Predator defends huge Qantas debt

The Australian AVIATION, February 15, 2007



Steve Creedy, Aviation writer


AIRLINE Partners Australia moved yesterday to hose down criticism from former transport Minister John Anderson that its debt-fuelled $11 billion bid for Qantas was not in the national interest.

Mr Anderson said he was not satisfied with the $2 billion cash reserve the consortium was setting aside to cope with external shocks.

Mr Anderson said there was a prospect of severe fuel price rises in the next few years "or any number of things going wrong".

"I think there is a very high chance that we will, at some point in the future, say: 'Yes, this debt-equity financing arrangement has not turned out in the national interest'," he said. But APA said it had provided strong assurances to nervous MPs and departmental officials about the strength of the financing behind the bid.

It said the debt-financing package had been strongly supported and underwritten by six of the world's leading aviation financiers.

As well as the $2 billion cash reserves, there was an additional cash facility of around $950 million and the "convenant lite" aspect of the package meant a default could not be triggered solely by a fall in Qantas's financial condition or performance.

One tranche of debt also allowed Qantas to accumulate interest payments rather than pay them in cash.

"The combination of substantial cash available and flexible financing arrangements means that Qantas will be well insulated from any downturns or external shocks such as SARS or September 11-type events," said APA spokesman Bob Mansfield.

THE federal Government is unlikely to address the massive debt Qantas will incur as part of the $11.1 billion private equity takeover, despite backbencher disquiet and warnings by former transport minister John Anderson that it is against the national interest.

The Airline Partners Australia takeover is likely to leave Qantas shouldering at least $8 billion in debt, prompting disquiet among some backbenchers about the airline's ability to handle shocks in the volatile aviation industry.

But Transport Minister Mark Vaile said yesterday he did not believe it was the Government's job to tell the private sector or financial institutions what level of debt it should hold.

Mr Vaile reiterated the Government's stance that the decision on the deal's success should be taken in the market by Qantas shareholders. "Our responsibility is to check the proposal, the structure of the proposal and the company going forward, against the requirements that exist in the Qantas Sale Act and the Airport Sales Act. And now, as the proposal has been notified under the FIRB arrangements to the Treasurer, there are certain guidelines (under which) he will have to assess that proposal," Mr Vaile said. But the Transport Minister admitted there had been cases internationally where airlines that had run into trouble had ended up "knocking on the government's door". "And that is not something that we would like to countenance,' he said.

The debt issues came as Qantas announced the formal termination of its proposed alliance with Air New Zealand and became a 4.2 per cent stakeholder.

The airline also received approval from Singaporean competition regulators to co-ordinate its activities with Orangestar.