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Last Updated: Monday, 16 April 2007, 22:57 GMT 23:57 UK
Is the Qantas takeover ready to land?
By Nick Bryant
BBC News, Sydney

Qantas tailfin
Qantas has a special place in the Australian mindset

Like some interminable long-haul flight, buffeted by severe turbulence and beset by a string of technical problems, the takeover of Qantas looks like it will finally get clearance to land.

But it still faces the nerve-inducing prospect of a bumpy final approach.

Airline Partners Australia (APA), the Macquarie Bank-led consortium behind the $9.2bn (4.6bn) bid for the Australian national flag carrier, had originally set out to persuade 90% of shareholders to accept its offer of $A5.45 per share.

Now, in the face of resistance from key institutional shareholders, APA has loosened the terms of its offer, so that the takeover can proceed with the backing of 70% of Qantas shareholders.

This marks a setback for the private equity firms behind the takeover.

Under the revised terms, the fabled "Flying Kangaroo" will remain listed on the stock market.

Originally, APA had wanted to fully privatise the airline so it could be given a private equity "makeover", before being re-listed as a more profitable concern.

Now, for the short-term at least, Qantas will remain in the public realm.

Fasten your seatbelts

The flight recorder readout of the troubled takeover journey started in December last year, when APA first announced its bid.

They (APA) are playing with everybody else's money and they are playing with our economy
Senator Barnaby Joyce

Because of the unique position Qantas occupies in the national imagination as an iconic Australian brand, the consortium ran into immediate trouble.

Sounding the battle-cry of economic nationalism, critics pointed out that the takeover consortium included the US buyout giant, Texas Pacific Group, and Canadian Onex Corporation: that the deal was somehow un-Australian.

Unions also expressed outrage, arguing that the takeover would lead to swingeing job cuts to the airline's 37,000-strong workforce, through the outsourcing of maintenance jobs to China and administrative positions to India.

Again, the unions tweaked the same patriotic nerve, emphasising that 93% of the airline's global workforce are of Australian stock.

At the same time, rural-based parliamentarians within the Liberal-led coalition government complained the deal would spell the end of important regional services (despite the fact that some of them are the airline's most profitable, and feed passengers into its domestic and international services).

In the face of such feisty and well-organized election year opposition, Treasurer Peter Costello sought to take the heat out of the debate by referring the matter to the Australia's independent Foreign Investment Review Board (FIRB), which was asked to rule whether the deal constituted a foreign takeover.

But Mr Costello knew full well that APA had carefully constructed its buyout to ensure 51% Australian ownership, so the move was widely viewed as a blatantly political ploy.

Privately, the government wanted to the deal to go ahead, and the referral to the FIRB was primarily intended to placate backbench concerns. Unsurprisingly, the FIRB gave it a clean bill of health.

'Silly buggers'

Then, last month, the red warning lights blinked into action again, when two of Qantas' major institutional shareholders, Balanced Equity Management and UBS, held out for a higher price.

Qantas plane
Critics say APA will cut Qantas' flights

"Dead in the water" was how one economics editor described the bid.

So APA had little choice but to loosen its terms, and seek 70% rather than 90% approval.

"By effectively lowering that condition to 70%," announced APA's battle-weary spokesman Bob Mansfield, "shareholders can be confident that the offer will be successful."

But at the same time, the private equity consortium disclosed plans to strip $3.2bn from the airline and saddle it with $1.3bn of extra debt, which prompted yet another acid shower of criticism.

"They are playing silly buggers with us," says Senator Barnaby Joyce, a member of the governing coalition, who has been a virulent critic of the deal from the outset.

"They are not playing with their money. They are playing with everybody else's money and they are playing with our economy.

"The deal had hairs on it from the start. It's getting hairier by the moment."

Mr Joyce and his allies have effectively opened up a new line of attack: arguing that if Qantas fails, the government - and ultimately the taxpayer - will have to bail it out.

Centred on a goose-bump inducing Seventies ballad, I Still Call Australia Home, Qantas' advertising campaigns have achieved enormous success in endearing the national flag carrier to the people of Australia through a rich blend of sentimentalism and patriotism.

No wonder so many people here fear that the Flying Kangaroo is about to be decapitated.

Qantas bid hit by investor block
23 Mar 07 |  Business
Qantas warning over takeover bid
21 Mar 07 |  Business
Qantas bid cleared by government
06 Mar 07 |  Business
No Qantas interference - Howard
26 Feb 07 |  Business
Qantas bidders ask for a review
05 Feb 07 |  Business

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