Qantas may give shareholders back $2bn

A report by Glenda Korporaal and Tim Blue in The Australian says that Qantas has flagged a capital return to placate restive shareholders as former chief executive James Strong refuses to rule out a run at the soon-to-be-vacant chair.

Analysts yesterday estimated the national airline could afford to return up to $2.2 billion to shareholders without straining its balance sheet — following through on a proposal first made by the Airline Partners Australia failed-bid consortium.

APA planned to return as much as $4 billion in surplus capital to shareholders within 12 months of winning control.

Merrill Lynch said yesterday that it felt Qantas could return $2.2 billion to shareholders “without stressing out its balance sheet or its interest cover ratios”.

It said this would leave Qantas with the same debt equity ratio as rival Virgin Blue.

Chairman Margaret Jackson said yesterday that Qantas would “conduct an extensive review of its capital management strategies over the next few months”.

Qantas shareholder Andrew Sisson, who runs Balanced Equity, said he was agnostic about any proposed capital return, saying, Qantas was undergeared at the moment, but it would need capital over the next few years as it geared up for a major capital expansion program.

The airline has a net debt of almost $2 billion at the moment.

Last night Mr Strong, who was CEO from 1993 to 2001 and rejoined the Qantas board in July last year, refused to rule out standing for the Qantas chair which will be vacated by Ms Jackson in November.

He said Ms Jackson had done a good job and “made a big contribution” in 15 years on the Qantas board, seven as chairman.

“It’s been a good term, a reasonable term that she’s done, in duration. It’s a pretty natural thing (for her to go now).”

While Mr Strong, who is also chairman of Woolworths and Insurance Australia Group, would have good credentials to succeed Ms Jackson, it would take an amendment to the Qantas charter which says a CEO cannot become chairman.

It is believed the change would have to be put to a meeting of shareholders, which could make his nomination even more difficult given the public scrutiny the board has been under in the months since it recommended APA’s bid last December.

However, Mr Strong has a close working relationship with Geoff Dixon who was locked in as Qantas CEO until at least July 2009 at yesterday’s board meeting.

Commonwealth Bank chairman John Schubert is considered another strong runner but he is also seen as a top contender to chair BHP Billiton – a much bigger company than Qantas.

Qantas director James Packer yesterday announced his intention to step down at the same time as Ms Jackson at the annual general meeting in November.

Ms Jackson said yesterday that the board could “spend the next few months considering my succession and a replacement for James who has served the board with distinction and diligence”.

Ms Jackson also moved to head off speculation that she had been pushed out of the top job as a result of her handling of the failed takeover bid. She had informed the Qantas board at the start of its two-day meeting on Thursday that she intended to retire at the AGM in November.

The statement was in contrast with Ms Jackson’s public comments to the media last Friday and to Qantas investors this week that she planned to stay on as chairman to help stabilise the company in the wake of the failed takeover.

“The statement does not stack up with other statements (about Ms Jackson’s plans),” one observer said yesterday.

But Mr Dixon supported Ms Jackson’s statement. “She was categorically not pushed by any of the board members,” he said last night.

“She came in and said she would like to step down … and that she would be doing that at the annual general meeting.”

The announcement of Ms Jackson’s departure followed market criticism that she was too close to the Macquarie Bank-led consortium bidding for Qantas and had become a cheerleader for the $5.45-a-share offer.

Some major institutions were particularly critical of her role and are believed to have made their views clear to other Qantas board members about the need for an early announcement on her future.

Report by The Mole