It may seem a tough call in an election year, but there needs to be a rational debate about the foreign equity cap in Qantas shares. To put it bluntly, Qantas is guaranteed to fail unless it has the same access to capital as its unfettered competitors.
This is a message Qantas itself has put out repeatedly since being listed in 1995, and no one in government or opposition has ever had the guts to move beyond trite slogans about keeping kangaroos on the tail and face the inescapable realities.
Which is why Dixon and Jackson, and before them, Strong and Pemberton, constantly attempted to gain traction for the notion of Qantas being free to compete in a global game playing by the same global rules (none) as its most dangerous competitors.
Qantas relied on the political patronage card. Guarantee regional services, and duchess the politicians, IR judges, ACCC luminaries, captains of both industry and labor, media moguls and opinion leaders (paid and unpaid) in the palatial pleasures of the Chairman’s Lounge.
Result. Sympathetic treatment of Qantas versus the World, but especially Singapore Airlines and Emirates. But this failed. The international market-share figures out today put Qantas at a pathetic 28% market share, compared to close to the half-share the airline had in 1995.
Qantas tried to bludgeon Air New Zealand to death to enforce trans-Tasman “rationalisation”. That failed, too. And it tried to cut it into the Asian low-cost market as well with a Singapore-based version of Jetstar, which not only failed, but brought Singapore Airlines’ 49%-owned Tiger Airways to Australia, to repay the compliment.
At a personal level, the APA bid was the management’s perfect revenge against the “stubborn old fool” in Canberra. Everyone would get the share price they deserved for Qantas, and management could make a lunge for the emergency exits with its pockets stuffed full of gold bars.
The political response to the APA deal was a cop out to avoid facing up to the deeply flawed long-term consequences of the Qantas Sale Act of 1992, which was supposed to save Qantas but ensured it would, without continued governmental intervention and favouritism, be destroyed by the forces at work in the global air transport sector.
The hackneyed, over-simplified, and frankly witless comments about keeping the kangaroo on the tail, protecting a national icon, and saving Qantas from foreign control all played to the popular audience, and sold the interests of Australian flag carriers –there are now two of them — very short.
Through its owners, which have no comparable restrictions on their ownership, Virgin Blue can ultimately go places Qantas can’t afford to go in terms of expansion and investments and trans-border structures. Not next year, but try a decade down the track.
Now the greedy, incompetent APA deal is gone, and so is most, if not all, of the political capital Qantas once had in government.
Qantas is a very well run carrier, but in terms of future bilateral favours when traffic rights come up for renewal, say to London, or Singapore Airlines makes a future government honest about its blanket blather about free trade, it cannot compete efficiently if it’s priced according to the local markets, or denied equity placements abroad.
Dixon has said it all before in umpteen speeches. Qantas needs to be globally valued, but will always be Australian-managed, controlled and based.
It also needs to sell its frequent-flyer program as soon as possible, and make its own foray into global rationalisation work rather better than it has to date, which was almost certainly the strategy TPG principal David Bonderman was going to bring to the APA deal.
Bonderman knows these things,. That’s why he is still in Tiger as a foundation investor, according to the latest information, and rooting for Ryanair to do to the trans-Atlantic routes what it has already done under his chairmanship to the intra-European routes, which is to gut the legacy carriers and drive profitable expansion of mass air travel all the way from Iceland to the Mediterranean.
The magnetism in Qantas for Bonderman was most likely Jetstar. But a “free” Qantas could take Jetstar to levels not possible with capped resources.
Everyone in Canberra wants Australia to be a global star on a global field, but abide by a perverse set of Australian rules. No other crucial Australian exporter, nor any other Australian airline, is hamstrung by the capital-raising restrictions that were imposed by the Keating government for the noble purpose of “keeping Qantas Australian”. But through a lack of strategic vision, they guarantee either that it will fail in a ruthlessly open market, or require protection by governments in the form of restrictive access policies that harm inbound tourism from realising its full potential.
The Government should be dealing with these absurdities, but stubbornly refuses, on the grounds that the electorate might perceive it is “letting Qantas fall into foreign hands”.
Nothing could be further from the truth. If it doesn’t change, current government policy eventually means that all international services to Australia could fall into foreign-controlled hands.
Do we have to “sacrifice” Qantas to get more visitors? Of course not.
The very best result would be to allow a Qantas that will always be Australian-managed and significantly Australian-owned to offer all its shares to offshore and onshore institutions and individuals, and remain committed to reciprocating fair and competitive access to our aviation markets to other players.
The consequences of the repeal or reform of the Qantas Sale Act would be far more overseas interest in Qantas as a quality airline stock, and a much higher local share price, which is not only good for Australian stake-holders but for easing the costs of capital expenditure.
Australia may never have the negligible tax regime of the United Arab Emirates, and perhaps not even the generous and sensible depreciation advantages of Singapore Airlines, but its airlines would be able to maintain and exploit the value of their brands far more readily with open access to equity.
However, if nothing is done, the politically expedient route of suppressing tourism growth to appeal to popular expectations of protecting Qantas or Virgin Blue will end up confining the growth, value and profitability of the carriers, and deprive Australia of full participation in global tourism.
Even though Virgin Blue’s US flights will start with only a small fleet of aircraft, they will enjoy an advantage over Qantas that will become very important over time in that its controlling stake-holder, Toll, can raise all of its foreseeable capital needs without the limitations of an equity cap either on its principal sources of revenue, or purely for a subsidiary which is the alternative Australian flag carrier.
Already we see the outlines of an aviation-investment structure in which global entities own large fractions of the world fleets for 737s and A320s through leasing, while others own and trade engine and parts inventories, and contract essential airline services including training and qualification, and maintenance, repair and overhaul functions, and the building, owning and operating of airports.
These financial structures make the purpose of the Qantas Sale Act look increasingly archaic and ultimately irrelevant.
These are evolving investment dynamics that will so challenge and dilute the relevance of the equity cap on Qantas as to make its removal imperative in the shortest possible time.
It is one thing for Canberra to try and limit foreign shareholders in Qantas, yet it is impossible for government to stop foreign entities literally owning the engines, the airframes, and crucial systems through sophisticated financial derivatives.
These on their own will make a mockery of the Qantas Sale Act in the near term.