aircraft - we expect the renewal plan will be announced later this year ," he said.

"They will need dozens of aircraft to replace their existing fleet so they will need funding certainty going forward and I think that private equity players will be looking to fit the bill or maybe foot the bill," Sadubin said.

Meanwhile, analysts said, talk of APA turning its attention to BA saw Allco Finance and Allco Equitypartners make solid gains on the Australian Stock Exchange today when the overall market was weaker.

Aequs Securities head of institutional trading Ric Klusman said both stocks had run on speculation that APA may bid for BA.

"I heard a bit of talk about it but I don't know much more than that," Klusman said.

At 3:05 pm, here, Allco Finance was up 0.22 aud or 1.95 pct at 11.51 while Allco Equitypartners was up 0.04 or 1.02 pct at 3.98.

The S&P/ASX 200 was down 52.0 points or 0.82 pct at 6,313.9.

The speculation comes as Qantas chairman Margaret Jackson, who urged shareholders to accept the APA offer, announced she will retire at the airline's November annual general meeting.

Non-executive director James Packer will also retire but chief executive Geoff Dixon won the board's support to stay on until at least July, 2009.

The resignations came after a two-day board meeting - the first since the APA collapsed two week ago.


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