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Airline Partners Australia will settle for 70 per cent ownership of Qantas.

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Fri day 13 April 2007

Airline Partners Australia will settle for 70 per cent ownership of Qantas


TONY EASTLEY: The $11-billion takeover of Qantas looks set to proceed after the prospective b uyers beat a retreat on some key conditions for the sale. 


The private equity group, Airline Partners, had originally wanted to buy 90 per cent of the airline and then mop up the remaining shares at a later date. But now they're saying 70 per cent will be acceptable. 


The about face means the Macquarie Bank-led consortium won't get full ownership of the airline. 


While not commenting specifically on the Qantas deal, the Treasurer Peter Costello has sounded another warning about the increase in company takeovers by private equity consortiums. 


Here's Business Editor Peter Ryan. 


PETER RYAN: In the take no prisoners private equity business, the matter of "having it all" is usually a deal breaker. 


But when it came to a jewel like Qantas the question and answer was about pragmatism, as Airline Partners Australia saw it's bid for the airline slipping from its grasp. 


BOB MANSFIELD: We are prepared to proceed with less than 100 per cent ownership of Qantas. 


PETER RYAN: With two key institutions refusing to accept the offer and blocking the original 90 per cent shareholder acceptance target, the consortium was faced with a deal faltering day by day. 


So, a new level of 70 per cent and a two-week extension to the offer was the hasty compromise announced late yesterday, by the raiders' chairman and chief spokesman Bob Mansfield. 


BOB MANSFIELD: Rest assured, we'd still like 90 per cent. The reality is with the public statements made by some shareholders in relation to accepting the bid, that's not achievable and when the reality hit home, we have to sit and ask ourselves, where do we move from here? 


PETER RYAN: While APA's raid on Qantas now looks more certain, it is a riskier deal. $4.5-billion will need to be ripped out of the company in the first year of a new look airline to help cover a heavier load of debt. 


And with only 70 per cent of control, Qantas will remain listed on the sharemarket and have to deal with its current highs and the inevitable lows. 


BRENT MITCHELL: The value of Qantas shares could go up and down and rise, so that affects the security level for the debt. 


PETER RYAN: Brent Mitchell, an aviation analyst at Shaw Stockbroking, says apart from the burden of reporting every significant movement to investors, Qantas will remain exposed to the major threats facing the global airline business. 


BRENT MITCHELL: You only have to have a situation like today where fuel prices or oil prices are up significantly or you have catastrophes in the airline industry both from accidents or from terrorists to put a significant dent in the share price and the sentiment on Qantas. 


PETER RYAN: The Treasurer Peter Costello has been one of the most vocal critics of private equity deals and the associated levels of debt and risk. 


PETER COSTELLO: That's what you're looking for in a situation here, to minimise the risk in the financial system of a very big collapse or a fall out from one of these deals done wrong. 


PETER RYAN: While not speaking directly about the Qantas deal, Mr Costello told Lateline that private equity exposure to international risk was a threat to the Australian economy. 


PETER COSTELLO: The fact that the money comes from overseas and then is spread generally between overseas borrowers does mean that international risk will play a big factor for these companies. That if their lenders are in other jurisdiction, then an event in that jurisdiction could actually trigger repercussions back in Australia. 


PETER RYAN: With debt and risk now a greater factor for Qantas, all eyes will be on the airline's share price today as investors react to the revised deal. 


TONY EASTLEY: Business Editor Peter Ryan.