Qantas Drops $614 Million Alliance Takeover Amid Regulatory Hurdles and Proxy Adviser Concerns. Qantas, the Australian airline giant, has officially terminated its $614 million planned takeover of Alliance Aviation, a fly-in, fly-out charter service. The decision comes six months after the competition watchdog opposed the acquisition. Qantas will maintain its 20% stake in Alliance Aviation.
Regulatory Roadblock
The Australian Competition and Consumer Commission (ACCC) first opposed the Alliance transaction in April, following an extensive investigation that highlighted the need to strengthen competition on routes in regional and remote areas of Australia.
Proxy Advisers Reject Qantas Remuneration Plans
In a separate development, Qantas faced a setback in its proposed remuneration plans for senior executives and board members. Three proxy advisers, including Institutional Shareholder Services, joined Ownership Matters and Glass Lewis in recommending that investors vote against the remuneration package at the upcoming annual meeting in November. Institutional Shareholder Services specifically raised concerns about the performance rights of newly appointed Qantas CEO, Vanessa Hudson.
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Shareholder Concerns
Ownership Matters urged shareholders to vote against the re-election of director Todd Sampson, emphasizing his long tenure on the board and marketing background, which they argued increased his responsibility for the company’s reputation decline. While ISS and Glass Lewis did not oppose Sampson’s re-election, they acknowledged concerns about governance and risk oversight.
Watchdog Stringent Approach
The ACCC has taken a stringent approach to airline transactions and collaborations in the wake of the COVID-19 pandemic. It rejected Qantas’s proposed extension of its code-share agreement with China Eastern, citing concerns about potential higher airfares and reduced services.
Industry Implications
The rejection of the Alliance takeover, as well as other joint-airline rejections, indicates the ACCC’s commitment to maintaining healthy competition in the aviation sector. Airlines in existing partnerships have been put on notice that these agreements may not be approved if they fail to ensure satisfactory competition levels.
Future Partnerships
The rejection of the Alliance deal has raised concerns that other Qantas partnerships, such as those with Emirates and American Airlines, may face increased scrutiny and potential rejection by the ACCC in the future. It’s essential for airlines to navigate these partnerships carefully to maintain a balance between collaboration and competition.
FAQs
Q1) Why did Qantas abandon its takeover of Alliance Aviation?
Ans:- Qantas abandoned its planned takeover of Alliance Aviation due to regulatory opposition from the Australian Competition and Consumer Commission (ACCC). The ACCC conducted a thorough investigation and concluded that the acquisition would not be in the best interest of competition in regional and remote areas of Australia. As a result, Qantas decided that pursuing the deal would require costly legal action, making it no longer worth pursuing.
Q2) What were the concerns raised by proxy advisers regarding Qantas’s remuneration plans for executives and board members?
Ans:- Several proxy advisers, including Institutional Shareholder Services (ISS), expressed concerns about Qantas’s remuneration plans. ISS, in particular, questioned the performance rights of Qantas CEO Vanessa Hudson, citing recent reputational issues.
Ownership Matters and Glass Lewis also recommended that investors vote against the remuneration package, emphasizing governance and risk oversight concerns. These recommendations have raised questions about the future of executive compensation at Qantas.
Q3) How has the ACCC’s approach to airline transactions impacted the industry, and what does it mean for other partnerships?
Ans:- The ACCC’s stringent approach to airline transactions, including the rejection of the Alliance takeover, signifies the regulator’s commitment to maintaining healthy competition in the aviation sector, especially in regional and remote areas. Airlines in existing partnerships have been put on notice that their agreements may not be approved if they fail to ensure satisfactory competition levels.
This has raised concerns about the future of partnerships involving Qantas, such as those with Emirates and American Airlines, and whether they may face increased scrutiny and potential rejection by the ACCC in the future.
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Conclusion
Qantas’ abandonment of the Alliance Aviation takeover reflects the challenges posed by regulatory hurdles in maintaining healthy competition. The ACCC’s stringent approach carries implications for the airline industry’s future partnerships and executive compensation.