View Comments
Qantas shares soar on Emirates tie-up speculation
Qantas shares soar on Emirates tie-up speculation

UPDATE 3.10pm: Shares in Qantas Airways have soared as the national carrier confirmed it is in talks with a number of airlines about potential alliances, including Dubai-based Emirates.

Qantas said that making alliance partnerships stronger was one of the four pillars of the group’s five-year strategy announced in August 2011.

"At any one time, Qantas may be in contact with a wide range of companies about potential commercial cooperation,” Qantas said in a statement today.

"These airlines include Emirates, among others."

Qantas would not comment on the nature or status of the talks.

Speculation about a possible partnership with Emirates, the world’s largest airline, sent Qantas shares soaring 9.5 cents, or 9.6 per cent, to close at $1.085.

They had earlier hit an intra-day peak of $1.10 and were one of the most heavily traded stocks on the Australian Securities Exchange.

The Australian Financial Review reported today that Qantas was working on a tie-up with Emirates that could boost Qantas’ ailing international operations.

A code-sharing deal would result in Qantas flying to Dubai, and Emirates transferring passengers to destinations in Europe, the Middle East and Africa.

The report said Qantas was set to withdraw from its last remaining port in mainland Europe, Frankfurt, and route many of its London flights through Dubai instead of Singapore.

The alliance would give Qantas the option of retiring aircraft early or pushing into Asia more aggressively.

In June, Qantas chief executive Alan Joyce would not confirm or deny the flying kangaroo was in talks with Emirates about a commercial partnership.

Emirates president Tim Clark said at the time he was open to working with Qantas to try to expand Emirates’ network in Oceania.

Qantas is on track to post its first loss since its full privatisation since 1995 because of heavy losses in its international arm.

Moody’s Investors Service said that a major tie-up between Qantas with a Middle East or southeast Asian-based, hub carrier could alleviate some of the strategic disadvantages that Qantas faces as an end-of-line carrier.

Senior credit officer Ian Lewis said a tie-up was a better alternative to a sale or wind-down of the international business.

A sale or wind-down in a scenario where Qantas was unable to recover its cost of capital would have material negative effect on the group’s credit rating.

Mr Lewis said Qantas’ international business was facing a more competitive operating environment and entrenched structural issues.

"These issues include a cost base which is too high, and a relatively aged fleet which has reduced the competitiveness of the international business’ products against bigger and better equipped hub carriers like Emirates and Singapore Airlines,” he said.

Meanwhile, a Melbourne-based aircraft engineering company co-owned by Qantas, LTQ Engineering, said it would close, with a loss of 164 jobs.

LTQ Engineering, an aircraft engine overhaul company based at Tullamarine, said today that it would cease operations in September after it consistently posted losses each year of operation.

The company, a joint venture of Lufthansa Technik and Qantas Airways Limited formed in 2008, blamed a decline in demand for engine overhaul services for the closure.

The closure follows Qantas’s announcement in May that 500 jobs would go as the result of the consolidation of its heavy maintenance operations, including more than 400 positions at Tullamarine.

Qantas Domestic chief executive Lyell Strambi said Lufthansa Technik would continue to manage the contract for maintaining Qantas engines, and most of the work now done at Tullamarine would be done in Germany.