Qatar Airways Near to Acquiring up to 20% of Virgin Australia

[RooFlyer]

What’s wrong with an Australian airline owned by (at least some) Australians? Why does it have to be owned by a foreign government?

It doesn’t have to be a foreign government but opening up to foreign ownership increases the pool of capital that might be invested. This is a continual problem for Australian companies and including Qantas which has always wanted the Qantas Sale Act to be scrubbed so it could attract more foreign investment.

I would always prefer an Australian owned company operating in Australia, but I prefer a good competitive airline environment more. As we have seen multiple times, there simply isn’t enough capital in Australia willing to invest in airlines where Qantas has such a baked in market share & advantage.

And with respect to control etc. discussion above, if QR invest now, it be very easy for them to lock in an operating agreement with Bain without any other messy shareholders to deal with, except maybe small Queensland stake I think. In fact, I’d expect QR to make some sort of operational control or influence a condition of investment. If I’m an airline, I don’t think I'd really want to invest in an entity that has venture capitalists running it.

 

[MooTime]

Yeah, I didn’t think you’d have an answer either.

The same answer has been provided multiple times up thread.

<redacted>

 

[justinbrett]

It doesn’t have to be a foreign government but opening up to foreign ownership increases the pool of capital that might be invested. This is a continual problem for Australian companies and including Qantas which has always wanted the Qantas Sale Act to be scrubbed so it could attract more foreign investment.

I would always prefer an Australian owned company operating in Australia, but I prefer a good competitive airline environment more. As we have seen multiple times, there simply isn’t enough capital in Australia willing to invest in airlines where Qantas has such a baked in market share & advantage.

And with respect to control etc. discussion above, if QR invest now, it be very easy for them to lock in an operating agreement with Bain without any other messy shareholders to deal with, except maybe small Queensland stake I think. In fact, I’d expect QR to make some sort of operational control or influence a condition of investment. If I’m an airline, I don’t think I'd really want to invest in an entity that has venture capitalists running it.

But again, VA1 had 60%+ run by three world class airlines, not venture capatalists. And that failed rather spectacularly.

Qatar will never be given majority control so I’m struggling to see the difference. It seems many here just want VA turned into QR Australia and that’s just not going to happen.

I don’t doubt for a second why QR would want a larger share (mostly for political influence and boost QR itself) but I don’t see why an Australian would want this to happen, except for the misbelief VA will turn into QR and if you believe that I’ve got a bridge to sell you.

The current strategy is probably closer to UA Australia and that seems to be working. I was under the impression most VA loyalists here were very happy with the airline but after this thread I’m now feeling there is a lot of unhappiness.

 

[tmdl]

But again, VA1 had 60%+ run by three world class airlines, not venture capatalists. And that failed rather spectacularly.

Qatar will never be given majority control so I’m struggling to see the difference. It seems many here just want VA turned into QR Australia and that’s just not going to happen.

I don’t doubt for a second why QR would want a larger share (mostly for political influence and boost QR itself) but I don’t see why an Australian would want this to happen, except for the misbelief VA will turn into QR and if you believe that I’ve got a bridge to sell you.

The current strategy is probably closer to UA Australia and that seems to be working. I was under the impression most VA loyalists here were very happy with the airline but after this thread I’m now feeling there is a lot of unhappiness.

I just want more QR redemptions in J & F

 

[PERLHR]

But again, VA1 had 60%+ run by three world class airlines, not venture capatalists. And that failed rather spectacularly.

Qatar will never be given majority control so I’m struggling to see the difference. It seems many here just want VA turned into QR Australia and that’s just not going to happen.

I don’t doubt for a second why QR would want a larger share (mostly for political influence and boost QR itself) but I don’t see why an Australian would want this to happen, except for the misbelief VA will turn into QR and if you believe that I’ve got a bridge to sell you.

The current strategy is probably closer to UA Australia and that seems to be working. I was under the impression most VA loyalists here were very happy with the airline but after this thread I’m now feeling there is a lot of unhappiness.

You can certainly talk like a salesperson....I want a big bridge please. For me I like VA generally. I would also like to see them get an another opportunity to expand. V1 was not with Qatar. We don't know what influence they can bring. However I like the airline. I don't like Qantas. They are on my view offering nothing to the Australian public. Why should any Australian be proud of Qantas? They are a known throughout the world as being generally shabby. Maybe if the drop their bed partners at EK and embrace OneWorld and hence Qatar, could be a different story.

