Qantas announces intention to acquire the remaining 80% of Alliance (ASX:AQZ)

[Must...Fly!]

Curious why it's OK for competition between aircraft operators but not OK for handling agents?

No one has said that it is not OK for competition between ground handling agents.

It is ALL about the process.

because they're pretty much two ends of the same stick.

They absolutely are not two ends of the same stick. Maybe they are if the proper legal process of undertaking a merger or an outsourcing are followed, you could argue that. But in the examples we are talking about here they are not. And that might have to something to do with ASX listing rules, but then again, there are examples where Qantas has potentially fallen foul of these as well over the years. However given that has never been legally challenged (to my knowledge) that is mere conjecture and accusations, unlike the ramp services outsourcing debacle.

 

[justinbrett]

It is ALL about the process.

Right, you're talking about process, I'm talking about end state.

Let's leave it at that.

 

[Must...Fly!]

Right, you're talking about process, I'm talking about end state.

Let's leave it at that.

You can't reach the end state without process to get there.

Let's leave it at that.

 

[RooFlyer]

Curious why it's OK for competition between aircraft operators but not OK for handling agents?

I think its to do with Federal Competiton policy which in turn I think turns on barriers to entry. The barriers to entry in the airline industry are high, but not prohibative. Barriers to a successful entry are very high, especially withthe type of predatory pricing against new entrants (or entants on new routes) that Qantas has been accused of.

Dunno about barriers to entry of a handling business (or catering). Not that high, I'd think; successful entry higher, but nothing like establishing an airline.

I don't have strong opinions on either matter, I'm just challenging the views, because in my mind there's at least an element of hypocrisy to being against both outsourcing and merging - because they're pretty much two ends of the same stick.

Well, I'd have to disagree ( )- outsourcing provides business to a wider field. In the case of DNATA being spun out of Qantas (via EK), it created a new busness in the field. Merging is by cefinition decreasing the players on a field.

BTW, have you heard the old joke from Engalnd? "Why is there only one Monopolies Commission?"

 

[justinbrett]

Well, I'd have to disagree ( )- outsourcing provides business to a wider field. In the case of DNATA being spun out of Qantas (via EK), it created a new busness in the field. Merging is by cefinition decreasing the players on a field.

You said you disagreed but went on to state nothing that I disagreed with - so let's take that as a win.

The trouble is Alliance is growing specifically to serve the QF contract. They would not be operating a fleet that size if it wasn't for the wet lease. So I think we all have to agree this is a good thing - it's created a lot of jobs and improved connectivity for passengers. In the capitalist world we live in, it's a case of the same people doing the same jobs, they just change uniforms every time there's a contractor change. This is over all industries.

The competition aspect is from the charter arm of Alliance - not its wet lease contract for QF - so I guess if it gets blocked, QQ could split in two, and just sell the QF contract arm to QF and keep its own ability to conduct charters; similar to what happened with National Jet.

 

[RooFlyer]

You said you disagreed but went on to state nothing that I disagreed with - so let's take that as a win.

Sure, if you think this a competion. I don't.

 

[justinbrett]

Sure, if you think this a competion. I don't.

I make what I thought was a generous concession and you burn me like that... ouch!

 

[RooFlyer]

I make what I thought was a generous concession and you burn me like that... ouch!

Ah, apologies - I didn't read it like that.

 

[justinbrett]

Ah, apologies - I didn't read it like that.

"Let's take that as a win" = Good outcome for both (we agreed on something).

 

[jakeseven7]

Well there is a tonne of competition in Australia right now.

You have two established foreign owned airlines (VA2 and Rexy) backed by seemingly limitless piles of foreign private equity cash.

We have Bonza launching shortly with another endless supply of cash from their backers.

Then you have some nimble little regionals darting around making some reasonable money.

I think it’s pretty reasonable to assume the deal will go through.

 

[Must...Fly!]

I think it’s pretty reasonable to assume the deal will go through.

On the face of it, yes. When you look in to the detail though, this is all about Qantas wiping out competition in the regional small jet market.

