Fears over rising fuel prices and war in Iraq have dented the second part of an A$800 million ($440 million) share issue from Qantas Airways and could limit its ambitions in New Zealand.
After Qantas impressed analysts with a strong A$428 million ($235 million) net profit for its financial year to June, the A$600 million first tranche of its proposed share sale was oversubscribed by institutional investors. It then looked as if Australia's dominant carrier would be flush to order new jets and expand its regional role via a stake in Air New Zealand (ANZ).
However, the A$200 million second tranche offered to retail investors has languished after the airline's share price slid below the A$4.20 set price.
That slide, analysts say, reflects investor fears about rising oil prices, which Qantas has only half-hedged, and the prospect of war in Iraq. The share price could rebound or underwriters may pick up as much as half of the remaining offering, but Qantas still risks a shortfall.
How this will affect its plans depends on what importance Qantas places on an ANZ stake. Chief executive Geoff Dixon says that the first priorities centre on fleet upgrades, maintaining the airline's investment grade credit rating and cutting costs to compete with Virgin Blue. Yet, he also concedes that an ANZ stake, likely to be priced at $A400-500 million, is partly why he wanted A$800 million.
Qantas and ANZ admit that talks over a stake sale are ongoing, but deny rumours that a deal has been struck. Opposition within New Zealand is growing, but Wellington will only reiterate its plan to retain long-term majority control. ANZ chairman John Palmer insists any deal must ensure the airline's "continuing autonomy under New Zealand control". Speculation in the Australian media further clouds the picture. Interest from Singapore Airlines (SIA) in an Australian presence, following the collapse of Ansett, has been an ongoing topic of report and rumour.
Analysts estimate the absence of an Australian feeder airline costs SIA hundreds of millions of dollars a year. There is also rumour that the Singaporean carrier is in talks with British Airways to buy the latter's 19% stake in Qantas.
The setback for Qantas in the Australian stock market is likely to fuel its ongoing campaign to relax foreign ownership caps so that it could raise more capital offshore.
Source: Airline Business
