Qatar in talks to take up to 20pc stake in Virgin

[RooFlyer]

20% to put it in simple terms is nothing more than a strategic stake. It simply guarantees the QR/VA agreement maintains its status quo.

It would also guarantee the offer of at least one board seat. Possibly more than one if the float was highly dependent on QR coming in.

The investment may also come with the strings attached - such as the right to appoint the CEO.

 

[RooFlyer]

It doesn’t even do that. If the other 80% want to go in a different direction QR doesn’t have a controlling share. QR would have a right to have a say through its allocated board seats but that doesn’t mean the rest have to comply.

With respect, that’s a bit naive. An investor with 20% is not going to invest unless there are reasonably sure that they will have at least de facto control. I think Bain says it intends to retain a stake and they are almost certainly going to be aligned with whoever the corner stone investor is.

Anyway, the board wouldn’t concern themselves with operational matters - thats the province of the CEO.

Whoever the Chair and the CEO are will be key I think. The chair will hopefully be independent but the CEO will certainly be the appointee of the controllers of the company - Bain, in consultation with whoever the cornerstone investor will be. CEO will have to be named before the float exposure period.

 

[justinbrett]

With respect, that’s a bit naive. An investor with 20% is not going to invest unless there are reasonably sure that they will have at least de facto control. I think Bain says it intends to retain a stake and they are almost certainly going to be aligned with whoever the corner stone investor is.

Anyway, the board wouldn’t concern themselves with operational matters - thats the province of the CEO.

Whoever the Chair and the CEO are will be key I think. The chair will hopefully be independent but the CEO will certainly be the appointee of the controllers of the company - Bain, in consultation with whoever the cornerstone investor will be. CEO will have to be named before the float exposure period.

VA1 had 3x 20%+ shareholders. Clearly they all can’t have control.

QF has 46% of FJ and by all accounts about 0% influence.

I also think it’s a bit naive to think the board doesn’t make collective decisions like strategic alliances. You don’t think it was the QF board that signed off on switching from BA to EK? Of course they did. Otherwise the CEO may find themselves unemployed the next day.

 

[RooFlyer]

VA1 had 3x 20%+ shareholders. Clearly they all can’t have control.

Sure, if there are three major share holders then unless it’s mutually agreed, none of them will have control.

But if there’s any just one, then it’s a whole different situation. if instos come onto the register in the float, then that’s a signal that they are comfortable with the cornerstone investor and everything that brings. The independent directors will have the blessing of the Insto shareholders and therefore will be unlikely to go against what the controlling shareholder appointed CEO does. at least for awhile.

I also think it’s a bit naive to think the board doesn’t make collective decisions like strategic alliances. You don’t think it was the QF board that signed off on switching from BA to EK? Of course they did. Otherwise the CEO may find themselves unemployed the next day.

Sure, but the board doesn’t go investigating alliances or stuff like that by themselves. Except for issues of governance and pay, (and one other aspect that doesn’t come to mind right now) the board will consider recommendations put forward by the CEO and management, that need board sign off.

Whoever the CEO is, they will more or less run the company, just like Joyce did with Qantas. Hopefully there will be an independent Chair, but to me it's inconceivable that the CEO wouldn’t be appointed without the sanction of a committed cornerstone investor in tandem with Bain.

 

[justinbrett]

Sure, but the board doesn’t go investigating alliances or stuff like that by themselves. Except for issues of governance and pay, (and one other aspect that doesn’t come to mind right now) the board will consider recommendations put forward by the CEO and management, that need board sign off.

Whoever the CEO is, they will more or less run the company, just like Joyce did with Qantas. Hopefully there will be an independent Chair, but to me it's inconceivable that the CEO wouldn’t be appointed without the sanction of a committed cornerstone investor in tandem with Bain.

Say for example they investigate joining *A, and SQ says it will veto unless VA ends its deal with QR. If the alliance is something the board really wishes to persue, I don’t think the 20% stake is going to be enough to keep it loyal to QR.

