Abbott trumps weak Labor on QANTAS bailout

ScreenHunter_282 Nov. 14 14.15

By Leith van Onselen

In a welcome development, Prime Minister Abbott has this afternoon taken a hard line on Qantas and played down the prospects of providing the airline with a debt guarantee, instead pushing for the abolition of the Qantas Sale Act, which limits foreign ownership in the airline. From The AFR:

Mr Abbott said the government would help Qantas by ensuring it could compete on a level playing field by lifting foreign ownership restrictions on the airline…

Mr Abbott told Question Time: “The difficulty is this. What we do for one business, in fairness, we have to make available for all business but I accept that Qantas does want a level playing field and the government is determined to ensure that they get an appropriate level playing field. In that sense, at least, Qantas does need this government’s help”…

“The challenge for government is not to guarantee every single exist job, the challenge for government is to ensure there are new and better jobs available”…

This is a good move by Abbott. Lifting foreign ownership restrictions on Qantas would enable it to raise equity capital and relieve taxpayers of a bailout.

The Labor Opposition, unfortunately, does not see it the same way and is still pushing for taxpayer support:

Bill Shorten accused the government of sending up “thought bubbles with no visible outcomes” and urged the government to offer the airline an immediate debt guarantee, saying the foreign ownership questions was a “red herring”.

“The Abbott government has known of a challenge to Qantas since December 6 but they’ve done nothing”…

Shadow aviation minister Anthony Albanese said the failure of the government to act was “irresponsible and characteristic of a government that had a plan to get into government but not a plan to actually govern. He said Thursday’s announcements were “devastating for 5000 workers and their families”.

He said the foreign ownership question was a “distraction” the government was using as an excuse not to act…

Labor would not support lifting the Sale Act but was prepared to consider lifting the individual foreign investment stake which is capped at 25 per cent.

Labor isn’t even interested exacting an appropriate penalty in return for the guarantee, which should include firing the management and the board and taking a tax-payer equity stake.

If Australian icons like Rio and BHP are allowed to be majority owned, why shouldn’t Qantas? It is a private company after all. Moreover, if it was to shut down, another airline would enter the market to fill the void, as occurred after Ansett’s collapse. Employment impacts would also be muted.

The first best policy response is to remove regulatory impediments that prevent Qantas from competing, not throwing taxpayer funds at the company.

unconventionaleconomist@hotmail.com

www.twitter.com/leithvo

34 Responses to “ “Abbott trumps weak Labor on QANTAS bailout”

  1. Ronin8317 says:

    I didn’t think Abbott have it in him!! Bill Shorten, in contrast, is pathetic.

    Now that Qantas is unable to get a sugar daddy to bail them out, how long before Qantas declares bankruptcy? All those Qantas frequent flyer points may soon become worthless. Will Virgin Australia take over the Qantas routes and become the only game in town?

    • Rocksteady says:

      Labor has been dropping the ball on Qantas for a long time now, Shorten is acting beholden to the unions at the very time he should be distancing the party from them. Shocking political strategy just to appease his powerful backers. Albanese was chosen by the party members, Shorten was chosen by the unions.

      His demands for the taxbuyer to buy-in of the company is messy, incoherent and has no end-game. Changing the qantas sale act is the only option.

      Rex and Virgin have very valid points about politicians pretending this will make the “playing field level” when in reality it will distort all reasonable competition in the aviation sector.

      • emess says:

        Qantas is a private company. Why should government, of any political leaning, have been carrying the ball at all?

        Government only gets involved if and when it is approached for assistance…and frankly, even then there needs to be a good reason.

        Seems to be a lot of people out there suddenly deciding governments should be carrying balls.

        What would be nice is a government that is clear on what it stands for. We haven’t had one of those for about 20 years.

      • HRHolden says:

        Emess,

        That’s sounds logical.

        But – there is no immutable economic law that promises jobs for everyone.

        Equally, there is no immutable economic law that says – radical reductions in in tax and government spending – will lead an equal number of jobs replaced – or even just the replacement of the jobs lost.

        Outside resources, Australia’s industries are hampered by the tyranny of distance and the small domestic market. With no government support for anything, I can see many industries dying and I can see no obvious replacements.

        We’re going to end up like those awful countries with the very rich, the very poor and nothing in between.

        I’m a business owner with that most fabulous of all problems – a big tax bill – so I stand to benefit and my kids have all the possible advantages, so they’ll be fine too.

        But I worry about the development of a massive underclass, the resulting human damage and the resultant rise in crime.

        I don’t want the USA’s crime rates, I don’t want their slums. I don’t want to get car jacked – I don’t want to feel the need to carry a gun.

        The Australia we all know and love – that (largely) got rid of it’s underclass 60 years ago with the rise of government supported manufacturing – is not going to be the Australia of the future.

        I’m worried I won’t love and be proud of future Australia.

        Too bleak? – Ok then, somebody here, Spruikbot maybe, tell me how this works out well. I’m keen to hear.

