BA takes off from Qantas stake

British Airways has dviested its 18.25% stake in Australia’s flagship carrier, Qantas Airways and inspired a frenzied buying rush that involved over 130 domestic and international investors when shares in the flying kangaroo resumed trading on Thursday. Following the divestment announcement from Europe’s second largest airline, Qantas requested an immediate halt in share trading, only to inspire a mad scramble that was three times oversubscribed, raising over A$1.1 million (around $757 million) for BA.

BA’s stake was offered to both Australian and international investors at A$3.28 ($2.26) per share, five cents below the price before Tuesday’s suspension of trading. In its first BA-less day for over 11 years, shares in Australia’s national carrier traded over 416 million units, with rumours that over 70% was sold on the Aussie market before bankers were able to go to the US and European markets. Domestic institutions and funds were also keen on the sale and the price of one of the country’s national icons, snapping up almost 42% of BA’s former shares. 

Upon announcing the sale, it was understood that the two airlines wanted to diversify the investor base and limit individual investors to stakes of 5%, one of which is believed to be Temasek, the Singapore-based group that holds 57% of the rival Singapore Airlines and of regional low-cost carrier, Tiger. Under Australian investment disclosure laws, shareholdings of 5% and below do not need to be divulged.

Although not confirmed, it appears logical that Temasek Holdings would look to expand its airline assets, as it also holds 19% of the Jetstar Asia, the suggested name of a proposed budget start-up that has Qantas as 49% stakeholder.

BA’s divestment from all Qantas holdings will contribute in downsizing the airline’s $10 billion debt oroblem and many speculate it may also prompt the carrier to increase its current 9% stake in Spain’s Iberia Airlines or have a stab at Aer Lingus, Ireland’s state-owned carrier.  

In 1993, the UK airline purchased its original shareholding for A$665 million, outbidding Singapore Airlines in an era where the Australian government seeking a strategic airline partner to give legs to the Qantas float. During the BA shareholding, stakes were held in its wholly owned subsidiary, British Airways (Investments) Australia Pty Limited. In the two years following the purchase, connections began to run deeper with the two airlines also commencing code-share agreements on the hotly contested and profitable ‘kangaroo routes’ that link Sydney to London.

According to both airlines, the joint services agreement (JSA) will not at all be influenced by BA’s sale and business will continue as usual on the route that the two airlines control over 60% of.

“Neither airline believes the shareholding is necessary for the ongoing conduct of that relationship,” notes Qantas CEO Geoff Dixon in a press release.

The sale of Qantas to a wider array of international investors has also provoked questions of whether there will be amendments to the maximum 49% foreign ownership of the airline. Despite the Australian airline’s public attempt to abolish the Qantas Sales Act on its conjecture that the equity cap retards the share price, Peter Costello, Federal Treasurer, has publicly refuted any claims that the government will change its policy that originated before the airline’s privatisation in 1995.

Following the resumption of trading, Qantas’s shares inched up $A0.02 prior to the sale, to close at A$3.35 on Thursday.