Opening Qantas to foreign ownership is no solution

Saturday, March 8, 2014

Shares in Qantas were traded at $1.25 on February 21, the highest price since October last year. Anyone with more than a passing interest in the stock exchange would know that the company has been in deep trouble for some years.

In October 2011, it stranded thousands of its passengers after it grounded its entire worldwide fleet during a union dispute.

When rumours began circulating throughout the media after its half-yearly report meeting that Qantas was preparing to shed thousands of jobs at, its share price began to rise. Sacking workers is a profitable sign for speculators.

Qantas CEO Alan Joyce confirmed the rumours on February 27, releasing news of a $235 million loss in the six months to December 31, and a $2 billion cost saving program that includes sacking 5000 workers and imposing a wage freeze for two years.

There were obviously leaks from the boardroom that enabled speculators to turn their minds to profiting from the sackings. But there was no consultation with the unions whose members will be affected — despite the provisions of the existing enterprise agreement that commit Qantas to “genuine consultation” over any change in circumstances.

When unions did eventually meet with Qantas, the company was unable to identify where almost half of the planned sackings would come from. Qantas pilot and president of the International Pilots Association Nathan Safe said he believed Qantas had nominated 5000 job losses as an “arbitrary figure” to impress the share market.

But the money markets are not so easily impressed. On the day after the announcement the company’s share price fell 9% to $1.15 after 55 million shares changed hands.

One of the reasons could be found in the fine print of the Qantas cost-saving program. Joyce blamed capacity growth — adding extra seats by competitors — for the company’s problems. The solution? Qantas will increase its domestic capacity by up to 4%. This is a bit like Holden ramping up vehicle production when it is unable to sell the cars it already makes.

This is just another example of the mismanagement that has been going on for years at Qantas and has led to escalating borrowing costs. Last December Standard & Poors downgraded Qantas debt to junk status.

The company’s preferred solution was for the federal government to step in with a debt guarantee. And the government did dangle this carrot before the company’s board of directors with supportive public statements by Treasurer Joe Hockey.

But Prime Minister Tony Abbott insisted that Qantas “get its house in order” first. That is to say, gets rid of as many of its unionised workers as possible — and then flatly opposed any government debt guarantees.

What it now proposes to “help” the airline is to change the Qantas Sales Act which limits foreign ownership in the airline and stipulates that a majority of maintenance facilities and other significant operations be located in Australia.

Under the proposed legislation agreed to by federal cabinet on March 3, the 49% cap on foreign investment will be repealed. So will the provisions that prevent a foreign airline buying more than 35% of the company and the limitation which stops any single foreign investor owning more than 25% of the company.

But this cure is likely to be worse than the disease because it would open up the prospect of a corporate raider acquiring the company, selling off its $3 billion assets, and driving it out of business.

While Labor bleats on the sidelines, it is blind to this natural market progression that follows from the privatisation of Qantas begun by Labor in 1993.

The job losses at Qantas come on top of those in the vehicle and mining industry. Worse will follow as investment in manufacturing is set to fall by 20% this year and by 25% in the mining industry. So much for the promise of a rise in business investment that Hockey touted before the election.

The Qantas sackings came on the same day the Coalition introduced changes to industrial relations legislation in parliament. The proposals include even tighter restrictions to union entry rights, further limitations on industrial action and new provisions that will allow penalty rates to be traded off for “more flexible hours”.

These will be opposed by the Labor Party. But they were described as “modest” by former Australian Council of Trade Union president, former Labor minister and now chairman of the Australian Petroleum Production and Exploration Association, Martin Ferguson.

He urged Labor to support them because “high labour costs” are an unsustainable drag on profits. They apparently eat into the very high pay of company executives like himself.

From GLW issue 1000