Qantas Board recommends Airline Partners Australia cash offer

14 December 2006

Airline Partners Australia today announced that it had reached agreement with Qantas Airways Limited Qantas on an improved offer which includes a cash offer of $5.60 per share for 100% of the issued capital of Qantas.

Airline Partners Australia has been informed by Qantas that the non-executive directors have unanimously recommended that shareholders accept the offer in the absence of a superior proposal.

The recommendation is subject to the Qantas board receiving an opinion by an independent expert, Grant Samuel, that the offer is fair and reasonable.

Airline Partners Australia Director and Deputy Chairman, Allco Finance Group, Mr Bob Mansfield AO, said Airline Partners Australia supports Qantas management in undertaking the necessary large capital expenditure that underpins its current growth strategy, maintaining the airline’s international competitiveness, and securing Qantas’ future.  

“A distinct point of difference is that Airline Partners Australia offers Qantas patient capital”, Mr Mansfield said. 

“We have a longer term perspective than the day to day equity market.  Airline Partners Australia will invest for a stronger Qantas over the long term.  We will bring our proven experience in the airline and finance industries in support of Geoff Dixon and his management team”, he said.

Mr Mansfield confirmed other key benefits of the Offer are:

• A commitment to maintain Qantas’ world leading maintenance and safety record
• Support of management’s plans to invest in excess of $10 billion over the next five years and the acquisition of more than 70 new aircraft, resulting in a 40% increase in capacity
• A commitment to management’s existing plans for Qantas and Jetstar
• An expansion of services, particularly internationally
• The airline remains majority Australian-owned
• More than two thirds of the Airline Partners Australia Board will be Australian citizens
• Compliance with all ownership laws and regulations.

“Qantas would retain the current Australian management and their growth strategy, a strategy that does not involve a break-up of the airline, cuts to regional services or the movement of maintenance operations offshore,” he said.

Mr Mansfield said the consortium partners are experienced in the aviation sector and acknowledged the significant responsibility of owning the national carrier.

Airline Partners Australia

“Qantas will remain majority Australian-owned in every sense – by way of voting rights and economic interest,” Mr Mansfield said. 

The consortium comprises, by way of voting rights, Allco Equity Partners (35%), Allco Finance Group (11%), and Macquarie Bank (less than 15%). Offshore investors include Texas Pacific Group (TPG)(less than 15%), Onex (9%) and other foreign investment funds (less than 15%). Offshore investors in total hold less than 40% with no single international investor holding more than 15%. Qantas is currently approximately 46% foreign owned. 

Annexure 2 outlines Airline Partners Australia’s voting and economic interests, which fulfil all requirements of Australian law.

Allco Finance Group is a fully integrated global financial services business specialising in structured asset finance, specialised funds management and debt funding. Allco’s global aviation experience includes long-term aircraft leasing to international airlines and a relationship with Qantas that extends over 25 years. The Allco Board also includes directors with significant aviation experience.

Allco Equity Partners is a listed-investment company focused on large scale private equity and public market opportunities. 

TPG is a top five global private equity investor, the most established private equity firm in the Asia Pacific and the most experienced in the airline sector. Airline investments have included Continental Airlines, America West Airlines and Ryanair.  In the case of Continental, TPG took the airline from bankruptcy to being recognised as the leading airline in North America in terms of customer satisfaction and employee morale.

Onex is a leading Canadian-based private equity investor. Its key investments in the aviation industry include Spirit Aerosystems, the world’s largest supplier of commercial airplane assemblies and components, and, formerly, Sky Chefs, the world’s largest in-flight caterer.

Macquarie Bank is Australia’s largest investment bank and has aviation sector experience including aircraft and engine leasing, the ownership or management of six airports and aircraft ownership.

Further information on the consortium members is included in Annexure 1.

Overview of the Offer

The Offer provides Qantas Shareholders with a number of significant benefits including:

• 100% cash offer
• Very limited offer conditions.

Mr Mansfield said: “Airline Partners Australia believes this is a compelling offer that maximises value for Qantas Shareholders.”

Under the terms of the offer, the interim dividend that would otherwise be payable by Qantas in April 2007 will not be available.  However, the Qantas Board is evaluating whether a fully franked special dividend could be paid during the offer period, in which case the offer consideration would be reduced by the dividend amount.

Airline Partners Australia considers its offer to be full and fair, representing a:

• 33% premium to the closing Qantas share price of $4.20 on 6 November 2006, the day before first speculation about the offer
• 61% premium to Qantas’ volume weighted average share price for the six month period to 6 November 2006
• 37% premium to the consensus broker valuation of $4.09 per share[1]
• Higher price than Qantas has ever traded on the ASX.

Airline Partners Australia has declared its offer price of $5.60 to be final, in the absence of an alternative proposal from a third party.

Airline Partners Australia believes that its structure complies with the Airports Act, the Qantas Sale Act and does not require approval under the Foreign Acquisitions and Takeovers Act. However Airline Partners Australia will consult extensively with the Federal Government and regulators.

Airline Partners Australia and its key investors today entered into an implementation deed with Qantas under which the parties have agreed to facilitate the offer.   This includes customary no-shop, no-talk and exclusivity provisions.

Financial Structure

Airline Partners Australia has in place fully committed financing to fund completion of the offer. Airline Partners Australia’s financial structure will include a substantial cash reserve which will help to ensure Qantas remains financially strong.

Further details of Airline Partners Australia’s capital structure will be disclosed in the Bidder’s Statement.

Conditions

Airline Partners Australia’s offer is subject to the following limited conditions:

• 90% minimum acceptance
• no material adverse change (limited in scope)
• no breach by Qantas of the implementation agreement
• no prescribed occurrences (as is customary for public company takeovers).

The full conditions of Airline Partners Australia’s offer are set out in Annexure 3.

Next Steps and Timetable

Airline Partners Australia’s Bidder’s Statement and Qantas’ Target’s Statement are expected to be mailed to Qantas shareholders in late January or early February. These documents will provide shareholders with detailed information regarding the offer and ample opportunity to make an informed decision.

Further information on Airline Partners Australia can be found on the internet at www.airlinepartnersaustralia.com.au

Please click on link below to view Annexures.

Media contacts:

Airline Partners Australia

Cannings:  +612 9252 0622
Martin Debelle:  0409 911 189
Luis Garcia:  0419 239 552
Pip Green:  0421 054 542