China bound to take stake in Qantas: Credit Suisse analyst

It could be a matter of time before a Chinese airline tries to buy a strategic stake in Qantas.

Qantas already has partnerships with two of China’s biggest airlines, China Southern and China Eastern.

It could be just a matter of time before a Chinese airline tries to buy a strategic stake in Qantas, according to analysts at Credit Suisse.

The recent interest of Chinese companies in Virgin Australia — which is on its way to becoming 40 per cent-owned by the Chinese conglomerates HNA and Nan­shan Group — has prompted ­Credit Suisse analyst Paul Butler to make the bold prediction.

“The recent attention on Virgin Australia could raise interest in Qantas from Chinese airlines. A significant minority share in Qantas along with a strategic alliance could enable a Chinese airline to gain a stronger market position on routes between Australia and China,” Mr Butler said.

“It is possible for any of the three major Chinese companies to target a stake in Qantas, but it is more likely that China Southern or China Eastern would be interested, as they have a greater focus on the Australian market.”

Qantas already has partnerships with two of China’s biggest airlines in China Southern and China Eastern and codeshares with them on routes between Australia and China.

Mr Butler said the Virgin investment was likely to act as a catalyst for either of those state-owned carriers to take a stake in Qantas. “China Eastern and Qantas currently have a JV on these routes, but this could be at risk in the long term if China Southern acquired a significant minority stake in Qantas with board representation,” he said. “Alternatively, China Eastern could protect its long-term interests in the current JV by taking on a significant minority position in ­Qantas.”

While the Qantas Act prohibits foreign investors from owning more than 49 per cent of the airline, overseas ownership of the ­nation’s No 1 carrier is currently below 44 per cent, meaning there is room for a potential Chinese investor to take a 5 per cent stake.

With Qantas shares trading at a 12-month low of $2.88, Mr Butler believes the value of the stock makes it an obvious investment target for Asian airline investors.

“The current low valuation of Qantas shares, based on our estimates, makes this a compelling strategic and value opportunity,” he said. “For a Chinese airline operating on these international routes there is value in a strong partnership with the leading domestic airline in the Australian duopoly market that offers the intra-Australia connections.”

The potential interest of a Chinese investor in Qantas comes as the airline yesterday completed its $500 million share buyback.

It means the airline has returned $1 billion to shareholders in the past 12 months after handing over $505m to shareholders in the form of a 23c-a-share distribution in August last year.

The buyback, which kicked off in March after Qantas posted a bumper profit result, has seen 143.6 million shares bought back at a weighted average price of $3.4819 a share.