PM Tony Abbott Says No to Cash Handout to Qantas, Yes to Lifting of Foreign Ownership Restriction

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By Vittorio Hernandez | February 17, 2014 10:10 AM EST

While the federal Australian government is willing to help financially challenged national carrier Qantas, it wouldn't be in the form of a cash handout.

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The fresh Qantas-Emirates code-sharing deal could spell the end of the national carrier’s international career, analysts said, in return for strong semblance of profitability on the domestic front.

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Prime Minister Tony Abbott said there would definitely be no free ride on the taxpayer for the Flying Roo. But he used the Qantas problem to hit the Labor-led government in the 1990s which placed a foreign ownership restriction in the Qantas Sale Act.

He said on Friday over Fairfax Radio that now is the perfect time to unshackle Qantas from foreign ownership restriction pegged at 49 per cent.

By removing the restriction, it would level the playing field for Aussie aviation operators, noting that Qantas is competing with Virgin and other carrier "with one hand tied behind its back."

Opposition leader Bill Shorten is against the plan to lift the restrictions, stressing that "Plenty of countries around the world managed to keep their economy afloat and have a majority national-owned airline."

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Experts also are not in favour of lifting the restriction, citing that scrapping the Qantas Sale Act would offer a debt guarantee to solve the air carrier's financial woes. The Act also mandated a cap of 35 per cent ownership by foreign air carriers and no single foreign person can own over 25 per cent of the entire airlines.

Peter Wells, UTS Business School accounting professor, said, quoted by The Sydney Morning Herald, "The more fundamental problem at Qantas is that it has a lack of profitability; it hasn't paid a dividend for maybe four years now, it has a return on equity which is languishing at around about zero for the last five years that will likely extend into six years."

He said even if the Act would be eased, it would not attract foreign investors unless the air carrier's increased profitability in the future is visible.

Mr Wells added, "The government guarantee is just a Bandaid to an arterial bleed ... The real issue is that they need to improve their underlying profitability. Staff costs have persistently been in the region of 24, 25 per cent of revenue - this is higher than comparable airlines and that's the killer."

However, Australian and International Pilots Association head Nathan Safe pushed for the scrapping of the Act, saying if management is staff, "they will find a way to bring along staff with them, with these changes, so that we're all working together rather than squabbling amongst each other to make Qantas successful."

To make known Virgin Australia's opposition to the plan by the federal government, Virgin owner Richard Branson published on Sunday a full-page advertisement speaking against a proposed funding would not be good for future investments in Australia.

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Any cash assistance from government, Mr Branson said, would severely damage competition in Australia, encourage other ailing firms to run to the government for help, while companies overseas would think two times at least before they investment in the Land Down Under.

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The fresh Qantas-Emirates code-sharing deal could spell the end of the national carrier’s international career, analysts said, in return for strong semblance of profitability on the domestic front.
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