Australia's Qantas to seek growth inr Asia after takeover - analysts

Private equity consortium Airline Partners Australia (APA) will seal one of the largest takeovers in aviation history if its 11.1-bln-aud bid proceeds after winning support from the Qantas board last week.

While board members were won over by a package that includes generous remuneration for top executives, misgivings remain in Australia about the bidders' intentions and the prospect of a national icon being controlled by an international consortium.

APA has repeatedly stressed that Qantas will remained Australian-controlled under the consortium, with investors including US-based Texas Pacific Group and Canada's Onex representing less that 40 pct of the group.

APA spokesman Bob Mansfield has also denied the consortium would adopt the tactics typically associated with private equity takeovers, ruling out a Qantas break-up and cuts to regional services.

Instead, Mansfield said APA will remain involved with Qantas for five to 10 years, pressing on with the airline's existing plan to spend 10 bln aud on 70 new aircraft to increase capacity by 40 pct over the next five years.

Centre for Asia Pacific Aviation managing director Peter Harbison said that if the pledges are met, Qantas would be well placed to meet the challenges of an increasingly-deregulated international aviation market.

While Qantas remains one of the world's most profitable airlines, Harbison said it could perform even better if it was delisted from the Australian Stock Exchange and placed in the hands of owners ready to make long-term investments.

"As a listed company in a small country at the end of the world, Qantas was not previously well-placed to survive, once global markets deregulated," he said, adding "the new ownership can go where the public company could not."

Harbison predicted the new owners would use Qantas' low-cost offshoot Jetstar as the vehicle for growth because it has lower cost and labour overheads than the main airline.

"As soon as the transaction is completed, it will not be surprising to see an acquisition-oriented Qantas begin moving into new Asian markets," he said.

"It is already represented in Singapore with Jetstar Asia. This model, along with direct minority acquisitions in existing airlines, either by Qantas directly, or by its new owners, will allow it to develop a serious foothold in such markets as China, India, Indonesia and other parts of Southeast Asia.

"In this way, the Qantas/Jetstar brand will become ubiquitous in Asia."

Prime Minister John Howard has made it clear the Australian government will be closely watching the transaction, pointing out the strong association voters feel for the flag carrier.

The Foreign Investment Review Board will check that offshore investors hold less than 49 pct of the airline, with no individual foreign company allowed to have more than 25 pct.

The competition regulator will also investigate whether there are antitrust issues surrounding Australian investment bank Macquarie's involvement in the consortium, as it also owns Sydney Airport.

But Credit Suisse analysts described the regulatory hurdles as "non-issues" in a note to clients, saying the deal had been structured to meet all government requirements.

They said the 5.60 aud-a-share offer, increased from an initial 5.50, was well above their 4.71 valuation of the Qantas stock and "concluded we would view favourably shareholders accepting the consortium's offer."

Credit Suisse said there was little prospect of a rival bid emerging because of the complexity of Qantas' ownership restrictions.