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Qantas loses out on Government debt guarantee

By David Flynn     Filed under: qantas

Qantas looks to have lost its fight to obtain government backing to underwrite the airline's debts, although there are plans to accelerate proposed changes to the Qantas Sale Act.

Prime Minister Tony Abbott has all but killed off the prospect of a debt guarantee which would effectively underwrite Qantas' debt and potentially give the airline a much-needed boost in its credit ratings, which have been downgraded to 'junk' status.

However, the government will seek to lift what it perceives as competitive restrictions in the Qantas Sale Act, allowing Qantas to accept higher levels of foreign ownership and move more of its aircraft maintenance overseas.

Read: The Qantas Sale Act explained

“Qantas does want a level playing field and the government is determined to ensure that they get an appropriate level playing field” Mr Abbott said.

However, he stressed that “it isn’t government’s job to run businesses. It’s government’s business to get it right.”

A victory for Virgin?

The Prime Minister's move is an abrupt about-face for the government, considering that Treasurer Joe Hockey has previously talked up the arrangement.

While a debt guarantee wouldn't see any money given or lent to Qantas, it could be considered a de facto financial rescue package because the government support would lower Qantas’ risk factor and potentially help it bounce back up from ‘junk status’, as well as offer reduced interest on new and refinanced debt.

The debt guarantee was vigourously opposed by Virgin Australia and regional airline Rex, who maintained that any such deal should be extended to all Australian airlines rather than be exclusive to Qantas.

Virgin stakeholder Richard Branson also lent his weight to the campaign through a series of full-page advertisements in newspapers.

Mr Abbott seems to agree, suggesting that “the difficulty with that request (for a debt guarantee) is why should a government do for one what it’s not prepared to do for all.”

Virgin Australia CEO John Borghetti has previously said that should the Federal Government give Qantas a debt guarantee, he would be asking for the same support "within 24 hours.”

“The Qantas Sale Act is outdated and it should be removed and there is no doubt about that" Borghetti said, but cautioned that "two wrongs don't make a right."

"Just because the Qantas Sale Act is wrong, making another wrong by providing a debt guarantee does not make the situation right.” 

Changing the Qantas Sale Act

The government’s preferred changes to the Qantas Sale Act are said to involve retaining the 49% cap on foreign ownership but removing the 35% limit on foreign airline ownership and 25% for individual foreign shareholding.

However, amendments to the Qantas Sale Act would face a bumpy path in the Senate in the face of opposition from Labor, the Greens and a clutch of independent non-aligned senators.

Qantas CEO Alan Joyce yesterday voiced his own concerns over a timetable for changing the Qantas Sale Act.

“The issue with the Qantas Sale Act is going to be the length of time, it could be months, it could be years, before that Act changes” he said.

“The issue for us therefore is how does the government level the playing field in the short term? The action is needed in the short term and they need to take the appropriate action to make sure that the distortion that everybody clearly recognises doesn’t continue.”

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About David Flynn

David Flynn is the editor of Australian Business Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

 

Have something to say? Post a comment now!

1 on 28/2/14 by smit0847

Won't get passed through the Senate.

1 on 28/2/14 by undertheradar

i'm by no means a Tony (LIB) 'fanboy'...BUT if I have to listen to Bill Shorten (LABOUR and also the GREENS and PALMER UNITED) blame LIBERAL  for every mismanagement/shutdown of NON GOVT owned businesses one more time !!!!!! ARGHHHHHHHH 

RELEASE QF FROM THE QSA...UNION MENTALITY OF 'JOBS FOR LIFE' NO LONGER APPLIES....THE WORLD IS CONSTANTLY CHANGING..THERE'S A REASON DINOSAURS BECAME EXTINCT...THEY DIDN'T ADAPT !!!

2 on 28/2/14 by watson374

inb4 everyone else

<insert denunciation of Alan Joyce>

<insert denunciation of Tony Abbot>

<rage about 747s>

1 on 28/2/14 by Speedbird

You forgot

<rage about B787 going to Jetstar>

;-p

3 on 28/2/14 by williamsusanto

Thisis all about australian unionist way of doing business. Whatever it takes as long as union favor then no business will sustain in this changing world economics.

4 on 28/2/14 by Alvin

Someone else to be CEO. 

