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Qantas set for global growth

"The new ownership can go where the public company could not."

Peter Harbison, managing director of the Center for Asia Pacific Aviation

Qantas is poised for aggressive international expansion, particularly in Asia, if its takeover clears regulatory hurdles and the bid-ders prove they are not corporate raiders, analysts said.

Private equity consortium Airline Partners Australia (APA) will seal one of the largest takeovers in aviation history if its A$11.1 billion (US$8.7 billion) bid proceeds after winning support from the Qantas board earlier in the month.

While board members were won over by a package that includes generous remuneration for top executives, misgivings remain in Australia about the bidders' intentions and the prospect of a national icon being controlled by an international consortium.

APA has repeatedly stressed that Qantas will remain under Australian control under the consortium, with offshore investors including US-based Texas Pacific Group and Canada's Onex re-presenting less that 40 percent of the group.

APA spokesman Bob Mansfield has also denied the consortium would adopt the smash-and-grab tactics typically associated with private equity takeovers, ruling out a Qantas break-up and cuts to regional services.

Instead, Mansfield says APA will remain involved with Qantas for five to 10 years, pressing on with the airline's existing plan to spend A$10 billion on 70 new aircraft to increase capacity by 40 percent over the next five years.

Center for Asia Pacific Aviation managing director Peter Harbison said that if the pledges were met, Qantas would be well placed to meet the challenges of an increasingly-deregulated international aviation market.

While Qantas remains one of the world's most profitable airlines, Harbison said it could perform even better if it was delisted from the Australian Stock Exchange and placed in the hands of owners ready to make long-term investments.

"As a listed company in a small country at the end of the world, Qantas was not previously well-placed to survive, once global markets deregulated," he said. "The new ownership can go where the public company could not."

Harbison predicted the new owners would use Qantas' low-cost offshoot Jetstar as the vehicle for growth because it has lower cost and labor overheads than the main airline.

"As soon as the transaction is completed, it will not be surprising to see an acquisition-oriented Qantas begin moving into new Asian markets," he said.

"It is already represented in Singapore with Jetstar. This model, along with direct minority acquisitions in existing airlines, either by Qantas directly, or by its new owners, will allow it to develop a serious foothold in such markets as China, India, Indonesia and other parts of Southeast Asia," he said.

"In this way, the Qantas/Jetstar brand will become ubiquitous in Asia," he said.

Australian Prime Minister John Howard has made it clear the government will be closely watching the transaction, pointing out the strong association voters feel for the airline dubbed "the flying kangaroo."

The Foreign Investment Review Board will check that offshore investors hold less than 49 percent of the airline, with no individual foreign company allowed to have more than 25 percent.
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