Texas Pacific Group and Macquarie approach Qantas

Qantas Airways’s shares rose to record high and closed 15 percent higher today after the national carrier confirmed an approach by Macquarie Bank and Texas Pacific Group.

Macquarie Bank and Texas Pacific Group have approached Qantas Airways on behalf of a consortium they represent about a possible buyout worth over A$10 billion ($7.7 billion; €6 billion). The interest from the US buyout firm has sparked concerns of foreign ownership in the national carrier of a country that has witnessed a string series of foreign private equity ‘approaches’ in recent months.

In a statement filed to the exchange, the Australian carrier said the approach “is confidential and incomplete and is being investigated by Qantas.”

The Qantas statement was followed by a separate statement from Macquarie Bank confirming it is part of a consortium that has held “indicative discussions” with the airline.

The statements were issued after the Australian Financial Review, a local daily, citing market sources as saying that the deal would involve Macquarie and associates taking a 25 percent stake, other Australian investors, 25 percent, and international players led by Texas Pacific Group, 49 percent. Qantas senior management will get one percent.

“Obviously, with the foreign ownership cap, there will always be a majority Australian ownership of Qantas,” deputy prime minister Mark Vaile was quoted as saying in local press reports.

Individual foreign shareholding is capped at 25 per cent and total foreign ownership at 49 per cent.

“I can confidently predict you will never see the (flying kangaroo) moved off the tail of Qantas aircraft,” Vaile was quoted as saying in The Australian.

Australian Services Union warned ordinary Australians would not fly with Qantas if it was taken over and its assets sold off.

Linda White, the airline industry union’s assistant national secretary said in a report by The Daily Telegraph, an Australian newspaper: “People fly Qantas because of the standard of safety and the service that they get, and the public are not stupid. American equity people might think we are stupid but we are not.”

Macquarie made an attempt to assuage concerns. It said: “If a firm proposal is made, that proposal will adhere to the existing rules governing the ownership of Qantas, in particular that there will be continuing majority Australian ownership.”

Texas Pacific Group, which has just raised more than $15 billion for its latest private equity fund, has been investing in airlines for over a decade. Its investments include US Continental Airlines, European discount carrier Ryan Air and Tiger Airways, a low-cost carrier based in Singapore.

Qantas shares closed 15 percent higher at A$5.00, after trading today at a record A$5.25, valuing the group at A$9.9 billion.

Qantas posted a 26.6 percent decline in profit before tax of A$671 million for the year to 30 June owing to high jet fuel prices. The carrier showed “strong cashflow from operations despite the decline in profit which, after capital investments and other financing costs, saw the airline’s cash position improve by $998 million to just over $2.9 billion,” according to its most recent annual report.