Perspective – February 2014

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Ian McMahon

 Open for business?

IT is hard to know what to despair about most – the gall of Qantas management in seeking yet more government propping-up or the spineless approach of the Federal Government which appears to be taking the airline seriously.

In 1995 Qantas was allowed to take over TAA and was then privatised, unfettering it from the straitjacket of government ownership – or so the proponents of privatisation depicted it at the time.

Its private enterprise managers, now able to award themselves whopping salary increases while complaining about union demands, took posession of an airline valued at $2 billion by British Airways (which snapped up 25 per cent) and other investors happy to pay the float price of $1.90 per share which quickly soared past $2.

What those well remunerated managers have fashioned from this valuable asset is an airline with a junk status credit rating and a foundering share price. Along the way management enthusiastically backed a private equity takeover that it is now commonly agreed would have sent the airline bust.

The most notable feature of this sorry commercial journey has been Qantas management’s consistent bleating for special treatment from government.

Nowhere was this more stark than in its acquisition of the famous 65 per cent “line in the sand” domestic market share.

In 2001 its share stood at around 50 per cent. Then Ansett Air New Zealand collapsed but Singapore Airlines was prepared to save the day by taking it over.

SIA’s chief executive at the time, Cheong Choon Kong, after a Canberra meeting with Deputy Prime Minister and Minister for Transport John Anderson, flew back to Singapore believing the Australian Government, like its New Zealand counterpart, backed the deal.

But Qantas chairman Margaret Jackson and chief executive Geoff Dixon scurried to Canberra for a meeting of their own with Prime Minister John Howard. The takeover was blocked and thousands of Ansett employees were thrown on the scrapheap apparently on the grounds that Qantas should not have to face competition from what would be a strong and (gasp!) foreign-owned rival.

Now the Federal Government is being asked to provide financial guarantees to Qantas because the 65 per cent share that was gifted to it by government intervention is under threat from an airline with a slightly higher level of foreign ownership.

It may not be apparent to Qantas’ Sydney-centric management but the rest of Australia is benefiting hugely from investment by foreign airlines providing the direct international services that mean they no longer have to fly in and out of the country via Qantas’ home town.

And increasingly the corporate sector is liking the Virgin Australia domestic services on which foreign shareholders are currently prepared to lose money (which is to say they are investing in the future).
A decision to give Qantas a financial advantage over Virgin would, like the veto-ing of the ADM bid for Graincorp and the largesse lavished on a Tasmanian chocolate factory, grievously undermine the Government’s economic credentials.

And its “open for business” claim would become an international laughing stock.

   

 

 

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