Quantas - 25% Stake in AA?


Aug 20, 2002
Qantas may be targeting 25% stake in American Airlines
Dateline: Tuesday February 25, 2003
Qantas flagged that it could be on the takeover trail if war erupts and the conflict brings airlines to their knees.
CEO Geoff Dixon expects that the Iraq conflict will lead to consolidation and Qantas will be well placed to take advantage of it. Airline analysts in Australia told ATWOnline that the carrier could be targeting a 25% stake in oneworld alliance partner American Airlines. It is well placed to take advantage of any consolidation after announcing a record interim profit of A$352.5 million ($207.9 million) last week (ATWOnline, Feb. 21).
If there was a war in Iraq, I believe we will have failures of airlines, and the inevitable consolidation that must be necessary in an industry that has such high people and capital costs will happen, Dixon said. Perhaps we will be in the position to be able to look at whether there are potential opportunities out there--not people looking at us whether we are a potential opportunity.
Will the new AA logo have a Kangaroo between the A''s on the tail instead of an Eagle?
For such an investment to be of any value to the AA treasury it would have to be newly issued stock. Maybe they will invest after BK?
Assuming that AMR is amenable to an investment, it would be an immediate value, even if only thru stabilizing the stock price. It also establishes a firmer link between the carriers, which in the long term will be a revenue generator.

There are two ways I can think of on how to do this without issuance of new stock.

First, AMR probably has a fair amount of treasury stock at the moment. Most of the stock options issued in the past 5 years were probably issued at prices upward of $15. That would include whatever options were issued to the APA in the previous contract as well as those offered to key management and officers.

You'd have to be pretty stupid to exercise options at 5x the current trading price, those all those expired options go back into the AMR treasury.

Second, they buy shares on the open market. That doesn't necessarily raise cash for AMR, but it does establish a longer term relationship with Qantas and AA.
Assuming that a large amount of Pacific routes become available, and under the One World banner would the infusion of cash from Qantas enable American to purchase these routes? I believe American is making money on it's International routes???
IF AA does buy UA's NRT operation and ASia routes let say Qantas invest $500,000,000.00 which would go a long way toward a billion or two the routes might cost.
This is an apparent cash infusion to fund the purchase of some soon to be available UAL Tokyo routes for "ONE WORLD".

The bright-side...

AA will post huge profits for the years 2005 and 2006.
Except that with DOT's foreign ownership and control rules (i.e., no more than 25% foreign ownership is allowed), combined with AMR's very low stock price at the moment, a $500 million investment by Qantas would be far above the threshhold that DOT would approve.