Careful what you wish for, if QR is considered to have a controlling stake in VA, or even a Qatari CEO, that may well be the very factor that leads to the FIRB blocking the sale.

I think it’s telling QR hasn’t gone for more than 20%. It could obviously afford to do so. My guess is they are trying to keep a low profile to get it approved by government. Had they have gone for a 50%+ stake I’m quite sure it would be blocked. My guess is there will be at least one other airline or other major investor buying in.

 

[HS-TQE]

Considering reports in the AFR that VA reps had considered approaching SQ but they chose not to reply suggests they are learning from their previous three failures in the Australian market.

I'd say my dark-horse is probably UA with a minority stake, say somewhere between 5% and 10% in a trade sale to keep both QR and Bain Capital in check. I'd suspect UA may want at least 1 seat on the board in such a hypothetical scenario

 

[jase05]

My guess is there will be at least one other airline or other major investor buying in.

Oman

Seriously though I think UA might take on a small stake

 

[PERLHR]

I don’t think QR would move VA to any alliance but they could move them to the Avios cartel.
QR ain’t leaving OW and zero chance of VA joining it as QF would rightfully block it.

QF would block their granny from anything. One world needs a shake up ..perhaps we can take QF seriously when they drop their sleeping arrangements with EK who they obviously prefer over their Oneworld "friends". I say OneWorld should find a way to dump Qantas, co founder or not!

 

[justinbrett]

. I say OneWorld should find a way to dump Qantas, co founder or not!

Why? Does the phrase “cut of your nose to spite your face” mean anything to you?

Oneworld has enough geographical black spots as it is. It doesn’t need to be creating new ones. Most of oneworld members are not in Europe / ME.

 

[roby]

Why? Does the phrase “cut of your nose to spite your face” mean anything to you?

Oneworld has enough geographical black spots as it is. It doesn’t need to be creating new ones. Most of oneworld members are not in Europe / ME.

I don't think oneworld would kick QF out of the alliance but rather if QF would want to stay in oneworld, especially if, just if, DL (or UA) approached QF. We all know that AA is in a much weaker position now. What other JV does QF have with oneworld members?

 

[justinbrett]

I don't think oneworld would kick QF out of the alliance but rather if QF would want to stay in oneworld, especially if, just if, DL (or UA) approached QF. We all know that AA is in a much weaker position now. What other JV does QF have with oneworld members?

QF has international codeshare arrangements with a number of oneworld airlines, including AA, AS, AY and even BA. Almost all of them with domestic codeshares. JV isn’t the be all and end all.

Are you seriously suggesting AA is about to implode? It’s not going anywhere. If it becomes weaker in the American market (marginally) that’s all the more reason why it would stick with QF.

This concept is laughable.

 

[drron]

Even a 15% investment in a company doesn’t mean you can’t have more than 1 director. A resource company that I have shares in has a 15% holding by a Chinese company that has 2 directors out of 6.
Mind you the company takes the majority of the minerals produced.
Similarly if QR is doing this to double their flights using VA then wouldn’t be impossible to quarantee more than 1 board seat for QR.

 

[roby]

QF has international codeshare arrangements with a number of oneworld airlines, including AA, AS, AY and even BA. Almost all of them with domestic codeshares. JV isn’t the be all and end all.

Are you seriously suggesting AA is about to implode? It’s not going anywhere. If it becomes weaker in the American market (marginally) that’s all the more reason why it would stick with QF.

This concept is laughable.

Codeshare arrangements are easy to establish (or abandon). I am surprised that QF only has one JV with oneworld carriers. If you look at QF's other close relationships, eg., AF/KL, MU, CI, OZ (merging with KE), LA, WS, all leaning towards SkyTeam. Is it really that far fetched? I don't think so.

 

[justinbrett]

Codeshare arrangements are easy to establish (or abandon). I am surprised that QF only has one JV with oneworld carriers. If you look at QF's other close relationships, eg., AF/KL, MU, CI, OZ (merging with KE), LA, WS, all leaning towards SkyTeam. Is it really that far fetched? I don't think so.

