Qantas chief, Alan Joyce, has upped pressure on the Government to guarantee the company’s debt unless it frees the airline from the Qantas Sales Act, which prevents it from obtaining foreign equity partners:
Betraying clear concerns by the national carrier that its plea for government assistance will be seen as inconsistent with the government’s new “line in the sand” on industry handouts, Joyce was at pains to make the distinction in a speech to the Coalition’s “friends of tourism” group on Wednesday night.
“We are pleased that all sides of politics have recognised the uneven playing field in Australian aviation – led by the treasurer, Joe Hockey. And we were especially pleased last week to see the treasurer make the distinction between Qantas and companies like Holden and SPC,” Joyce said. “Quite obviously, Qantas is not Holden.”
Joyce was referring to recent statements by Hockey that Qantas could still qualify for some kind of government assistance, despite the government’s new hardline stance, for two reasons – it was constrained from operating freely by government-imposed law (the Qantas Sales Act) and it was not operating on a level playing field because its major competitor, Virgin, was backed by three state-owned airlines, Air New Zealand, Singapore Airlines and Etihad.
The government is considering offering Qantas a “standby” or emergency debt guarantee after two ratings agencies downgraded its credit rating to “junk” status. The move would not require legislation.
The company, and some Coalition backbenchers, have been lobbying for changes to the Qantas Sales Act to remove the requirement for majority Australian ownership and allow foreign investors to hold more than 49%.
But the Labor party and the Greens have ruled out support for the amendment in the Senate, meaning it could not pass parliament before the new Senate sits in July.
As noted previously, it’s a bit rich to claim that Qantas does not operate on a “level playing field”, but firms like SPC Ardmona do, thereby justifying greater assistance.
Like Qantas, SPC Ardmona must compete against foreign producers whose goods are subsidised by their Governments (e.g. the European Common Agricultural Policy). Last week’s ruling by the Australian Anti-Dumping Commission that Italian canned tomatoes were being dumped into Australia below their cost is a case in point.
We also know that SPC Ardmona must compete against foreign producers operating under less stringent health and safety standards – as evident by imported Chinese peaches reportedly containing twice the level of lead as prescribed under the Australian and New Zealand food standard.
The fact is, there are very few “free markets” and the uneven playing field rationale for extending assistance to Qantas could equally be applied to SPC Ardmona, or even the car industry (since most foreign governments assist their automotive manufacturers).
There is also arguably greater justification for providing assistance to manufacturers on the grounds that the negative employment effects arising from their closure would be much greater than if an airline carrier closed.
Car makers and SPC Ardmona are trade exposed firms. If they were to shutter, jobs would shift offshore.
In the car industry’s case, upwards of 50,000 jobs could be lost in assembly and components. There would be no employment offset, at least in the short-to-medium term. Instead of rolling-off the plant at Elizabeth or Altona, the lost car production would instead enter Australia via ship from Japan, Thailand, or somewhere else.
Likewise, in SPC Ardmona’s case, around 5,000 jobs – including processing, horticulture, and logistics – would shift offshore, decimating the Goulburn Valley Region.
By contrast, Qantas operates in aviation, which is a bona fide services industry. This necessarily requires that employment be performed locally, irrespective of who owns or operates the airlines. Whether a passenger flies to Sydney from Melbourne using Qantas, Jetstar, Virgin, Tiger, or another provider, a similar number of Australian employees – from counter staff, to baggage handlers and airline stewards – still need to provide the function. This means that even if Qantas were to fold completely, airline services would be performed by another carrier – be it an expanded Virgin, Tiger or another entrant, such as Singapore Airlines. In either case, the new supplier would still need to employ Australian workers to fulfill most of its functions, and the overall employment impacts from Qantas’ failure would be manageable.
This is why when Ansett collapsed a decade or so ago, there was minimal impact on overall aviation employment. Ansett’s void was soon filled by Qantas and Virgin, along with some smaller airlines that have popped-up along the way.
That said, the arguments about Qantas assistance would be mute if the Government abandoned the Qantas Sales Act and permitted greater foreign ownership. This Act serves absolutely no public benefit, yet prevents the company from raising equity capital. The Government has allowed BHP and RIO to become majority foreign owned, so why not Qantas?
The first best option for all concerned – Qantas and taxpayers – is to abolish the Act as soon as possible. However, with both the Labor Party and the Greens both displaying intransigence on foreign ownership, it is not currently an option.
Such is the state of politics in Australia these days, whereby the public benefit takes a back seat to political expedience or ideology.
unconventionaleconomist@hotmail.com
