China Southern airline in plan to back stake in Qantas

China Southern 

Guangzhou -THE biggest airline in Asia, state-owned China Southern, held detailed discussions last year to bankroll a group of wealthy investors - including former Qantas chief executive Geoff Dixon, adman John Singleton and retail king Gerry Harvey - to buy a cornerstone shareholding in the national carrier.

The Weekend Australian understands the powerhouse Asian carrier was introduced to the consortium by billionaire trucking magnate Lindsay Fox and that Mr Dixon held discussions with China Southern chairman Si Xianmin, encouraging the Chinese to provide financial backing for the syndicate, which had acquired a stake of about 2 per cent in Qantas.

While some sources said a draft agreement was reached under which China Southern was prepared to bankroll the consortium to take an initial stake of 19.9 per cent in Qantas, which could eventually rise to 25 per cent, others say the discussions never got to that stage.

The ginger group, which included former Qantas chief financial officer Peter Gregg and venture capitalist Mark Carnegie and was planning to agitate for strategic change at the airline, is believed to have grown impatient waiting for a firm commitment from the Chinese and quietly sold their 2 per cent stake in Qantas in January this year for an estimated $18 million profit.

Qantas signed a code-share deal this week with China Southern, which the Australian carrier believes will drive increased Chinese tourism and cement its presence in the world's second-biggest economy. While China Southern president Tan Wangeng said this week the airline had "no plan as such" to invest in Qantas, there is speculation this may change if the government repealed the Qantas Sale Act.

Under the act, foreign investment in the national carrier is capped at 49 per cent; total ownership by foreign airlines is limited to 35 per cent; and by a single foreign investor to 25 per cent.

Any such move by China Southern would present a fresh dilemma for the government after it knocked back global agribusiness giant Archer Daniels Midland's $3 billion bid for Graincorp.

Tony Abbott said yesterday he might consider allowing foreign companies to take a bigger stake in Qantas. While the Prime Minister preferred to see the company kept in majority Australian hands, he would be happy to look at changes to the Qantas Sale Act if there were no cost to taxpayers.

On Thursday, Qantas shares experienced their biggest one-day fall in 18 months after the airline announced it would lose as much as $300m in the first half of the financial year and slash 1000 jobs over the next 12 months.

Chief executive Alan Joyce revealed that the airline would also consider a radical restructure of its operations, which could include partial sales of its frequent-flyer or Jetstar budget airline operations.

Ratings agency Standard & Poor's downgraded the airline's investment-grade credit rating yesterday to junk status, a move that will increase its borrowing costs and means some institutions may not be able to hold its debt.

Qantas moved to reassure travel agents and passengers that this week's savage profit downgrade would not affect its operations.