It’s because ACCC (and foreign equivalents) don’t like approving JVs.

More pax travel on AA codeshares than all of the other airlines you referenced put together. Then add AS (and soon to be HA). DL would be a massive reduction in connectivity, with or without a JV.

 

[ben95]

If you look at QF's other close relationships, eg., AF/KL, MU, CI, OZ (merging with KE), LA, WS, all leaning towards SkyTeam. Is it really that far fetched? I don't think so.

I think that just means QF is willing to sleep with whoever’s most appropriate, Oneworld or not. QF doesn’t need to leave Oneworld and go to Skyteam because it’s got close relationship with a Skyteam carriers targeting specific markets. Revenue sharing JV/strategic alliance is where the real meats are as people have pointed out, leaving Oneworld for skyteam would not make a difference to entering into those type of agreements.

The on topic point being there will be no change to core members in Oneworld, and QR will happily run with VA with its own friend zone.

 

[RooFlyer]

Careful what you wish for, if QR is considered to have a controlling stake in VA, or even a Qatari CEO, that may well be the very factor that leads to the FIRB blocking the sale.

Given that Virgin is currently 100% foreign owned, I honestly can’t see FIRB having a problem with a foreign airline having a 20% stake - even more.

I think it’s telling QR hasn’t gone for more than 20%. It could obviously afford to do so. My guess is they are trying to keep a low profile to get it approved by government. Had they have gone for a 50%+ stake I’m quite sure it would be blocked. My guess is there will be at least one other airline or other major investor buying in.

You pay just enough to have a controlling stake, no more, unless you want to control the cash flow and then you go for 100%. If control is 20%, then no need to buy 50%.

But I agree that 20% would be more palatable to the current federal government. I would also expect that if QR were the major cornerstone investor, that they would have some say on which other airlines would be coming in. But if Bain needed someone else in the industry to take a stake, then that would be discussed between QR and Bain.

 

[Himeno]

What other JV does QF have with oneworld members?

QF and JL jointly own GK each owning 1/3 of the company. The remainder is held by Century Tokyo Leasing Corporation and Mitsubishi Corporation to get around Japanese ownership requirements.

QF and JL are allowed limited coordination via Jetstar Japan.

 

[justinbrett]

Given that Virgin is currently 100% foreign owned, I honestly can’t see FIRB having a problem with a foreign airline having a 20% stake - even more.

Pretty naive to think that an American holding company would be treated the same as a foreign government. Especially Qatar, for reasons I won’t go into.

And it’s not quite 100%, otherwise they wouldn’t be permitted to fly internationally. Which is another consideration if they expand to long haul, the international arm has to be majority Australian owned. A major Australian investor would be really helpful.

 

[yachty]

QF and JL jointly own GK each owning 1/3 of the company. The remainder is held by Century Tokyo Leasing Corporation and Mitsubishi Corporation to get around Japanese ownership requirements.

Mitsubishi sold out to JAL a while back now... 2019ish. JAL have 50% now.

Pretty naive to think that an American holding company would be treated the same as a foreign government. Especially Qatar, for reasons I won’t go into.

Indeed. And that's not even getting into FIRB approvals being more or less a function of what the Treasurer decides. If they say no, then that's that.

I don't think a QR stake is anywhere close to slam-dunk from a FIRB standpoint at all. I agree that 20% is only the start of QRs interest in VA though.

 

[dajop]

And it’s not quite 100%, otherwise they wouldn’t be permitted to fly internationally. Which is another consideration if they expand to long haul, the international arm has to be majority Australian owned. A major Australian investor would be really helpful.

Is a major Australian investor really necessary? IIRC, VA1, AN were able to structure the company such that the international arm was indeed (on paper) majority Australian owned, but really in practice was just part of the overall company which had vast majority foreign ownership. Wouldn't VA2 already have such a structure as it already flies to Indonesia, Fiji and Vanuatu?