Qantas set for court battle to buy Alliance after ACCC opposed $614m deal

Qantas is facing a lengthy court fight to acquire Alliance airlines after the ACCC flagged its opposition to the $614m deal.

Alliance Aviation bought a fleet of Embraer 190 jets mid-pandemic, which are used on many Qantas regional routes. Picture: Lyndon Mechielsen

Qantas faces a lengthy court battle to acquire smaller operator Alliance after the competition watchdog announced its opposition to the $614m deal.

The Australian Competition and Consumer Commission delivered its decision on Thursday after reviewing the scheme of arrangement for almost a year.

ACCC chair Gina Cass-Gottlieb said the commission had concluded the transaction was likely to substantially lessen competition in the fly-in, fly-out markets of Queensland and Western Australia.

“We consider Alliance to be an important competitor to Qantas, and the removal of Alliance is likely to substantially lessen competition threatening increased prices and reduced service quality for customers,” said Ms Cass-Gottlieb.

“Qantas and Alliance currently strongly compete with each other in markets where there are

few effective alternatives. The proposed acquisition would combine two of the largest suppliers of charter services in Western Australia and Queensland.”

Qantas made no secret of its interest in Alliance and its contracts with the resources industry, when the airline took a 19.9 per cent stake in the Brisbane-based carrier in early 2019.

At the time, Qantas CEO Alan Joyce said the airline eventually wanted to takeover Alliance which he described as “well-managed with a lot of potential”.

The ACCC spent three years reviewing that move by Qantas before the airline made its move to acquire the rest of Alliance.

Under the deal proposed by Qantas and backed by the Alliance board, shareholders in Alliance would receive Qantas shares to the value of $4.75 for each Alliance share.

Unions and Virgin Australia were among those to oppose the deal and in August last year the ACCC released a “statement of issues” outlining its own concerns.

The final decision on Thursday, prompted Qantas to seek an urgent meeting with the ACCC to help “understand” the decision.

Ms Cass-Gottlieb said first the ACCC wanted to know if Qantas still planned to pursue the acquisition.

“We’ve made it clear we oppose the transaction, so we want to give them time to consider their commercial position and then we’ll consider that request (for a meeting),” she said.

Many factors were taken into account by the ACCC during the review, including the opinions of resource industry companies.

Ms Cass-Gottlieb said they expressed concerns there would not be sufficient competitive constraint between airlines, if two very close competitors in the industry were removed.

“Many did tell us Alliance was their preferred supplier,” Ms Cass-Gottlieb added.

A statement from Qantas expressed its dismay at the decision but gave no indication as to whether the airline would seek a declaration in the Federal Court.

“As the ACCC has previously acknowledged, customers in the resources segment are sophisticated and well-resourced with procurement experience and strong bargaining power in their negotiations with airlines and other operators,” said the statement.

“The proposed acquisition of Alliance would enable Qantas to service this important sector better, particularly through the efficiencies unlocked from a combined fleet of similar aircraft.”

Qantas also pointed out it was Alliance’s biggest customer, wet-leasing 18 Embraer aircraft that were operated on their behalf on regional routes.

Alliance Aviation managing director Scott McMillan said they still supported the deal, but it was up to Qantas to pursue the acquisition in the wake of the ACCC’s decision.

Virgin Australia welcomed the ruling, given “Qantas was already the dominant carrier in the Australian domestic aviation market and had the largest share of charter operations”.

“It is clear the ACCC has serious concerns about the proposed acquisition, its implications for competition in the Australian aviation market and its impact on charter customers,” said a Virgin Australia spokeswoman.

Alliance shares sank in response to the announcement closing down 7.7 per cent (27c) at $3.24. Qantas shares also finished the day’s trade in negative territory, at $6.52, down 3c.

Originally published as Qantas set for court battle to buy Alliance after ACCC opposed $614m deal