1 on 28/2/14 by Himeno

I volunteer.

2 on 28/2/14 by Alex

I volunteer as tribute *Hunger Games Reference*

5 on 28/2/14 by moa999

So the minute the Labor govt looks to be supporting the debt guarantee, the Libs change their mind.....

With Labor blocking the QSA changes and carbon tax changes, looks like Qantas won't get any help.

6 on 28/2/14 by undertheradar

GOVT (of the day) and OPPOSITION (of the day).... THEY BOTH WASTE OUR TIME AND MONEY BECAUSE OF THEIR EGOS (AND  THEIR  PERSONAL VIEWS)

I donkey vote because of Tony Abbotts 'religious' views and Bill Shortens 'unionist' views..the GREENS are just idiots now...and the rest of them ... MONEY TALKS !!!  we like to think OZ is a 'democracy'...LOL

7 on 28/2/14 by radiC00l

I’m not on the AJ bandwagon – it is a tough gig – but I do think that he has this ability to unintentionally damage the Qantas brand. Whether it be the shutdown or the latest earnings result, he whips the media into such a frenzy with his dramatic statements about the survival of QF and as a result creates a whole lot of negative media attention – and naturally the media lap it up. I’ve spoken to lay people who have the impression Qantas is doomed and practically out of business as a result of the latest results announcement.

Virgin announced today a similarly bad result, considering the scale of their business, and they’re supposedly the lean-mean, foreign-backed machine. But where’s the hysteria surrounding their result – and at least Virgin mgmt isn’t overreacting to their loss. But it does raise the issue - if Virgin can’t be profitable in this environment, how can Qantas? Both CEOs need remove their egos from the equation and cut capacity.

I think it’s a real shame that we’re going to lose more highly-skilled staff – in an industry that Australia has proven to excel at.

1 on 28/2/14 by P.B.

Glad someone else is level-headed in percieving the situation and is not getting carried away in the media frenzy!

2 on 28/2/14 by P.B.

Glad someone else is level-headed in percieving the situation and is not getting carried away in the media frenzy!

3 on 28/2/14 by spinoza

Maybe AJ is just managing media expectations and reality is even worse. 

The difference between Virgin and Qantas is that VIrgin doesn't have to make a profit in the short to medium term. Its something like 80% owned by 4 foreign airlines, 3 of which clearly have no short term profit motive. Virgin can keep increasing capacity and losing money, equity raising from those airlines, until Qantas cracks. 

Egos have very little to do with what is going on. Its just game theory. They're not increasing capacity of egos - how stupid would that be? What board would allow a CEO to do that?

Virgin is increasing capacity because they don't need to make money and this is the way to hurt Qantas. Qantas needs to maintain its market share because amongst other things, a certain amount of revenue is need to pay for its fixed costs etc. Both airlines would both make more money if they just stop adding capacity, but neither can stop first.

1 on 28/2/14 by radiC00l

You're entitled to respond to a point of view, but you make some wild claims. Virgin "don't need to make money" - well actually, like Qantas, they're a public company and its board has a legal responsibility to run the company for a profit and as a going concern.  I agree with you however that capacity needs to addressed.

8 on 4/3/14 by Cluffne

If Qantas really want a level playing field, lets see them drop the monolopy agreements they have with many regional airports, allowing Virgin, REX anf Tiger to fly to these locations and then see how they survive.

Qantas need to make major changes, first being, saying goodbye to Alan Joyce,who has cried poor for years now, (and during this, wanted to set up a 5 Stair airline in Asia) and now that Qantas has some real competition from Virgin, cannot handle the pressure. 

9 on 4/3/14 by Brett G

I'm not sure why this doesn't come up more, but isn't the profitable part of "the national carrier" actually really just TAA rebadged? Perhaps a little "impulse" there too. Where was the outcry when the iconic Ansett and Australian (TAA) brands disappeared? Because they were never government owned, does that make them less worthy?

I think the nashing over the Qantas brand is stupid. The bulk of what it does now (running the old Australian Airlines routes, with some of the same planes) has nothng to do with our national interest.

As long as we have Australian based airlines offering good service, why should we care who they are owned by? This is aviation, there are no profits going off shore because... there are no profits!

 

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