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Are Qantas shares taking off again?

The Qantas Airways Limited (ASX: QAN) share price has been something of an emblem of the current coronavirus-induced ASX bear market we now find ourselves in.

Qantas shares were trading at all-time highs in February (just 2 short months ago), but hit a 6-year low of $2.03 a fortnight ago. This virus has brought our proud national carrier to its knees in a very short amount of time, as travel bans wreak havoc with airlines all over the world.

But could we have found a bottom for the Flying Kangaroo? The government has made it fairly clear that a company like Qantas is first in line for assistance during this rough time. Perhaps that explains why the Qantas share price has lifted 50% since its bottom on 19 March.

So is it too late to buy into Qantas shares – especially if we know the government is waiting underneath this airline with a safety net?

Is this a buying opportunity for Qantas shares?

Yes, the Qantas share price has risen 50% in just 11 days. If you were fortunate enough to pick up some shares last week, you will no doubt be popping the champagne right now.

But in my opinion, there is still significant risk bundled up with this company today.

Personally, I don’t think the government will allow Qantas to go bankrupt. Its brand is too sentimental for Australians to allow a morale-crushing event like that to take place, in my view.

But there is another danger.

If the government is forced to step in and offer a full-scale bailout to Qantas, it might just demand something in return for the taxpayer-funded assistance. And that ‘something’ is likely to be a huge swathe of Qantas shares, if history is anything to go by.

If the government demands a pile of Qantas shares in exchange for a bailout, it will result in massive share dilution for Qantas’ existing owners. You might go (hypothetically here) from owning 0.0001% of Qantas to owning 0.000000001% just like that, without selling a single share. The business will survive and even thrive down the road. The government will earn back some or even all of its money. However, your investment will remain a shadow of its former glory.

We saw this happen over in the US with the General Motors bailout during the GFC a decade ago. In exchange for a bailout, the US government received a massive pile of GM shares, which it only sold off in 2013. This isn’t unprecedented folks, and we could see something like the GM situation happen with Qantas.

So invest with caution!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.