Why Singapore’s failed takeover of Australian Securities Exchange does not augur well for Singapaore Airlines

WHAT has the proposed merger between the Singapore Stock Exchange (SGX) and Australian Securities Exchange (ASX) to do with Singapore Airlines (SIA)? Now that it is known the Singapore bid for the Australian bourse has failed, what does it mean for SIA?

You can bet SIA enthusiasts have been watching closely the development of the proposed merger since its announcement in October last year. In some way, SGX is treading where SIA had been. Back in 2005 amidst the frenzy of airline mergers as a way to combat rising fuel costs and to better compete with discount carriers, Australia’s then Prime Minister John Howard raised the possibility of a similar union between Qantas and SIA after rejecting the latter’s request to fly trans-Pacific from Australia to the United States.

Earlier, British Airways (BA) had relinquished its 18.25 per cent stake in Qantas, ending an 11-year partnership, and SIA had been mentioned as a potential buyer to fill the void left by BA. But that never happened. Clearly still nursing its wound from the rejection to extend its wings across the Pacific, SIA declared it was not interested in such a deal. Then SIA chief Chew Choon Seng said: “It’s what the banks and other industries are doing.”

The merger would have created one of the world’s most formidable competitors, but pride aside, SIA smelled a red herring to stall the negotiations. A subsequent failed takeover bid by a consortium led by United States private equity firm Texas Pacific (that included Australia’s Macquarie Bank) of the flying kangaroo in 2006 only affirmed how Australia was not ready to embrace foreign ownership. That, in spite of Mr Howard’s pledge, that the Australian government would not block the sale, as he had said: “We can’t expect the world to be Australia’s oyster yet resent when foreigners buy into Australian assets.”

Forward to the present, the Australian government’s veto of Singapore’s takeover bid for its bourse because in its opinion the deal is contrary to national interest therefore rings all too familiar. Australian treasurer Wayne Swan said: “It’s not the right deal for Australia if we want to grow our role as a financial services hub in Asia.”

Yet such a move would have similarly created one of Asia’s leading stock markets. Recognizably, more often than not, it is difficult for giants to share the same bed. If there were any lesson that SGX could draw from SIA’s previous abortive attempts to push the open skies agenda, it was that of not fully understanding the approach from a position of strength that intimidates more than it appeals. Some observers felt SGX had come on too strongly, too boldly and too voraciously.

Had SGX been successful in merging with ASX, it would have signalled to SIA it was time to revive efforts to re-assert its push for more liberal Australian open skies. That’s not necessarily about buying into Qantas – which by now may have become a non-issue – but reviving the agenda to fly the trans-Pacific corridor from Australia to the United States. Unless SIA has given up that dream, it has been a long five over years since its last pitch.

SIA had argued strongly in the past how the increased competition would benefit Australia, raising tourist arrivals and how the benefits would cascade down the line to related industries, while Qantas fought on concerns of excess capacity and the fear of Australians losing jobs as a result of the airline downsizing from the competition.

Such arguments are the grind of the mill, and are as valid as you choose them to be. The breaking point hinges on timing. The early days of the proposed SGX-ASX merger had showed promise of an Australian change of heart to objectively stake its economic future in Asia, only to be scuttled by concerns that the Australian identity might be subverted by a stronger partner. Mr Swan recognizes Australia’s need to grow in Asia, where it belongs geographically, but he is not prepared to swap his old garb for something new, even if it looks more durable.

As for SIA, analysts may argue this is not the right time to resurface an old sensitive issue even if the ASX bid by SGX materialized. The turmoil in Africa and the Middle East, recent floods in Australia, and the tsunami and nuclear disasters in Japan are beginning to slow down the much hoped-for recovery that airlines have started to experience as the global economic recession recedes at the turn of the new year. There are fresh concerns about the price of jet fuel soaring to new heights, and airlines, particularly Asia-Pacific carriers, are facing a crunch on travel into and out of Japan. Under the circumstances, airlines are adverse to increasing capacity.

Yet the irony of such times is the dire need for airlines to generate new excitement to sustain the momentum. Analysts may also point out that the game for SGX is markedly different from that for SIA. While SGX’s mission is to help ASX grow, SIA’s foray into Qantas territory poses more the threat of competition. However, through code shares, alliances and mergers, the airline business is becoming increasingly more collaborative in recent times across competitive lines. It is cooperation through pooled resources that will shore up the fragile industry in these uncertain times.

Navigating through the dark clouds of the global financial meltdown, airlines have learnt the importance of being nimble, to be able to quickly shift resources and excess capacity to more viable alternatives. SIA and Qantas will do well to tap into unexplored or hitherto limited opportunities. For SIA, the Australian gateway to the United States is its holy grail.

Unfortunately, the failed ASX bid by SGX does not augur well for SIA in this connection. What is needed is an Australian change of attitude towards competition and foreign ownership. Critics of Mr Swan’s decision are concerned about Australia’s self-induced isolation that would gradually whittle away its economic strength. Given today’s aviation climate, and contrary to general expectations, there cannot be a better time for like-minded airlines to re-examine ways to jointly grow the pie than be concerned with the threat of unfair competition.


About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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