 

[simmomelb]

I just want more QR redemptions in J & F

I feel the same, I would be more than happy for Qatar to take a slice of VA, if this means customers benefit more
Come on Qatar & VA, get Project Doubles over the line with the Foreign Investment Review Board.

 

[justinbrett]

I don't like Qantas. They are on my view offering nothing to the Australian public. Why should any Australian be proud of Qantas? They are a known throughout the world as being generally shabby. Maybe if the drop their bed partners at EK and embrace OneWorld and hence Qatar, could be a different story.

If that view is held by enough people VA should thrive and have no problems competing with QF, even without a foreign airline running it.

 

[simmomelb]

Australians can be a "sticky" bunch, we see it with Telstra, Qantas, Bunnings, Colesworth etc, where these brands can metaphorically spit in their face, and Aussies keep returning.
Competitors come (and leave) because they can't break through this.
I've noticed this to be particularly true with the older generation.

 

[elanshin]

The problem every pushing for more QR stake is that right now it'll never fly from a government approval pov. There's 0 chance of QR being allowed a bigger stake in VA if the government won't even give them more slots.

~20% is enough of stake as an investment and some influence, but not enough to majorly influence the running of the company. Even this will likely get scrutinized.

The fear (and this is rightfully so regardless of how anyone feels about QF) is that QR comes in and in their feud with QF massively subsidies VA in a loss leading exercise and cripples QF. Whilst we have laws against that officially, there are ways to make it not that obvious.

In the long run, again regardless of how anyone feels about QF right now, we need both QF and VA to exist (and ideally more - if JQ wasnt QF controlled it'd have been a nice balance).

 

[Saab34]

I would expect QR to gain a small increase to its allocation with its recent application. Perhaps one daily flight, they won’t be getting the full lot, as they have never done in previous applications over the last decade.

 

[RooFlyer]

But again, VA1 had 60%+ run by three world class airlines, not venture capatalists. And that failed rather spectacularly.

Qatar will never be given majority control so I’m struggling to see the difference. It seems many here just want VA turned into QR Australia and that’s just not going to happen.

If you can’t see the difference between three major Airlines having competing stakes in a small airline then I don’t think there’s much more to say on that aspect.

What do you mean by “majority control “? You don’t have to have a majority equity stake to have control. There is obviously the Corporations Law to observe but when there’s a 20% or so divestment by venture capitalists to an airline, then again control could be easily obtained with just 20%. Bain and QR could simply contract that even with a 5% stake by QR. Subject to FIRB, always.

happen.

I don’t doubt for a second why QR would want a larger share (

I certainly do doubt that they would want more. 20 to 25% seems to be the investment level in the other airline entries they have stakes in. If they have operational control or substantial operational say, then they don’t need any additional equity. They can’t control the cash flows unless they get over 90% (for a listed entity at least) and as you say, they simply wouldn’t be allowed to get anywhere near that.

 

[PERLHR]

I would expect QR to gain a small increase to its allocation with its recent application. Perhaps one daily flight, they won’t be getting the full lot, as they have never done in previous applications over the last decade.

See, I have a fundamental problem with that. Emirates, the bed buddy of QF has no less than 119 flights a week between their home base and the UK. Yes 119!! Don't see BA scream and shout that loudly. They should perhaps! EK have a good handful into Australia. How do they compare with QR in numbers? It's airline business and airlines need to compete. I know that is a word not in the dictionary of Qantas. This might allow (I don't know) better leverage for VA to do just that...compete. if foreign investment (like.just about in every other industry there is) allows for that then great.Australia sonetimes I feel, has for some reason dillusions of grandeur

 

[elanshin]

See, I have a fundamental problem with that. Emirates, the bed buddy of QF has no less than 119 flights a week between their home base and the UK. Yes 119!! Don't see BA scream and shout that loudly. They should perhaps! EK have a good handful into Australia. How do they compare with QR in numbers? It's airline business and airlines need to compete. I know that is a word not in the dictionary of Qantas. This might allow (I don't know) better leverage for VA to do just that...compete. if foreign investment (like.just about in every other industry there is) allows for that then great.Australia sonetimes I feel, has for some reason dillusions of grandeur.