        How about you UE – what’s the end game here? Is there a positive story to be told?

        My problem is that I don’t see too many true lassiez faire societies that I truly admire. I admire a lot about the US, but equally, there is a lot I don’t admire and don’t envy.

        The only positive I can see currently, is that this might finally create the necessary pressure for Australia to innovate to the extent that we might actually, create at least one or two brands of global significance.

      • emess says:

        Holden,

        I do not argue with those points, and I did say that such intervention by government could happen if there was a good reason.

        However, at the moment has Qantas management offered a good reason? Has it offered a reason why the foreign holding caps should be done away with, other than to assert that these are problems? It sounds a bit like an excuse to me. Given that Qantas is now junk grade, what is the likelihood that any foreign investors would be interested? Without answering that question (and I don’t mean just asserting it), there just is no good reason for accepting what appears to be an excuse.

        More to the point, we have to decide when we privatise a government enterprise, what the consequences will be, and spell those out at the time, rather than just assume that “the market” will some how magically do what we want. Privatising, then weeping and wailing if the outcomes are not what we want just means we did not think it through in the first place.

        We privatised Telstra, and got a disaster for shareholders and the nation’s communications infrastructure, Qantas is a mess, the Commonwealth Bank just joined a cartel to gouge us (17% of your total holiday spend if you use ATMs overseas) – brilliant outcomes in each case.

        Perhaps if anything, this should have us thinking of looking before we leap.

      • HRHolden says:

        Emess,

        I’m not suggesting specifically that we should support Qantas.

        It’s the general trend at the moment.

        Gottliebsen puts the entire car industry job losses at 300,000 (with multipliers/trickle down), Qantas is 5000 and maybe another 30,000 with multipliers, SPC, Alcoa, etc etc ..

        A good chunk of these jobs would have survived with a lower AUD – so in fact the issues that kills 50-100 year old industries – is likely to be ephemeral – but we’ll never get those industries back ….

        It’s not just Qantas – it’s the vibe of the thing.

      • emess says:

        Correct HRH,
        absolutely correct.

        However, the correct response should be a coherent policy. A policy that is ideology free.

        What we have from the Government and opposition is a few sound bites and platitudes.

        Maybe that would be what one might expect from a small local government team, but not from Canberra.

        These guys are floundering and clueless, on both sides of the chamber.

    • HRHolden says:

      This isn’t funny – I’ll lose 393,000 points! That’ll be the second time too – I lost 170,000 thanks to Ansett’s demise …

  2. I still find it incredible how many people still think QANTAS is an integral part of our “national identity” and seem to think this justifies protecting it (whether through ownership restrictions or govt. handouts).

    And yet, the same people barely raise an eyebrow when it comes to selling off our agricultural assets.

    If airlines do become wildly profitable, the govt can launch into the space (or via PPP). Agricultural land/resources are a tad harder to replicate.

    • DMc says:

      And yet, the same people barely raise an eyebrow when it comes to selling off our agricultural assets.

      I think most of them would raise an eyebrow if they knew the extent to which it is happening.

      • Rocksteady says:

        Extent? It’s barely happening as much as it needs to for the proper infrastructure to be built. Rural Australia desperately needs foreign investment.

        We’ve already seen Hockey magically knock back a reasonable acquisition greenlighted by the National Competition Council on the grounds of “public sentiment” aka the National party causing a stink.

      • DMc says:

        Extent: More than zero.
        Public awareness: Virtually zero.

      • AB says:

        “We’ve already seen Hockey magically knock back a reasonable acquisition greenlighted by the National Competition Council on the grounds of “public sentiment” aka the National party causing a stink.”

        While at the same time having already approved 130 other foreign investment applications.

        http://www.theaustralian.com.au/business/mergers-acquisitions/joe-hockey-rejects-us-takeover-of-graincorp/story-fn91vdzj-1226771002239

        ““In fact, of the 131 significant foreign investment applications we have dealt with, this is the only application we have prohibited,” he said.”

        I’m with DMc – I think that many people would be shocked if they knew exactly how much of our country we’re selling off.

  3. Capitalist says:

    Agree!

    Let’s not forget Qantas has to deal with 14 unions.

    The Labor party has no hesitation in throwing money at Qantas, SPC Ardmona, car industry because the funds will eventually end up as Labor party campaign donations. I don’t blame them. I would have done the same if I were a Labor party official.

    It would appear that the common denominator in all of these high profile job losses is a heavily unionised workforce. Just a coincidence or causation?

    • emess says:

      Bloody unions raising the AUD!!

      And that bloody farmers’ union extorting a couple of hundred mill.

      And the way they forced the Qantas Board not to buy the B777, and into the rather now obvious to blind Freddy, Jetstar Asia dud. Bastards. Come back Peter Reith – all is forgiven, er, forgotten.

    • drsmithy says:

      It would appear that the common denominator in all of these high profile job losses is a heavily unionised workforce.

