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Qantas bid subject to foreign ownership revie -

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Qantas bid subject to foreign ownership review

Reporter: Greg Hoy

KERRY O'BRIEN: The private equity bid to take over Qantas has also run into rough political waters.
Taking over the nation's flagship airline by a syndicate that includes a substantial bloc of
foreign money might not be such a great tactical move in a tight election year. In any event
Treasurer Peter Costello is talking tough about sticking to the letter of the law on foreign
ownership and the private equity partners have succumbed to pressure and agreed to have the deal
examined by the Foreign Investment Review Board, even though technically they don't have to. Unions
say the only way the $11 billion deal will pay off is by cutting jobs or shifting them overseas
and, while the private equity partners say there will be no guarantees about jobs, they see plenty
of potential for growth, especially with a flash fleet of new aircraft. Greg Hoy reports.

GREG HOY: Into the future. Futuristic avionics and global competition strategy will, it's argued,
have as much of a bearing on the outlook for Qantas as the ongoing debate over the $11 billion raid
pending for the private equiteers' consortium of private and foreign investors.

BOB MANSFIELD, AIRLINE PARTNERS AUSTRALIA: I think we hopefully calmed things down a bit today by
filing a Section 25 application. That accesses an independent process that will now be followed
over the next 30 days and we're confident that we can answer any questions and provide assurances
that are required along the way. But to have that sorted out over the next 30 days would be what
everyone would like to see, I think.

GREG HOY: It all still requires the blessing of Canberra, where some have been talking tough.

PETER COSTELLO, TREASURER: There's a law in this country that says you can't have majority foreign
ownership of Qantas, and that law will be enforced.

GREG HOY: While unions have been talking tough to Government.

GREG COMBET, ACTU SECRETARY: The decisions about the future of Qantas will at least in part be
taken in board rooms in London, in New York, in Texas, where investors and lenders will have a
pretty big say in what happens in the company from here on in.

BILL SHORTEN, AUSTRALIAN WORKERS UNION: I'd like to see the majority owners be there for a long
time, not just a good time. So I think having a look at the duration of the deal is very important,
so that we don't see an artificial pumping up of prices like a bicycle tyre and gradually see it
deflate over time, because the people who have purchased it just really want to dress it up and
sell it.

GREG HOY: For all the rolling thunder, the signal from the top seems to be that the deal is almost
in the bag.

JOHN HOWARD: Bear in mind that the foreign investment law only operates if there is the potential
occurrence of an increase in foreign ownership levels, and what I've read in the papers doesn't
suggest to me that foreign ownership levels are going to go up.

GREG HOY: So will the cynics be proved right? Is Qantas soon likely to be stripped for resale, or
relocation? Or do the private equiteers see a greater opportunity in growing this business?

BOB MANSFIELD: With the introduction of JetStar, from the point of view of some operations overseas
that have only just started, and then in addition to that we also want to expand the Qantas network
and the newer aircraft both from a comfort point of view and also an efficiency point of view will
give new opportunities, and the details on that will be announced by management at the appropriate
time.

GREG HOY: And analysts like the Centre for Asia Pacific Aviation agree.

PETER HARBISON, AIRLINE ANALYST: That can either mean evolving back into its core, which is its
domestic operation where it's very profitable, particularly on regional routes. Or it can mean
getting out of Australia into much higher-growth markets, as liberalisation allows it to happen,
which means expansion. And if you look at it post equity buyout, that's really where I see the only
opportunity to make some real money out of this process.

GREG HOY: If you follow this logic, the $10 billion worth of new aircraft now on order will not
only change the face of the national carrier, it will carry the hopes of the takeover consortium to
make the $11 billion takeover deal pay.

PETER HARBISON: It's one thing to talk about cutting costs and, obviously, any airline today has to
be very brutal with costs, but there just isn't the fat in Qantas to make enough money to justify
an $11 billion investment unless you can really leverage the growth of Qantas and leverage off the
opening up of Asian markets, for example. That's really where you want to be to get the high growth
markets.

GREG HOY: And, here's how. With a total of around 70 new aircraft for starters, predominantly the
Boeing 787 and Airbus A380, Qantas expects to increase its carrying capacity by 40 per cent. Longer
range, and with greater fuel economy. Savings from the new aircraft will be augmented by a
long-planned and aggressive push into Asia and elsewhere overseas, led not so much by the Flying
Kangaroo but by JetStar. With a cost base 30 per cent below that of Qantas, JetStar will soon
represent 22 per cent of Qantas's international flights. 70 per cent of JetStar's flights will be
international. It will grow to become ten times the size of the low cost airline Qantas established
just two and a half years ago. Money in the bank for the debt laden partners, but will it be enough
to eliminate the need for serious cost-cutting?

BOB MANSFIELD: Well, in fact, both have to be achieved if we're to achieve our ideals, and I'd
suggest the ideals of even the existing Qantas board.

GREG HOY: And that's what scares the unions. The arguments have been heard. The future of the
national carrier is now in the hands of the umpire.