Qantas’ Alliance stake: where next as ACCC investigation continues?

Qantas share price volatile as scrutiny intensifies

Qantas Airways (QAN) shares dipped at the open after the Australian Competition and Consumer Commission (ACCC) revealed that its investigation into the airline’s significant stake in Alliance Aviation was still under scrutiny.

For reference, Alliance Aviation Services (AQZ) is an Australian-based charter operator, with a focus on the mining, tourism, government and energy sectors.

Alliance came to the ACCC’s attention in early 2019, after Qantas – Australia’s premier airline – revealed it had acquired a 19.9% stake in the company. The ACCC estimates that Qantas' Alliance stake is currently valued at over $60 million.

As part of today’s announcement, Rod Sims, Chair of the ACCC said:

'We will consider enforcement action if there is evidence that the Qantas shareholding is compromising Alliance's ability to be a strong competitor to Qantas, now and in the future.'

The regulator further noted that due to the fact that Qantas did not initially seek ACCC clearance to purchase the 19.9% stake in Alliance, and that as a result 'this is an enforcement investigation rather than a standard merger review.'

Some of the ACCC’s main concerns are focused on whether the airline’s significant shareholding may impact Alliance’s ability to raise new capital, curtail its ability to consider take-over offers, be involved in commercial ventures or whether Qantas may be exerting influence on the company’s organisational decision making.

Details of the Alliance stake

Taking a step back, Qantas' initial regulatory filing revealed that the company had acquired 24,812,011 million Alliance Aviation Services Limited ordinary shares, at an average price of $2.40 per share.

At the time of writing, Alliance traded somewhat above that average purchase price, at $2.620 per share, though the stock was down ~1% in the opening hour of trade.

QAN made its long-term ambitions clear in early 2019, with it being noted that:

‘Qantas expects to ultimately seek regulatory approval from the ACCC to build on its current shareholding, with a longer-term view of taking a majority position in Alliance Airlines in order to better serve the charter market by unlocking synergies.’

Problematically for the airline’s ultimate ambition though, Mr Sims further flagged that:

'Our current view is that any further increase in Qantas' stake in Alliance is very likely to raise significant competition concern under the Competition and Consumer Act.’

Qantas saw its stock rebound by 11:35 am, trading up 1.00% to $4.03 per share.

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