Texas is a long way from Canberra

A texan kangaroo?

Texas is along way from Canberra.

For years Qantas has enjoyed protected species status in the Australian capital, effectively playing the national icon card every time the nasty word competition got mentioned.

But with Qantas now going to be in reality run by two money men, one from Texas (David Bonderman) and a clone from Sydney (David Coe), the biggest risk is the political and public sentiment, which Qantas has so effectively used to quarantine itself from competition, will change.

That maybe no bad thing.

In a small market place Qantas has well understood its future was entirely dependent on the rules of the market place and these are set by the Federal Government in agreements with other countries.

So when Air New Zealand or Singapore Airlines or any other nasty “foreign” carrier suggested they could bring some real competition - internationally or on local routes - the boys from Qantas always knew where their bread was buttered.

It was not that long ago Qantas was wholly owned by the Government and it was this insider’s knowledge of the Canberra bureaucracy and ministry, which gave the airline such a strong head start in the lobbying game. Indeed current CEO Geoff Dixon, cut his teeth as corporate affairs boss for what is now the domestic arm of Qantas, the Government owned, TAA.

The decision by the previous Labor Government in the late 1980’s to grant Qantas 30 year leases at Sydney Airport was perhaps Qantas most spectacular achievement.

Privatised in the mid 90’s , Qantas took what it knew and continued to apply the political schmooze like no other company in Australia.

If you want to see this in action look no further than the by (Qantas) invitation only Chairman’s Club, at Canberra’s airport. Normally a regional airport like Canberra would be lucky to get a coffee lounge, but for years Qantas has used its salubrious Chairman’s Club to butter up those it needed to keep onside.

Why an industry and company of such small economic consequence (just over one per cent of GDP comes from aviation) garnered such political attention says a lot for the ridiculously soppy political sentimentality that aviation attracts.

In most sensible countries they have long given away the thought a country’s national pride demanded a locally owned airline.

Not so in Australia.

Like some pubescent teenager demanding to know if they have achieved (who can forget the incessant worrying if Olympic boss, Samaranch, would declare Sydney the “best” Olympics ever) Australia as a nation has clung onto Qantas as some indicator of its acceptance in the big league of countries.

The danger for the money boys who have taken control of the airline is that finally Australians and their politicians might realise it is time to treat aviation (and tourism for that matter) like any other industry and just open it up to whoever wants to fly in or into Australia.

There have been countless reports suggesting the consumer and economic benefits of ditching a bunch of rules (many of which were drawn up before world war II,) far outweigh whatever sovereign pride and dubious localism Australia or any other country gets from having its “own” airline.

The most obvious of these are cheaper fares, not to mention flight availability and choices.

No doubt breaking out and commercialising some of the airlines assets, the terminals, its loyalty program, it planes will deliver some new value.

Ditto taking on Qantas work practices – many of which are out of the ark.

And lets not forget its glacial like management processes and bureaucracy (Some of the most effective Qantas spin comes from the perennial claim it is well managed – just ask anyone who has to deal with Qantas or its legion of ex staff.)

The world's biggest airline take over has its obvious risks: the history of aviation is littered with big brand turned to dust very quickly - Pan Am comes to mind. It is the cyclicality of the high fixed cost aviation industry which makes it so risky and such a problem industry for investors.

The numbers in the Qantas case are a good example how private  equity or leveraged buyout works. In summary it involves using the cash that would have gone to tax and dividends to cover the debt used for the take-over, while the business is restructured and/or merged with other assets to build its value.

But the big risk for the financial wizards who are banking on their ability to drive big value gains out of Qantas is they end up like Australia’s telco utility, Telstra – Canberra’s favorite whipping boy.

Indeed Telstra is almost the classic case of how to blow your political capital real quick. And it won’t be lost on any one most of the damage has occurred at a time when two Americans have taken over to overhaul the carrier.

TPG's is experienced in the aviation turn around game and its modus operandi is to challenge the "establishment" of the industry. Bonderman has been instrumental in start ups like the discount airline Ryan Air. But while the cheap fares have gained media attention the airline has not won the plaudits of all . In October trip advisor rated it the world's most hated airline.

It would be manifestly unfair to predict the same for Qantas, but much of Qantas amasing brand loyalty comes from its full service offer. Start to dismantle this and the consumer noise and subsequent political reaction will be predictable.