British Airways to Sell A$1.1 Billion Stake in Qantas (Update4)
Sept. 8 (Bloomberg) -- British Airways Plc, Europe's second- biggest airline, is selling its A$1.1 billion ($763 million) stake in Qantas Airways Ltd. to cut debt and fund possible acquisitions.
The sale of the 18.25 percent stake will ``place British Airways in a robust position for any future European consolidation,'' the London-based airline's Chief Executive Officer Rod Eddington said in a statement. British Airways paid A$665 million for its stake 11 years ago.
Eddington is seeking to reduce the airline's 5.6 billion pounds ($10 billion) of debt and cut costs to fend off a challenge from discount carriers. He has said Air France's acquisition of KLM Royal Dutch Airlines in May, creating Europe's largest airline, will spur further mergers.
``The airline industry is going through a tough period, and British Airways is facing competition from low cost airlines,'' said Steven Marsh, who helps manages the equivalent of $320 million at Trust Co. of Australia. ``Higher oil prices are also hurting,''
British Airways has cut 13,000 jobs and slashed costs by 869 million pounds over the last three years to counter competition from Ryanair holdings Plc., Europe's biggest low-cost airline. Ryanair has said it may cut ticket prices by as much as 20 percent this year to counter price-cuts by full-service carriers such as British Airways.
Terrorism, War
Airlines are trying to recover from $30 billion of losses in the past three years when terrorism, war and the SARS virus cut travel. The International Air Transport Association has said higher jet fuel prices is the greatest threat to profitability and is adding up to $6 billion of costs to airlines.
Jet fuel prices, which usually account for about 16 percent of airlines' costs, reached $55.95 a barrel last month, a record according to available data back to 1982 from oil-pricing service Platts. It traded at $51.72 yesterday in Singapore, Asia's biggest oil trading center.
Trading in shares of Sydney-based Qantas was halted. British Airways said the underwritten sale of its 18.25 percent stake will be completed during the next 48 hours.
``Maybe they've got something else they want to use the money for,'' said John Gethin-Jones, general manager of global equities at Queensland Investment Corp., which owns about 19 million Qantas shares. British Airways could also be ``preparing for a tougher market in Europe.''
Time to Sell
Qantas shares closed at A$3.33 yesterday. They have risen just 1.2 percent this year as record oil prices drive up the cost of jet fuel. The airline, Australia's largest, last month reported a record second-half profit A$290.6 million, from a A$9 million loss a year earlier.
British Airways bought a 25 percent stake in Qantas in 1993, when Australia's government sought a cornerstone shareholder before selling the rest of the airline in an initial public offer. British Airway's stake has been diluted as Qantas sold shares to fund expansion.
Eddington said British Airways has received A$600 million in dividends from its investment. ``Our shareholders have had a good return from our investment in Qantas,'' he said in the statement. ``We now believe it is in the best interests to sell our shares to pay down our debt and continue to strengthen our balance sheet.''
British Airways is rated BB+ by Standard & Poor's, one level below investment grade.
Kangaroo Route
``There was always a threat of British Airways selling after the mess the airline industry found itself in since the Sept. 11 attacks,'' said James Hogan, head dealer at BT Financial Group in Sydney. The sale ``would get rid of the perceived overhang'' in Qantas shares.
British Airways and Qantas cooperate on the so-called ``Kangaroo Route'' between London and Australia that allows them to coordinate schedules and fix prices. The two airlines said the sale won't change the agreement, which last month was approved for a further five years by Australia's competition regulator.
QAN Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
(20min delay)