In his full-page ad campaign against any deal, Sir Richard Branson didn’t highlight debt refinancing, almost certainly because he would see it as something wicked best left unsaid.
Qantas could (and indeed would be out of its mind not to) use a government debt guarantee to newly refinance as much existing or expiring debt as it could at a continuing good or even less costly rate. Problem solved. Virgin’s bankrupted by the chosen carrier getting cheaper money again, and lots of it.
This risk leads to the even bigger financial risk for taxpayers, who are the ultimate guarantors, that the government could end up facilitating the total debt restructuring of all Australian airlines. All to get a supposedly iconic but very badly run Qantas into a position where it could continue to hollow out the full-service brands through offshoring and absorbing the costs of the Jetstar ventures.
..Jetstar Asia is also where the “nuclear option” could be exercised by Singapore if it felt moved to protect on a quid pro quo basis the Singapore Airlines investment in Virgin Australia. Jetstar Asia is a puppet operation, fully controlled by Qantas, to quote its own guidance, through a financed and Australian-directed titular 51% Singaporean equity…A review of the status of Jetstar Asia as a Singapore flag carrier could be most uncomfortable.
…Abbott’s embrace of the idea of removing the Qantas Sale Act is a much simpler and cleaner way of ensuring fairness for the carrier.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
