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News: Lew & Fox play their game right down to the wire

News: Lew & Fox play their game right down to the wire

 
Old Feb 22, 02, 10:07 pm
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News: Lew & Fox play their game right down to the wire

Lew & Fox play their game right down to the wire
Leonie Wood
February 23 2002

Like it or not, Solomon Lew did not accumulate a fortune of $700 million by letting someone get the better of him in business. He cuts a tough deal, and then he cuts it again, and again.

In business, Lew is like a grade-A card-player: amiable enough but almost impossible to read. But after a while, even the strategies of the best players fall into a pattern of sorts.

Unfortunately for Ansett's creditors, they are on the other side of the latest Lew deal, the plan to buy Ansett.

The creditors have been waiting so long for Lew and his partner Lindsay Fox (and scores of lawyers and corporate advisers) to settle the deal that their arms, outstretched for the handshake, must ache with tiredness.

Even the broad-based goodwill for Ansett, engendered by the mere prospect of someone wanting to give the failed airline another go, is waning. The general public have tired of rumours and stories suggesting the sale is on again, off again, on again, and the hot topic at business lunch tables once again is Canberra, not Ansett.

Next week is the make-or-break week for Ansett and the estimated 3000 employees who hope to secure full-time jobs with the Fox-Lew airline. It is also the last week for creditors, who, after five long months of arguably the most extraordinary insolvency management in Australia, are meant to feel lucky indeed if they get back 5 per cent of what they were owed.

By midnight Thursday, Lew and Fox must put pen to paper and finally, categorically commit to the deal.

If not, Ansett's administrators, Mark Mentha and Mark Korda, will pull the planes from the sky just as the first set of Ansett administrators did in September. Lazarus will be back in the grave, this time forever.

No one inside the deal seriously expects that to happen. In all likelihood, the Fox-Lew consortium, known as Tesna, will run this right down to the deadline, papers will be signed and hands shaken. Then it's up, up and away, at least for the planes and passengers; profits won't take flight for years.

Financial analysts question whether Fox and Lew understand how ruthless their rival, Qantas, will be. They flatly dismiss Tesna's hopes, saying the domestic market cannot support three national carriers - witness the collapses of Compass I, Compass II and Impulse (now owned by Qantas).

Indeed, Qantas' chief executive Geoff Dixon this week indicated he fully expected a price war, although he used the more colourful description of an "inevitable bloodbath".

"Unquestionably, this is a stupid industry," Dixon said.

"The inevitable result of these things in Australia in the last 10 years has been that airlines have gone out of business and people have lost their jobs."

Qantas, with more than 80 per cent of the domestic aviation market, has sufficiently deep pockets to withstand a price war for many months.

Tesna has yet to win the confidence of anyone in the local investment community. Instead it found firm financial backers overseas in David Bonderman and Bill Franke.

Tesna's projected cashflows and available funds allow for hefty losses of about $150 million in the first two years, and the consortium plans to sell shares in year three.

As for Australia's third airline, budget carrier Virgin Blue, it may well become a subsidiary of Tesna if Lew and Fox get their way. Exactly how Tesna will manage the dual brands and erode Qantas' dominance remains to be seen.

For now, Lew and Fox are under pressure to get the Ansett deal done.

At the bargaining table, ACTU secretary Greg Combet has accused Tesna of "chiselling" at the original Ansett deal.

Tesna rejects that term. It contends that in seemingly endless negotiating sessions for the past five weeks its legal advisers from Clayton Utz, led by Max Casen, have done no more than try to identify every asset in Ansett's mainline business.

Tesna claims it merely wants all Ansett's mainline assets that were in place at November 8, when the preliminary agreement was signed, to be in place this week with clear title.

Others see it differently. They believe Tesna has been trying to scoop up assets and income streams that were not elements of the mainline business and put other liabilities on to the administrators.

The administrators have insisted they will not allow value to be whittled away. On Thursday, amid some heated scenes inside the bargaining room, they were forced to deny reports Tesna was trying to clip its $270 million cash payment.

Still, the haggling has worn down everyone and made Tesna's bid look to the outside world like the incredible shrinking deal.

On November 8, it was touted as a $3 billion deal (including a cash payment, liabilities, working capital, and aircraft leases valued at $2 billion or so).

The actual bid is worth about $500 million, comprising $270 million cash plus various liabilities including accrued entitlements for about 3000 workers.

To keep that intact as the administrators' self-imposed deadline draws closer, commercial reality will have to overcome the frustrating, but predictable, commercial stubbornness.
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