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Qantas flight path questioned

A partial takeover of Qantas Airways Limited (ASX: QAN) is rumoured to be in the wings, going by a report in today’s Australian Financial Review (AFR).

According to the newspaper, Former Qantas finance chief Peter Gregg and venture capitalist, Mark Carnegie are considering taking a majority stake in the company, with a view to push for an alternative strategy. Both worked on the failed private equity bid for the airline in 2006, which at the time was offering $5.60 a share.

The new strategy could include a more aggressive push into Asia, a partial selloff of subsidiary Jetstar, and the sale of the frequent flyer business to return capital to shareholders. The AFR understands that Mr Gregg and Mr Carnegie recently held talks with union groups representing pilots, engineers and ground workers, in a bid to secure their support.

The newspaper believes the pair have been linked to other high profile business people, including ad-man John Singleton, trucking magnate, Lindsay Fox and former Qantas chief, Geoff Dixon; and have the support of about 20% of Qantas shareholders for their plan.

Both Mr Gregg and Mr Carnegie appear to be in favour of pushing for closer ties with an Asian airline, rather than with Emirates, but that could be a risky move. With the Qantas international division unprofitable, the deal with Emirates appeared to be the best way forward for the business, by cutting costs and freeing up capital and planes to expand into Asia.

At the same time, Qantas’ domestic division is facing unprecedented competition from Virgin Australia Holdings (ASX: VAH). Virgin recently announced that it was taking a 60% stake in budget airline Tiger Airways Australia, and a full takeover of  Skywest Airlines (ASX: SXR) as part of a three-pronged assault on Qantas. It seems Virgin is going to take on Qantas Domestic, while Tiger will compete against Jetstar and Skywest may be expanded to compete against Qantas Link. Additionally, Virgin is also going upmarket, offering business and premium class airfares, and competing for corporate travel accounts – previously the domain of Qantas.

Foolish takeaway

With Qantas’ share price languishing around $1.27 and trading at less than its book value, the company is likely to be the target of a least a few investors who believe they can extract more value.

If you only invest in one company this year, make it our “Top Stock for 2012-13”. Operating in two hot markets — one set to double by 2012, the other predicted to grow 5x over the next five years — this stock is a solid growth play that also boasts strong recurring revenue, zero debt, and lots of cash. Get its name and full research case in this brand-new FREE report.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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