Qantas Deal Faces Watchdog Review

The $11.1 billion takeover of Qantas is being investigated by the competition watchdog, concerned by the relationship between the airline and Sydney Airport shareholder Macquarie Bank.

Announcing a review of the deal yesterday, the Australian Competition and Consumer Commission noted that Macquarie and other members of the consortium already had interests in the aviation industry.

Qantas directors on Thursday recommended an $11.1 billion takeover bid from a consortium comprising Macquarie, US private equity firm Texas Pacific Group, homegrown investment companies Allco Equity Partners, Allco Finance Group and Canadian buyout group Onex Corp.

''Macquarie Bank holds a 49 per cent interest in Sydney Airport and some of the consortium members have interests that relate to the air transport industry,'' said ACCC chairman Graeme Samuel.

''The ACCC will closely assess the likely effect of the proposed acquisition on competition including how the proposed acquisition would affect customers, suppliers and other competitors in the air transport industry.''

Macquarie also owns road-tolls near the Sydney Airport, as well as baggage-handling and taxi assets.

The $5.60-a-share offer from Airline Partners Australia is unlikely to attract a higher bid, according to analysts.

JP Morgan analyst Matthew Crowe said there were ''few risks to the deal going ahead'' and he expected the consortium to reach its 90 per cent minimum acceptance level.

''We expect Qantas to trade towards $5.60 in the near future,'' he said. Qantas shares closed up 1c to $5.29. Allco Finance gained 86c to $13.05, Allco Equity fell 11c to $4.20 and Macquarie Bank lost 8c to $74.99

Meanwhile, Prime Minister John Howard has refused to guarantee Qantas will retain its stranglehold on the US route.

But analysts say opening the route to competitors such as Singapore Airlines has potential to trigger widespread job cuts, something they believe will happen regardless once ownership passes to APA.

Mr Howard yesterday declined to guarantee his government would maintain the duopoly Qantas enjoys with United Airlines on the trans-Pacific route.

''It depends on the national interest and it depends on what best serves Australia,'' Mr Howard said.

Mr Howard declined to guarantee that Singapore Airlines would be denied access to the trans-Pacific route.

The Federal Government rejected Singapore Airlines' application to fly the route as recently as this year.

The route is Qantas' most profitable, accounting for as much as 20 per cent of profits.

According to Econotech's research, commissioned by Singapore Airlines, the flying kangaroo charges 38 per cent more for each kilometre flown on than route than it does on the far more competitive Sydney-London flight.

Analysts at Goldman Sachs JB Were believed the Government would maintain the status quo but warned opening access could be devastating.

''This would likely require significant restructuring, read job cuts, to maintain profitability,'' said analyst Paul Ryan.

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