It's war as rattled chief tries to fend off invaders

THE move by Qantas boss Alan Joyce to pull the plug on a $44 million contract with Tourism Australia on the basis that he believes its chairman is plotting to take control of the airline - and depose him - is tantamount to open warfare.

THE move by Qantas boss Alan Joyce to pull the plug on a $44 million contract with Tourism Australia on the basis that he believes its chairman is plotting to take control of the airline - and depose him - is tantamount to open warfare.

To this end he is using various tactics to flush out the covert operation, including withdrawing the contract with Tourism Australia on the basis he believes there is a conflict of interest.

The conflict, he believes, is that the chairman of Tourism Australia is Geoff Dixon, the former chief executive of Qantas, who is part of a backroom scheme that is trying to win shareholder support to unlock value in Qantas.

The problem with this is Dixon has not officially declared his hand on his intentions for Qantas. Nor has he stated publicly that he is agitating for change. The upshot is it is a bit of a stretch and an overreaction on Qantas' part to call it a conflict.

Right now, Dixon and the other businessmen including Peter Gregg, John Singleton and Mark Carnegie, are believed to have amassed 2 per cent of Qantas and are considering something that may or may not eventuate.

But Joyce's tactic has worked thus far. Besides grabbing headlines, it forced the board of Tourism Australia to hold a lengthy meeting to discuss how to handle the extraordinary turn of events.

It came out in full support of Dixon and put out a statement to this effect, along with figures putting the size of the $44 million contract into context. In the scheme of things it is a few per cent a year. But to gain maximum impact Joyce coincided the suspension of the contract with a well-publicised speech he gave on Wednesday, where he referred to the group of businessmen and their intentions for Qantas as APA Mark 2. APA Mark 1 was the failed private equity bid for Qantas in 2007 at $5.40 a share. Dixon, Gregg and Carnegie were central to that bid, as was Joyce, who used it to negotiate a bigger job for himself.

Joyce did not let the speech pass without giving Dixon a spray: "Today you've seen mention of correspondence relating to the Qantas relationship with Tourism Australia and a conflict of interest issue. Given that the Tourism Australia chairman is a member of the APA Mark 2 club, we deemed it prudent to suspend our partnership with Tourism Australia."

To make sure he meant business in relation to squashing Dixon, he mentioned at the lunch that Queensland Premier Campbell Newman had rung him about the opportunities of Queensland Tourism, rather than Tourism Australia, working with Qantas next year.

Joyce is clearly rattled. Qantas shares are trading at about $1.31, putting it on a market cap of $3 billion, a far cry from the $2 a share it listed at 17 years ago - and a long way from the APA takeover offer five years ago of $5.40.

The consortium has been toying with the idea of doing something with Qantas for more than a year as the airline's shares tumbled on disappointing earnings, stoushes with the unions and its latest decision to tie up with Emirates.

The consortium is yet to take the plunge but there is enough information out there that the way it plans to do it is by building a stake of up to 19 per cent in the company at the same time as garnering support from shareholders to get on the board and make changes from within, including appointing a new CEO and launching a new strategy with a view to unlocking value.

This includes ditching the deal with Emirates, floating Jetstar and the frequent-flyer business and beefing up Qantas' strategy in Asia. To put it into perspective, Jetstar's profit in the latest year was a little more than $200 million, while its frequent-flyer business made $231 million. If these businesses were floated they could each have a value of up to $2 billion.

Joyce tried to dismiss the consortium by saying there was no evidence they knew their aims and ambitions themselves. He dissed the proposal to float the frequent-flyer business using the argument that "the world has moved on from the global financial crisis . . . There are not many airlines that have sold their frequent-flyer scheme and those that have sold it, it's very clear in our minds the shareholder value is not being realised by doing that."

Dixon et al know the airline like the back of their hands and have spent a lot of time thinking about Qantas and its strategy.

The clock is ticking for the consortium to put its cards on the table and let shareholders decide on the best way forward.

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