I don't think we'd have this debate if it was an US or other European or Non Chinese Asian airline looking to take over VA. In fact I'd imagine most people would be happy if VA morphed into a Jetblue.

It's specifically QR and their existing circumstances within the Aus market.

 

[justinbrett]

If you can’t see the difference between three major Airlines having competing stakes in a small airline then I don’t think there’s much more to say on that aspect.

I mean I don’t see how it will be a different outcome.

That’s interesting, do you believe the failure of VA1 was due to the three airlines disagreeing on the direction of the company? I’ve never heard that. All of them were full service airlines and it was, at least in my understanding, trying to make VA1 a full service airline that ultimately led to its demise. But that’s an interesting theory I’ve not heard much discussion on.

Would QR not want to take VA2 down the same path of being a full service airline?

What do you mean by “majority control “? You don’t have to have a majority equity stake to have control. There is obviously the Corporations Law to observe but when there’s a 20% or so divestment by venture capitalists to an airline, then again control could be easily obtained with just 20%. Bain and QR could simply contract that even with a 5% stake by QR. Subject to FIRB, always.

Let’s just call it effective control then. No chance. For one it would be counterproductive, if VA is perceived to be run by the Qataris that would hinder more than help in any negotiation with the government.

I certainly do doubt that they would want more. 20 to 25% seems to be the investment level in the other airline entries they have stakes in.

For sure, if they have effective control. But I don’t think they would at 19% and the FIRB should insist on that if it’s doing its job.

 

[RooFlyer]

That’s interesting, do you believe the failure of VA1 was due to the three airlines disagreeing on the direction of the company?

No. but I do think the three major Airlines might have had differing objectives and ideas for VA and so that would’ve hindered or blurred its direction. For example, one or two of the large Airlines might’ve been okay with, say a big capital injection but the other one or two might not have been. Stymied.

I can’t think of any large corporation with three significant industry investors which has ever been successful.

Would QR not want to take VA2 down the same path of being a full service airline?

I don’t know. I think one of their main objective would be to make VA the favoured path for Australians flying to Europe - connect through to QR flights and probably more importantly, offer those flying into Australia connectivity and code sharing on Australian domestic legs ( not just connections in, but any flying within Australia).

Sort of the same type of strategy that applies when we Australians are flying to say Europe or Canada or USA. I can fly any of the Airlines to those destinations but I really want to be able to fly domestically within those destinations on the same airline or network. If I’m flying to Canada, I will almost certainly fly Star alliance if I’m going to continue on flying with Canada after I arrive.

Sure that an ansalogy has limitations because QR and QF of course are in the same alliance already. But we don’t know what the final arrangements will be. That’s what makes QR’s possible investment in VA so intriguing.

Can you imagine a situation where Bain and QR apply for VA3 to be in Star alliance, but Velocity members can have the flight by flight choice of earning velocity points ( redeemable in SA) or Avios. Wouldn’t that be interesting!

 

[RooFlyer]

But I don’t think they would at 19% and the FIRB should insist on that if it’s doing its job.

As I said it, would simply be a contractual arrangement between Bain and QR. In fact, you really wouldn’t need any equity stake for a venture capital company like Bain to contract to have a third party airline operate it. I'm pretty certain that you’d find there is a some sort of management company operating the airline even today and I strongly suspect Qantas also has a management entity at the top.

But yes, FIRB would have to approve if the contract was a condition of the equity buy-in. But again, you have a venture capitalist selling down an approx 20% equity stake to an airline. That shouldn’t be controversial. So who then operates the airline? A venture capitalist as they do now? Or do they contract out operations? Who to? The former Rex management or the former Bonza managent? Or a successful world class airline Etc.

 

[justinbrett]

No. but I do think the three major Airlines might have had differing objectives and ideas for VA and so that would’ve hindered or blurred its direction. For example, one or two of the large Airlines might’ve been okay with, say a big capital injection but the other one or two might not have been. Stymied.

It very much sounds like you are saying that.

Not that I necessarily disagree, I just have never heard that before.

I don’t know. I think one of their main objective would be to make VA the favoured path for Australians flying to Europe - connect through to QR flights and probably more importantly, offer those flying into Australia connectivity and code sharing on Australian domestic legs ( not just connections in, but any flying within Australia).