      Seems to me incompetent management is featuring fairly frequently as well.

  4. DMc says:

    While I’m glad to see there won’t be government funds or guarantees heading Qantas’ way, I’m not so happy about a straight-out lifting of foreign ownership/sale restrictions.

    Just like giving a job to a foreign worker, I think Qantas should be asked to demonstrate that they can’t get what they need within our shores. Ask them to do an equity-raising share issue, open to the public and all Aussie investment/super funds. The Aussie public will have their chance to put up or shut up.

    If that shows the required funds to not be available in Australia, then I’d be happy to go along with lifting the current restrictions.

    • 3d1k says:

      The public are too busy saving the bucks to jump on that cheap Air Asia flight to Bali or Bangkok.

    • Do you support our mining companies (let alone other public companies) being majority foreign owned? If so, what’s so special about Qantas?

      • DMc says:

        One difference I can see is that an airline provides an essential service for the rest of the economy to operate efficiently. If we had no airlines, the rest of the economy would suffer including completely unrelated industries. If we had no mining, related industries would suffer but the rest would carry on relatively unaffected (other than flow-through effects).

        Having said that, the government has no control over Qantas’s operations or locations serviced, so I don’t think that is much of a reason to keep Qantas in Australian hands any longer. If they had a service obligation, like Telstra does, it might be a stronger reason.

        A second reason would be that mining companies could be seen to be providing a service to the states; processing minerals on their behalf. A flimsy argument, at best.

        Third; manufacturing and heavy maintenance capability in preparation for war. Another flimsy one.

        All-in-all, not great reasons to keep Qantas in Aussie hands. Hence why I’m prepared to see it go o/s.

        My call for a local capital raising comes from two reasons, one sentimental, the other political. Sentimentally, Australians feel like they own Qantas; let them have a crack at keeping it whilst still giving the company what it needs to compete. Politically, it would give the govt. the ultimate, “you had your chance” rebuttal to any future criticism.

      • V says:

        Not really a difference DMc. Sure airlines provide an essential service, however if one goes bust the aircraft still exist and can be sold to a more profitable operator or one who can run the airline better.

        That is how capitalism is supposed to work, fire the management and start over, not protect the management and run into arms of taxpayer.

        There is nothing particularly special about the miners either if they were to go bust then someone else can dig the stuff out of the ground.

        As for local ownership, probably the last thing we should invest in (unless it can be bought for cents in the $) for the simple reason they barely make money in the good times and in tough times they are disaster. Not to mention the need for high expenditure both for aircraft, skilled staff and fuel.

        Investment advice:
        1. Never buy airline stocks.
        2. Follow the first rule.

  5. 3d1k says:

    Well said UE.

  6. outsidetrader says:

    Um – I think you’re all reading too much into things. There was no statement from Abbott in the extract above that a debt guarantee won’t be forthcoming.

    In fact, this part of the quote:

    “…the government is determined to ensure that they get an appropriate level playing field. In that sense, at least, Qantas does need this government’s help.”

    …makes me think they’re very likely to provide a debt guarantee. The Govt knows they don’t have the numbers to change the Sale Act – so this is the path they’ll end up going down in their “determination” to support QANTAS.

  7. Hector says:

    Hang on… Isn’t one of the justifications for privatisation is that government operations competing against private sector players gains an unfair advantage by using the credit rating of the state to obtain cheaper funding? So now, in Qantas’s case this is stopping them getting cheaper funding? Am I reading this correctly?
    Sounds more like changing the Qantas Act ( which in Qantas’s case I could care less about) is the primary goal,thus opening up offshoring/wage reduction re-hires more than anything else.
    Not so contradictory after all.

    • Hector says:

      Not reading it correctly. My first paragraph is dead wrong. My confusion.
      I’ll stand by the rest though.

  8. DMc says:

    What we do for one business, in fairness, we have to make available for all business

    So what they do for farmers they will do for all businesses? Not likely.

  9. Stomper says:

    It always amazes come how when the s**t hits the fan – management can find 5,000 jobs to shed without loss of service – just straight to the bottom line. For me the question for Joyce is “if there are 5,000 jobs surplus to requirements, why weren’t they she’d years ago, why does it take a crisis?” The answer of course is because they weren’t doing their job – or its just a smokescreen and the cost of the employees culled will just end up as consultants, casuals or other expenses!!!!

    • DMc says:

      Because if you cut 5000 jobs when there’s not a crisis, the rest of the workforce will walk off the job and go on strike.

      • Stomper says:

        So the grounding of the Airline in October 2011 wasn’t a crisis?

        The reality is Qantas has a fat and lazy management structure where playing politics is rewarded ahead of initiative.

        It will be interesting to see an analysis of where these 5,000 job cuts come from and how / why they weren’t able to be made back in the last “crisis”.

      • DMc says:

        2011 was an IR crisis, not a profit crisis. An IR crisis is possibly the worst time to cut jobs.