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Qantas and Alliance Aviation Services have reached an agreement, in which Qantas will fully acquire Alliance by purchasing the remaining 80.1 percent of its shares. The acquisition will allow Qantas to better serve its growing regional operations, it said on May 5. Qantas wants all of Alliance Aviation Services.
In February 2019, Qantas acquired 19.1 percent of Alliance for A$60 million in a move that at the time completely surprised the charter airline. Already then, the airline said it wished to acquire a larger share of Alliance and was seeking approval from the Australian Competition and Consumer Commission (ACCC). The commission looked at the implications the purchase would have on competition, but only this year stated that it had no objections.
Qantas now follows this up with its proposal, which has been laid down in a so-called Scheme Implementation Deed. Qantas offers $4.75 for each Alliance share, which is 35 percent higher than the $3.51 at which the Alliance shares closed on May 4, 25 percent on the one-month and 32 percent on the three-month average of the share price. The offer values Alliance at $764.5 million on a fully diluted basis and an enterprise value of $919.2 million.
The offer is subject to shareholder and regulatory approval, but the Alliance Board unanimously recommends the offer to its shareholders in Australia and New Zealand. As CEO Steve Padgett says in a release to shareholders: “The transaction represents a compelling opportunity for our shareholders to exit the Alliance business following a period of significant industry upheaval, and to realize a strong return on Alliance’s fleet assets. (…) The transaction structure enables our shareholders to continue to participate in the Alliance story, albeit as part of an expanded Qantas Group or should they choose, to crystallize a cash payment by selling the Qantas shares issued to them following implementation of the Scheme.”
Long-term contract for the lease of eighteen Embraer E190s
Qantas is the biggest customer of Alliance and has long-term contracts to lease up to eighteen Embraer E190s to regional subsidiary QantasLink under a capacity deal from February 2021. The 94-seat E190s allow Qantas to right-size its network as the type replaces the larger Boeing 717s and 737-800 on regional routes like Adelaide-Alice Springs, Darwin-Alice Springs, or Darwin-Adelaide. The initial deal was for three E190s in Darwin and Adelaide, with the option to expand this to fourteen. As announced earlier this week, QantasLink will replace the Boeings with Airbus A220-300s.
The Alliance fleet currently consists of fifteen Embraer E190s, 24 Fokker 100s, thirteen Fokker 70LRs, and five Fokker 50 turboprops. The 100s and 70LRs are former Austrian Airlines and KLM aircraft and nicely complement the Fokkers in the QantasLink fleet. Alliance is in the process of adding another sixteen E190s to the fleet this year. The charter airline has bases in Brisbane, Townsville, Cairns, Melbourne, Adelaide, Perth, Darwin, and Rockhampton.
Qantas has advised the ACCC of its offer. Regulatory approval is expected to take several months to be completed. If the deal fails, Alliance must be Qantas a break fee to compensate the airline for significant costs it would incur in this scenario.
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