So really it’s about entrenching QR into the Australian market and using VA to prop it up. Seems very NZ/AN to me.

As for the alliance, that just seems to be going back to the VA1 strategy except twice as hard with a full alliance membership. I don’t know why QR would push VA into star alliance, that would be very counterproductive feeding its rivals SQ/TK et al.

As I said it, would simply be a contractual arrangement between Bain and QR. In fact, you really wouldn’t need any equity stake for a venture capital company like Bain to contract to have a third party airline operate it. I'm pretty certain that you’d find there is a some sort of management company operating the airline even today and I strongly suspect Qantas also has a management entity at the top.

But yes, FIRB would have to approve if the contract was a condition of the equity buy-in. But again, you have a venture capitalist selling down an approx 20% equity stake to an airline. That shouldn’t be controversial. So who then operates the airline? A venture capitalist as they do now? Or do they contract out operations? Who to? The former Rex management or the former Bonza managent? Or a successful world class airline Etc.

Why can’t VA run VA?

 

[RooFlyer]

Why can’t VA run VA?

It’s difficulty reply to, because I’m not sure what you mean. A company doesn’t 'run' itself. Ultimately in most companies the chief executive officer effectively runs the company by appointing key managers and so forth and setting operational strategy and objectives ( witness Alan Joyce and QF). The board overseas the CEO's running of the company.

The CEO is appointed by the board who should be operating in the best interests of shareholders, in a private entity or a public one.

At the moment with VA, you have venture capitalists owning the airline with the past CEO still running it but we know that they are on the way out.

So there will soon be a new CEO. All QR would have to have written down is that with a approximate 20% investment they have the right to be 'consulted' (wink wink) on the appointment of key management.

Between Bain and QR, they would consult and come up with a CEO, who would be employed under a management contract. QR does not control the CEO but obviously the CEO should be aligned with both Bain and QR objectives. If he’s not, his contract will probably be terminated and we’ve seen this so many times in the Australian corporate scene.

if Bain and QR didn’t understand these sort of ground rules, they wouldn’t be talking at all.

This is all prior to the public float. Putting another good permanent CEO makes the float much more attractive than the current unstable position.

 

[justinbrett]

It’s difficulty reply to, because I’m not sure what you mean. A company doesn’t 'run' itself. Ultimately in most companies the chief executive officer effectively runs the company by appointing key managers and so forth and setting operational strategy and objectives ( witness Alan Joyce and QF). The board overseas the CEO's running of the company.

The CEO is appointed by the board who should be operating in the best interests of shareholders, in a private entity or a public one.

At the moment with VA, you have venture capitalists owning the airline with the past CEO still running it but we know that they are on the way out.

So there will soon be a new CEO. All QR would have to have written down is that with a approximate 20% investment they have the right to be 'consulted' (wink wink) on the appointment of key management.

Between Bain and QR, they would consult and come up with a CEO, who would be employed under a management contract. QR does not control the CEO but obviously the CEO should be aligned with both Bain and QR objectives. If he’s not, his contract will probably be terminated and we’ve seen this so many times in the Australian corporate scene.

if Bain and QR didn’t understand these sort of ground rules, they wouldn’t be talking at all.

This is all prior to the public float. Putting another good permanent CEO makes the float much more attractive than the current unstable position.

Your post read as if you were calling for the entire management of VA to be contracted out to QR. Other than the outgoing CEO, VA already has a suite of managers in key roles. Why would they need to be replaced? But your latest post is only referring to the CEO so perhaps I misunderstood your point.

I think that is less important as they’re not going to get a Qatari CEO and I’m sure they’ll find a suitable replacement for JH with or without QR. JH has objectively been a very good CEO and I don’t think VA needs QR to find a replacement. But even if they get consulted I’m not sure they’d pick any differently - a good candidate is a good candidate.

But again this all reads like some just want VA to be QR Australia.

 

[HS-TQE]

I would expect QR to gain a small increase to its allocation with its recent application. Perhaps one daily flight, they won’t be getting the full lot, as they have never done in previous applications over the last decade.

I'd suspect 1 daily + 1 daily (regional) package (on top of the existing daily 'regional package'), thus putting the likes of OOL, CNS or CBR into play.