World airline stocks rise after private equity move on Qantas

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Airline stocks rose around the world yesterday after Qantas, the national flag carrier of Australia, confirmed that it was the target of a takeover bid by a private-equity consortium.

British Airways shares ended 2 per cent higher while easyJet put on 3 per cent following the news that the Australian bank Macquarie and Texas Pacific, the US private-equity fund, were seeking to buy Qantas in a deal likely to value the carrier at A$11bn (£4.46bn). Airline stocks in the US and Europe also gained ground with Lufthansa, Iberia and American Airlines' parent company AMR all rising.

If the deal succeeds, it would be the first time a private-equity consortium has acquired a publicly-quoted airline and will reinforce the impression that no sector of the market is safe from private equity bidders.

Shares in Qantas rose 15 per cent to a record $5 after it issued a brief statement to the Australian Stock Exchange confirming the Macquarie/Texas Pacific approach. Analysts suggested that the consortium would offer $5.50 per share.

Qantas said the approach was "confidential and incomplete and is being investigated". In its own statement, Macquarie, Australia's biggest investment bank, said it had held preliminary "indicative talks", adding that the proposal was "conditional upon the support of the Qantas board".

Qantas has weathered the industry slump of recent years, recording a profit every year since 1994. It reported record earnings in 2004 and 2005 after shedding jobs and establishing a budget carrier, Jetstar, to lure new passengers.

The chief executive officer, Geoff Dixon, last month raised his 2007 earnings forecast, following a 30 per cent fall in 2006, blamed on the price of fuel.

A takeover, if it happened, would be one of Australia's largest, and one of the biggest in the airline industry, rivalling US Airway Group's US$8bn (£4.19bn) bid for Delta Airlines.

But the consortium would face significant legal and public relations hurdles, including restrictions that limit total foreign ownership to 49 per cent and any single stake to 25 per cent.

The Australian Financial Review newspaper reported that the deal would involve Macquarie taking a 25 per cent stake, other Australian investors 25 per cent, Qantas senior management 1 per cent, and foreign investors the remainder.

Qantas and its "flying kangaroo" logo are one of the nation's most recognisable brands, and a National Party senator, Barnaby Joyce, denounced the buy-out approach as "an offensive move on an Australian icon". Unions expressed concern about a possible break-up of the company, which was founded in 1920 and privatised in 1995.

The Deputy Prime Minister, Mark Vaile, who is also the Transport minister, said the bid approach was a matter for Qantas, but added that the airline would remain predominantly Australian whatever happened. "I think I can confidently predict you will never see the kangaroo moved off the tail of Australian aircraft."

Texas Pacific has a history of investing in airlines, including Continental, which it rescued in 1993. Macquarie usually targets infrastructure assets with steady earnings, such as airports and toll roads. Last month, it led a group that bought Thames Water, Britain's largest water company, for £8bn.

Private-equity groups have been stalking cash-rich media and retail assets in Australia. Two media companies, the Seven Network and Australian Consolidated Press, have each struck deals worth more than A$4bn (£1.62bn) in recent weeks, while the country's second largest retailer, Coles Myer, rejected an $18bn (£7.29bn) bid from a consortium led by Kohlberg Kravis Roberts.