Qantas scraps $614 million Alliance takeover after competition watchdog rejection

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Qantas has officially terminated its planned takeover of fly-in, fly-out charter service Alliance Aviation six months after the competition watchdog opposed the deal.

The two ASX-listed airline businesses told the market on Thursday the $614 million deal was no longer worth pursuing as it would require expensive legal action to attempt to get over the line. Qantas will retain its 20 per cent stake in the smaller charter airline.

Qantas has scrapped its planned takeover of Alliance Aviation. Credit: AFR

The Australian Competition and Consumer Commission opposed the transaction in April after a lengthy investigation which determined the level of competition on routes in regional and remote areas of Australia needed to be strengthened. The call followed four delays by the commission, which first received the proposed acquisition application in April 2022.

Alliance told investors on Thursday the termination was in their best interest.

“Continuing to seek competition clearance for the transaction would require the company to apply significant additional resources to extensive and complex contested court proceedings,” Alliance said.

Qantas has owned a 20 per cent stake in the Brisbane operation since 2019 and moved in April 2022 to purchase the remaining 80 per cent in a deal in which Alliance shareholders receive Qantas shares worth $4.75 for each Alliance share they hold.

Regional Express’ $48 million takeover of fly-in, fly-out operator National Jet Express was approved in September 2022, less than two weeks after it flagged the proposed deal.

Although Rex’s acquisition was approved, the ACCC has cracked down on the level of competition and collaboration between airlines since COVID-19, with the Alliance takeover one of a string of joint-airline rejections this year.

The watchdog denied Virgin Australia’s attempted renewal of its partnership with Alliance, which previously allowed the two airlines to co-ordinate and tender for flights in Queensland and the Northern Territory.

The watchdog said in September it was unlikely to approve Qantas’ attempted extension of its code-share agreement with Chinese giant China Eastern as passengers may face higher airfares and fewer services on the Sydney to Shanghai route if the airlines were allowed to continue working together.

ACCC chair Gina Cass-Gotlieb said at the time that local airlines should be put on notice that their existing partnerships were unlikely to be approved if they were not maintaining satisfactory competition levels.

“I think we are always careful with authorisations due to the risk of reduced competition on individual routes. The public puts a lot of store in aviation, and it’s important to maintain a balance,” Cass-Gotlieb said in September.

As it stands, China Eastern is the only carrier servicing the route but Qantas will restart its own flights at the end of this month.

RBC analyst Owen Birrell said at the time of the China Eastern rejection there was a rising risk the watchdog may deny other Qantas partnerships.

“We note the rising risk that a similar argument could be made by the ACCC in reference to [Qantas’] other ‘partnership-style’ arrangements as they come due, namely with Emirates [due 2028] and American Airlines [due 2026],” Birrell said.

Qantas was granted conditional approval to continue its partnership with Emirates in August. It was also granted approval to continue co-ordination with its low-cost carrier Jetstar in the Asia-Pacific region in April. Qantas’ application to extend its partnership with JAL was rejected in 2021.

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