Qantas Directors grappling with the future.

A report in The Herald Sun says that Qantas Directors grappled with major funding issues and the choice of a replacement for Chairman Margaret Jackson in day-long talks yesterday.

Much of the meeting centred on plans for a radical restructure of the company, with this expected to involve spinning off the ownership of the aircraft fleet, the frequent flyer program and freight operations into separately listed businesses.

Ms Jackson, who was badly bruised by the failed buyout attempt by Airline Partners Australia, bowed to board pressure and in May declared her intention to resign when her seven-year term as chairman ends in November.

James Strong, a former Qantas chief executive and now a director of the company, is widely tipped as her replacement but under present board rules he cannot be given the job, with Clause 24 of the Qantas board charter stipulating that the Chairman may not be either a present or former chief executive.

While the rule can be set aside by a poll of shareholders, a recommendation would have to be made by directors, with the protocol put in place as a model of good governance.

The issue was canvassed at yesterday’s meeting without senior executives present and when the meeting ended, directors issued a bland statement noting only that they had had “substantive discussions” on strategic initiatives, board representation and the chairman’s successor.

“These discussions will continue at the next board meeting,” the directors said, with a Qantas source saying it could take two or three more board discussions to resolve the proposed restructure.

Apart from finding a new chairman, the board also has to find a replacement for James Packer, who also signalled his intention to leave the board at the same time as Ms Jackson, whom he has keenly supported.

The share market yesterday prejudged one of the key issues as the meeting was still being held, with shares in aircraft lessor Allco Finance shooting up 7%, their biggest gain in seven months, after a report that the firm could partner Qantas in managing the carrier’s fleet of more than 200 aircraft.

The spin-off initiatives, which have been developed by senior Qantas managers, are needed to raise the $20 billion Qantas requires to finance its fleet replacement, with the airline committed to buy 20 A-380 super jumbos as well as 65 Boeing 787 Dreamliners, each of which carries a $200 million price tag.

The first of the new planes is expected to arrive in Australia in August next year, with the proposed spin-off of the business arms to have been implemented had Airline Partners Australia succeeded with its $11 billion buyout plan.

Allco, headed by Sydney businessman David Coe, was the lead Australian partner in the unsuccessful buyout group and has had a long relationship with Qantas.

Yesterday, Allco spokeswoman Christine Bowen declined to give details of the company’s attempt to forge a continuing relationship with the airline saying though, “That said, we have had a long-term relationship with Qantas that extends over 25 years and, if we can help them in any way, we’ll obviously be happy to have those discussions.”

Allco shares rose 71 yesterday to $10.84, taking the market value of the company to $3.76 billion, while Qantas shares fell 7 to $5.63

Report by The Mole