Qantas unveils A$100m share buyback

Qantas has unveiled a plan to repurchase100 million australian doller (USD 104m) of its shares and repay 650 million australian doller in debt ahead of schedule.

The unexpected move sets the Australian airline apart from rival flag carriers particularly in Europe, which have either been taking on or rolling over debt, and lifted Qantas shares by 4.1 per cent to 1.28 million australian doller in Sydney on Thursday. Explaining the buyback, which amounts to around 3.5 per cent of the carrier's market cap, Qantas chairman Leigh Clifford said the board did not believe Qantas's share price reflected "fair value". Qantas shares trade at discount of around 50 per cent to net asset value, which the company puts at 2.60 million australian doller a share. More News From Financial Times
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Qantas - no dreamtime legend This has raised speculation that the carrier could be vulnerable to a takeover approach from a private equity consortium. Earlier this year, Qantas appointed investment banking advisers to draw up defence strategies against unwanted bids. "Our continued progress towards the turnround strategy for Qantas International, plus cash flows from recent transactions, gives the board confidence to approve these capital management measures," Mr Clifford said. The share buyback and debt repayment will be funded by 750 million australian doller of proceeds from the recent sale of Qantas' half share in haulage company StarTrack and its settlement with Boeing in relation to late deliveries of B787 Dreamliners. Alan Joyce, Qantas chief executive, has embarked on a five-year plan to restructure the airline, focusing on its lossmaking international business. In September, he struck a 10-year alliance with Emirates, the Dubai-based carrier, under which the two airlines will share revenue and profits on flights between Australia and Dubai. The partnership is important because it will allow Qantas to withdraw from lossmaking routes in Europe and give it the opportunity to restructure its Asian operations. Emirates' Dubai hub will replace Singapore as the stopover point for the Australian carrier's European services. Qantas said on Thursday that the partnership would start on schedule at the end of March 2013, subject to approvals from the Australian Competition and Consumer Commission. "The debt repayment combined with the buyback is certainly positive sentiment-wise as it signals the board is comfortable with gearing levels and must not be unduly concerned with credit metrics at the moment," said Nomura analyst David Fraser. Alongside the buyback Qantas announced that it expected to report underlying profits before tax for the six months to the end of December of 180-230 million australian doller. Analysts said this was at the higher end of market forecasts ranging between 149 million australian doller and 220 million australian doller. Qantas refused to provide guidance in August when it announced annual results, blaming volatile fuel prices and currency movements as well as an uncertain economic outlook. But on Thursday, Qantas said it expected domestic capacity to increase 7 per cent to 9 per cent in the six months to December, down from previous guidance of 9 per cent to 11 per cent. Mr Fraser said this showed "rational behaviour" had returned to the market. Qantas has been locked in a bitter battle for market share with Virgin Australia in the highly profitable domestic market.