Qantas announces takeover of Alliance Aviation in deal that values target at $919 million

Airline Qantas (ASX: QAN) is looking to add charter flight services provider Alliance Aviation (ASX: AQZ) to its portfolio of companies in a takeover deal that gives the target an enterprise value of $919.2 million.

Qantas, which already owns 20 per cent of Alliance, would make the acquisition via a share swap deal whereby shareholders would receive $4.75 in QAN shares for each AQZ share held, representing a premium of 35 per cent to the regional flight operator’s closing price yesterday.

The suitor says the deal will enable it to “better serve the growing resources sector” considering Alliance’s presence in the charter flight services space, noting it would issue new shares valued at $614 million to secure AQZ.

The flagship carrier's CEO Alan Joyce said acquiring the remaining shares in Alliance would bolster the capacity of its regional flights subsidiary Qantas Link which operates more than 2,000 flights per week currently, and was complementary given the shared fleet type of Fokker aircraft.

“Alliance’s fleet of Fokker aircraft are perfect for efficiently serving resources customers in WA and Queensland. They also have a big inventory of spare parts that would significantly extend the practical life of a combined fleet of around almost 70 Fokkers,” Joyce said.

“Keeping these aircraft operating reliably for longer than either carrier could achieve by themselves will help keep costs down, which is ultimately good news for charter customers. There are also benefits from bringing together our operations planning and training facilities.

“The resources sector continues to grow and any new tender for airline services will be very competitive. It makes a lot of sense for us to combine with Alliance to improve the services we can offer, which is a positive for both airlines as well as the travelling public.”

If the deal is completed, AQZ would become a wholly-owned part of the Qantas Group - a portfolio that also includes budget airline Jetstar - adding Alliance’s fleet of 70 jet aircraft that seat up to 100 people each.

Qantas is already Alliance’s biggest single customer, thanks to a long-term agreement that sees Alliance operate up to 18 E190 jets for QantasLink.

The deal remains contingent on Alliance shareholder approval and competition clearance, the latter of which may prove difficult considering the Australian Competition and Consumer Commission (ACCC) took umbrage when the initial 20 per cent stake was acquired.

That led to a three year investigation which saw the watchdog determine the holding did not lessen competition.

Alliance directors today welcomed the announcement, and have recommended shareholders vote in favour of the proposed takeover.

“The transaction represents a compelling opportunity for our shareholders to exit the Alliance business following a period of significant industry upheaval, and to realise a strong return on Alliance’s fleet assets,” Alliance chairman Steve Padgett said.

“For the last 20 years, we have developed a robust business model, with largely contracted revenue. Our three core principles of safety, operational excellence (reflected in market leading on-time performance) and profitability have underpinned our success. Qantas is Australia’s national carrier and has been operating for more than 100 years. It has a consistent approach to business and would be a quality ongoing owner of our business.

“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 crystallise a cash payment by selling the Qantas shares issued to them following implementation of the Scheme.”

Alliance managing director Scott McMillan said there was “strong industrial logic for Alliance to be part of the Qantas Group”.

“The transaction combines the parties’ complementary fleets and operations, allowing for more efficient and sustainable services and crew as well as fleet maintenance synergies, resulting from the ability to cross cover scheduled and non-scheduled maintenance,” McMillan said.

“We expect these operational benefits to translate into valuable customer experience benefits, including less aircraft downtime, fewer disruptions and greater aircraft availability to fulfil ad hoc charter requests.”

Announcement of the acquisition comes after Qantas saw its revenue rise in the March quarter, driven by a surge in travel over the Easter period.

The company also announced it had revived plans to operate the longest passenger flights in the world as part of 'Project Sunrise', and will soon offer travellers flights direct from Sydney to London and New York from 2025.