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“The Qantas Sale Act is outdated and it should be removed and there is no doubt about that" Borghetti said, but cautioned that "two wrongs don't make a right."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