Australia's Qantas Airways is planning a major structural reorganisation that will see its main operations split into standalone businesses, in which minority stakes may later be sold off.
Qantas chief executive Geoff Dixon outlined in mid-August general details of the reorganisation as part of the carrier's earnings report for the financial year ending 30 June. He says that to "unlock value" for the growing airline group Qantas plans a "complete segmentation of portfolio businesses over [the] next 18-24 months".
Qantas has been carrying out a wide-ranging internal review over the past few months following a failed takeover bid by private equity groups. Shareholders have been putting pressure on Qantas to increase value and return cash to them.
Dixon says a share buy-back has been approved by the board, while separate teams are "working through options for each business", four of which are being most seriously looked at. "We believe we can unlock further value from our individual businesses and work is underway across the company - most notably in our Frequent Flyer, Freight, Fleet and Holiday divisions," he says.
Dixon says, however, that "we cannot do it all at once" and a fleet ownership restructuring will probably come first. The carrier is looking at sale and leasebacks, a refinancing of the fleet, a joint-venture tie-up with an existing lessor and/or an "IPO/demerger of a Qantas vehicle".
Qantas has 120 owned aircraft as well as 104 aircraft on order "which could be included" in any restructuring. Dixon says details are likely to be finalised at the end of this calendar year or early in 2008.
It has also been looking at changes to its frequent flyer programme and Dixon says a new structure will be in place between March and June 2008 and the division will have its own financial reporting. He says that after changes to redemption procedures and other benefits for customers are in place Qantas will look at a possible sale of part of the programme, as Air Canada parent ACE has done with its Aeroplan programme.
Major changes are also planned for the freight business, which it hopes to grow in the coming years. Dixon says combined freight interests contributed A$100 million ($83 million) in profit before tax in the last financial year and there will be segment reporting and more detailed disclosure this year.
Under review is "separation and transparency of assets", as well as options for "organic growth and acquisitions/partnerships to build scale". Qantas is also looking at options for further growth in its holidays division, although details have not been provided.
"We are looking at potential new ownership structures and strategic acquisitions," says Dixon of the overall changes that are planned for the group. "We expect to make announcements during the current financial year on the future direction of these businesses."
The cash position of Qantas has increased by A$461 million over the past year to A$3.4 billion, providing surplus capital for a buy-back of up to 10% of its shares, equivalent to a capital reduction of more than A$1 billion.
It is meanwhile forecasting 30% growth in group pre-tax profit for the current financial year after recording a 54% jump in pre-tax earnings in the year to June, to a record-high A$1.03 billion. Net profit increased 50% to A$719.4 million. Revenue increased 11% to A$15.1 billion.
Source: Airline Business