In the previous article, we discussed privatization through public share issuance, with the example being British Airways. The airline was run by the government and through the issuance of public stock, the company was privatized and put in the hands of private shareholders. Next, we’ll look at another type of privatization that airlines could go through, privatization through public share issuance and a corresponding trade sale
Privatization through issuing shares alongside a trade sale is a very similar concept to how British Airways was privatized back in the late 1980s, the main difference here is that instead a portion of the airline is sold to another airline for a certain percentage of the share capital. This is usually done for some sort of strategic reason that would give both airlines strategic advantages.
A good example of this is the Qantas privatization in the 1990s, where the airline went through a multi-step process that included a trade sale and public share issuance. First, Qantas merged with another major domestic airline, Australian Airlines, in September 1992. This increased the presence of Qantas on domestic routes and various other synergistic advantages brought out through the merger.
Then, in March 1993, 25 percent of Qantas was sold in a trade sale directly to British Airways. Right around this time, British Airways also entered a 10-year commercial agreement with Qantas as well. The new agreement and trade sale helped cement British Airways and Qantas as strategic partners. Just a few years later these two airlines would also end up being the founding members of the oneworld airline alliance alongside American Airlines, British Airways, Cathay Pacific and Canadian Airlines, the last of which left the alliance shortly afterward due to a merger with Star Alliance carrier Air Canada.
Remaining Share Sale to Public
The remaining 75 percent of shares were still held by the government of Australia, an amount totaling to 750 million shares. These remaining shares were then sold at $2 Australian dollars a share to both the general public in another issue that was oversubscribed due to popularity.
As with the British Airways sale, the issue of foreign ownership came up with Qantas. Therefore, the government passed the Qantas Sale Act to ensure that Qantas remained an Australian airline. Foreign ownership was limited to 49 percent of shares and directors of Qantas were given the power to remove the voting rights of a share, to require disposal of shares and to transfer shares when foreign ownership limits were close to being exceeded.
Employees were also offered shares and each was given around 250 shares at the initial offering followed by additional free distributions a few years after as part of an employee bonus program.
British Airways Sells
British Airways eventually sold their stake in the airline in 2004. Given that British Airways was an alliance partner with Qantas and various other agreements had been made the large ownership of Qantas, owning shares didn’t make much strategic sense anymore. Plus, at the time, British Airways was working on reducing growing long-term debt.
The sale was quite profitable with British Airways recording a book profit of 165 percent excluding dividends and other measures.
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