 

[HS-TQE]

On the face of it, yes. When you look in to the detail though, this is all about Qantas wiping out competition in the regional small jet market.

Well there is a tonne of competition in Australia right now.

You have two established foreign owned airlines (VA2 and Rexy) backed by seemingly limitless piles of foreign private equity cash.

We have Bonza launching shortly with another endless supply of cash from their backers.

Then you have some nimble little regionals darting around making some reasonable money.

I think it’s pretty reasonable to assume the deal will go through.

If they were talking about RPT services only, it could be assumed that's the case.
The concerns raised would be the FIFO competition rather than RPT services, especially if JS and/or JH from their PE operated carriers does put up a good argument to block a full take over.

But as justinbrett has stated, if ACCC does raise concerns with the FIFO side of things, Alliance could just split the wet-leasing arm (E190) and FIFO arms, and sell the former (wet-leasing arm) to QF. Similar to when Cobham Aviation sold off the National Jet Systems subsidiary (717 operations) to Qantas 2 years back.

 

[Must...Fly!]

Agree that if it was RPT only, then there is a very different argument to be had about competition.

But then what are Qantas buying, exactly? I would have to think the real value of this deal to the Qantas executive lies in the profitability of the charter services operated by Alliance.

 

[justinbrett]

Agree that if it was RPT only, then there is a very different argument to be had about competition.

But then what are Qantas buying, exactly? I would have to think the real value of this deal to the Qantas executive lies in the profitability of the charter services operated by Alliance.

Why did it buy National Jet?

 

[Must...Fly!]

Why did it buy National Jet?

In the middle of the pandemic with a market in turmoil, it was certainly a/the time for bigger players to swallow smaller ones. But if I'm not mistaken it had been at least been thought about pre-COVID and I daresay by the time May 2020 rolled around, Cobham was pretty happy to sell it at a price given, at that time, there was no indication at to when the recovery would come. And Qantas wanted small jets in Melbourne again. They've also been partners for eons.

Alliance have been flying E190s since October 2020. Signing contracts and getting Alliance to commit to a new fleet type with Qantas commercial backing, then looking to purchase them 18 months later? Unless I'm missing something, it doesn't seem to be a great deal if you don't also acquire a very profitable charter arm (which is where the competition concern lies). If that is thrown out by the ACCC then I guess they can go back and just talk about buying the 190 operation, but not exactly sure why Qantas would want those in house...

 

[amp-qld]

We've had some really good deals with Alliance from the Sunshine Coast to Cairns, Canberra and Ayers Rock. I can't see Qantas prices/offers matching Alliance.

 

[farmboy]

I thought the ACCC wasn't particularly impressed the first time when they acquired 20%? I can't see how this will fly (hah!), also considering VA uses some of their planes, don't they?

All seems kinds of weird as well if they've signalled their intention to buy the A220 family of aircraft but will inherit all the Fokker and Embraer aircraft that Alliance has.

Qantas is offering $4.75 for each Alliance share (in Qantas shares). Alliance is trading at $4.14, so clearly the market has zero expectation that the deal will go through.
However there is a big risk to QAN because if its share price falls, they will have to issue even more shares in payment as the price falls, seriously diluting present Qantas shareholders’ interests.
Conversely, if the Qantas share price rises, the deal becomes cheaper for them.
So there is plenty of incentive for the Qantas execs to work on raising the share price.

 

[justinbrett]

Qantas is offering $4.75 for each Alliance share (in Qantas shares). Alliance is trading at $4.14, so clearly the market has zero expectation that the deal will go through.

Can you elaborate? That's not clear to me.

 

[dajop]

Qantas is offering $4.75 for each Alliance share (in Qantas shares). Alliance is trading at $4.14, so clearly the market has zero expectation that the deal will go through.

Whilst these things aren’t an exact science, I would have thought that given that $4.14 is about 60c higher than the share price before QF announced their intention, but still about 60c lower than the offer, the market is seeing significant risk … but not zero expectation. Perhaps 50% chance of the deal going through?

 

[Must...Fly!]

It might, it might not. Question is if Qantas sees value then someone else might (private equity perhaps) too if the deal falls over