The old saying goes, "it's easy to make a small fortune in the airline industry. Just start with a large fortune". But the industry is attracting some big and deep-pocketed who may have a better way to spend their money: deals to take over airlines just as the industry's fortunes are rising.
A leading player here is so-called private equity, which means investment groups that have no public shareholders to answer to quarter after quarter but have merely to satisfy their own long-term needs. One of the biggest of these is the Texas Pacific Group, now a key player in the airline industry, having helped put together the winning bid for Qantas.
For Texas Pacific, the Qantas deal represents a return to its early triumphs. The group's first, big deal was the 1990s deal that took Continental Airlines out of bankruptcy protection. Two of the four original members or partners of Texas Pacific, co-founder David Bonderman and Rick Schifter, worked on the original Continental deal and were deeply involved in the negotiations over Qantas. Schifter stayed on the Continental board until this autumn even though Texas Pacific had a smaller and smaller role in the airline.
At the time of the Continental deal, Bonderman was working for a legendarily wealthy Texas oil billionaire, Robert Bass, who himself was a noted investor. He left the relative security of the oil patch for Continental Airlines, turning his initial $66 million investment into a $700 million take. TPG has since turned its focus to turnarounds, management-led buyouts and recapitalisations that include media and telecommunications, industrials, technology and health care.
Among its other deals are the July 2002 buyout of Burger King, the takeover of several big name retailers such as Neiman-Marcus and Debenhams, since re-floated, and hi-tech deals such as the Lenovo purchase of the IBM 'ThinkPad' PC business. It has also taken over Gate Gourmet, the former Swissair in-flight caterer that has suffered industrial action and other turmoil.
Texas Pacific was a major backer of the $4.5 billion privatization of travel-distribution giant Sabre. That deal that came days after a privately held travel tech firm, Travelport, took over another major distribution firm, Worldspan. Travelport is owned by private equity firm Blackstone, one of the few investment groups large enough to rival Texas Pacific.
After a smaller investment in America West following its Continental deal, Texas Pacific had stayed away from airlines for a long time as the industry writhed into its down cycles. For instance, when Air Canada went on the auction block in 2004, Texas Pacific made a low-ball bid and lost out to Cerberus Capital Management.
At the time, Bonderman (pictured) said that the kind of profits of a Continental deal were a thing of the past, given the competition from low-cost airlines. But in recent months, private equity firms such as Texas Pacific and other private investors have shown increasing interest in airlines despite the industry's famously risky landscape.
And smaller private-equity firms were big investors in the recent reorganizations of ATA Airlines and Aloha Air Group while hedge funds, a first-cousin of private equity, were major players in the reorganisation and merger that created the current US Airways Group.