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A takeover bid for Qantas led by Australian investment giant Macquarie Bank sent the share price of Australia's largest airline up 15 per cent.
It also gave Air New Zealand's price a boost.
Qantas confirmed the offer yesterday, saying: "The approach is confidential and incomplete."
The prospect of
a bid by Macquarie, Australia's biggest investment bank, and buyout firm Texas Pacific, lifted the airline's market value to A$9.9 billion ($11.4 billion).
Shares in the airline took off after the announcement, reaching a record high of $A5.25 before settling back to close up A65c, or 14.94 percent, at $A5.00.
Air New Zealand shares rose up to 5 per cent yesterday after news of the takeover approach.
At one point they were up 9c at $1.57 - their highest in the year - but they closed up 7c at $1.55.
Investors appeared to be betting Air New Zealand might also become a takeover target.
In Sydney, JPMorgan transport analyst Matt Crowe said of Macquarie's offer: "It's hugely ambitious.
"You've got the unions to get on side, the Government to keep on side. It would be a landmark transaction, and I don't think anyone's ever done anything like it."
Macquarie or Texas Pacific cannot buy all of Qantas because individual entities can hold no more than 25 per cent of the airline.
Foreign ownership is limited to 49 per cent.
A bid could could value Qantas at up to A$11 billion, but Shaw Stockbroking research manager Brent Mitchell said the airline was still cheaper than other companies on the Australian Stock Exchange.
"Qantas generates strong cash flows and trades at a discount to the rest of the market - its enterprise value to ebit [earnings before interest and tax] is fairly low," Mitchell said.
"So there's a chance for Macquarie and Texas Pacific to put in a bit more debt and take advantage of expansion opportunities.
"There are also still some break-up opportunities in Qantas."
CommSec banking analyst Carlos Castillo said that although Qantas was an unusual buy for Macquarie, it could benefit from the deal.
If the deal went ahead, it would let Macquarie buy Qantas' T2 terminal at Sydney Airport.
Macquarie already owns most of the airport's holding company through its listed Macquarie Airports fund, and could add the terminal to the fund.
Despite this, buying Qantas would be a departure for Macquarie, which usually targets infrastructure assets such as airports, toll roads and water utilities, offering predictable returns that it bundles into funds and manages for a fee.
Macquarie last month led a group that agreed to buy Thames Water, Britain's largest water services company, for US$9.1 billion ($13.6 billion).
Analysts say Qantas' dominant position in Australia makes it a reasonable takeover proposition.
It carries two of every three domestic travellers, and one of every three travellers leaving Australia.
Macquarie Bank chief executive officer Allan Moss, who has run the bank since 1993, could face political opposition to a takeover.
"This is an offensive move on an Australian icon, the Flying Kangaroo," said Barnaby Joyce, a National Party senator from Queensland.
"Something has to be done to protect the national interest."
Unions will also fight a bid.
"We're opposed to any takeover, cost-cutting, breakup profiteering by merchant bankers and private equity," said Doug Cameron, secretary of the Australian Manufacturing Workers Union, which represents 1500 Qantas workers. "There are too few Australian icon companies now."
Qantas started after World War I as Queensland and Northern Territory Aerial Services, with two war-surplus biplanes, serving the outback. Scheduled passenger flights started in 1922 and international services started in 1935, when it took four days to fly from Brisbane to Singapore.
It now has 213 planes, which fly more than 5000 domestic and 700 international flights a week.
Qantas has dodged the worst of the airline industry's woes, reporting a profit every year since 1994, including record earnings in 2004 and last year after it cut jobs and started discount carrier Jetstar.
- BLOOMBERG, REUTERS, NZPA
