One party always comes out on top in a merger, even one between ‘equals’ which is the phrase being spun into the media by Qantas and BA.
Just listen to any of those who were in Qantas when it merged with Australian Airlines prior to the sale of 25% of the new entity to BA in 1992 and three years before it was floated on the stock exchange. It was merge and purge time, and the ‘blue’ team, former Australian Airlines executives, drove out most of the ‘red’ team of older Qantas managers.
There is no point to a merger if there isn’t a winner, and whichever team is on top of a successful QF+BA entity will exercise ultimate control over the business decisions of the team on the other side of the world.
The trick will be to prevent an entity which has two poles, in London and Sydney, succumbing to bi-polar disorders. Not to mention the tensions when its Australia V England at Lords or the MCG.
According to a UK report overnight, Qantas approached BA in August to discuss a merger, which was while Geoff Dixon was CEO, and his successor Alan Joyce had been officially announced as CEO designate.
Dixon has often lauded the Air France KLM merger as the template for airline consolidation. Air France KLM has been very successful so far. There has been minimal reported purging of employees. There has been little if any customer dissatisfaction. However it is a deal in which Air France gives the orders. While it is a single company flying two distinctly French and Dutch brands, it also has the benefits of a single currency, the euro, and the exercise of singular sovereignty in air traffic treaty negotiations and in company and consumer laws through French and Netherlands membership of the EU. In every detail Air France KLM is the child of the opportunities that arose through the political consolidation of Europe, rather than just another example of merger and acquisition activity in airlines, most of which over time have either failed or seriously underperformed the original expectations.
Being traded in euros and belonging to the borderless world of the EU made the stock holding side of the deal so much simpler than a potential BA+QF deal in which there will be different share registers, different currencies and some discontinuity between the commercial, consumer and tax laws of the UK and Australia.
Neither Qantas nor British Airways can expect the unanimity of aviation or income tax policy settings from their national governments that Air France KLM enjoys.
Might Australians wanting to own part of the combined entity choose to buy shares domiciled through a structure in the UK rather than Australia, and vice versa?
The issues are many. It seems fanciful for the government to believe, as yesterday’s aviation green paper suggests, that a simple 49% cap on non-Australian shareholdings in Qantas will not prevent control of the airline being exercised abroad. Real control of Qantas has arguably existed abroad in the holders of senior debt, and lease arrangements covering engines or specific aircraft at various levels for many years. The notion of control being defined as a shareholder percentage is as absurd as the pledges that the failed APA bid for Qantas would not have left the airline in foreign hands. Or if recent history is any guide, in the hands of administrators for APA’s sources of debt.
If QF+BA were to spin off a combined loyalty program, or set up a joint fleet leasing venture, neither entity would be rigidly locked up by the foreign ownership provisions of the current Qantas Sale Act. Without being replaced by a new or significantly amended act, the ownership limits would end up applying to a core management entity surrounded by part owned satellite ventures, which might not be a bad thing from the point of view of shareholders or consumers but probably political poison nevertheless.
What if a QF+BA entity could enjoy the same tax and cost benefits as Emirates by jointly owning its own part of the global maintenance megaplex being built at Dubai?
There aren’t issues that necessarily make a QF+BA entity a bad thing. They could make both carriers far more competitive and effective. But they also make the relevant parts of the Aviation Green Paper read like an account of Goldilocks walking blithely deeper into the woods to visit Grandma.