Without all the subprime fear and the crunching happening in financial markets, the Qantas result should have produced a flood of 'we told you sos' directed at the board and management of the airline, especially from a couple of fund managers who went out on a limb in their early opposition to the $11.1 billion buyout from the Macquarie Bank-led private equity mob.
It reported a record profit, which topped the billion dollar mark pre-tax, a share buyback to use up some of those billions sitting uselessly on the balance sheet, and a higher dividend.
Qantas has finally delivered.
And there's a forecast of a 30% rise in earnings this year while departing chairman, Margaret Jackson, said the dividend would rise as the company's performance improved.
Qantas wasn't immune from the bears in yesterday's sharp sell off: the shares were down to a recent low of $4.92, a fall of 36c, before they recovered to $5.05 on the back of the better than expected result.
Net profit rose 50% to $720 million and the final dividend is 15c a share, the same as the interim which was boosted as a parting 'gift' by the board during the abortive private equity bid.
And it has performed for shareholders, many of who were loyal to the brand (not the board or management) and opposed the buyout which the airline's board and management had blindly supported.
Yesterday's results announcement showed how much of a bargain the Australian Airline Partners were getting, how the board didn't do the right thing by shareholders, and how management almost sold the airline down the river by becoming a part of the deal.
And there's every sign the airline believes the coming year will produce another solid round of revenues and earnings, not withstanding all the turmoil in financial markets and the coming step up in competition in the domestic aviation market from new players.
Management believes it can boost earnings by around 30% in 2008, which would put it within sight of $1 billion on an after tax basis and well over $1.3 billion before tax.
That's the sort of performance the bid's critics forecast and the board and management played down.
How the tune has changed.
One thing is certain, the subprime mortgage mess and its fallout has made sure no one will come near Qantas for years with a highly leveraged, aggressively priced bid.
The APA-type deal will be history for quite some time as the problems exposed in hedge funds, private equity and other specialists in high yield, clever and leveraged finance, rediscover the disciplines of risk and reward.
Had that New York hedge fund got its acceptances right and enabled the deal to proceed, Qantas could have been in the middle of funding the buyout, which could have been very awkward.
The mooted split of the company into four entities — fleet, freight, frequent flyer program and airline management — isn't going to happen overnight, but the loyalty program and the fleet company look like being first, even though they may not now happen until the first half of calendar 2008: which should be enough time to allow the present market unsteadiness to settle down.
Jetstar was 8.5% of group profits, up from 1.8% in 2005-06, and heading for 10-11% by the end of the 2008 year.
Its biggest benefit to Qantas though is as theleader for cost cuts inside Australia and increasingly, on the international part of the business. That won't stop and Qantas seems determined to use Jetstar as the defensive/attacking force against the new operators here and in their home markets in south east Asia.
At the end of December, Qantas had around $3 billion in cash on its balance sheet after the buyback, which will be for around 10% of the issued shares, or around $1 billion. It will still be holding around $2.4 billion in cash.
Qantas had a strong second half with net earnings more than doubling to just over $361 million from $127 million in the second half of 2006.
Total revenue rose 11% to $15.2 billion while passenger revenue rose 13% to $11.9 billion as traffic, measured by revenue passenger kilometers, rose 7.4% in the year.
And the first six weeks of the current year had been "very strong'' and Qantas is forecasting fiscal 2008 profit before tax to rise 30% from last year's $1.03 billion.
The profit includes a provision of $47 million, announced on Monday 13 August, against liabilities Qantas may incur in the United States for involvement in an alleged freight cartel.
Staff will receive $1,000 worth of shares and $1,000 in a cash bonus.
