Australian Government to Provide Debt Guarantee to Qantas as Part of Plan to Allow Bigger Foreign Ownership

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By Vittorio Hernandez | February 26, 2014 10:45 AM EST

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A Qantas Boeing 747 flies past a 767 airplane with a newly unveiled Qantas logo on its tail at Sydney airport, in this file picture taken July 24, 2007. Qantas Airways Ltd put fresh strain on Australia's 'open for business' credentials on December 5, 2013 calling for government support after shocking investors with a loss warning.

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The Australian federal government would provide embattled flag carrier Qantas with a debt guarantee. It would be part of the Abbott government's plan to permit larger foreign ownership of Qantas to have access to international capital and compete with Virgin Australia.

But such a move, disclosed two days before Qantas announces its half-year results and major changes  - believed to involve job cuts of at least 3,000 - would make Australian taxpayers liable for Qantas borrowings should the financially challenged air carrier default on its debt.

At the same time, the initiative would increase pressure on Labor to allow changes to the Qantas Sale Act which limits foreign ownership and is not favoured by the Opposition.

Transport Minister Warren Truss said, quoted by The Age, "We have indicated an interest in being prepared to seek to legislate to take away the legislative and government-imposed disadvantages that Qantas faces on the domestic market ... The government is philosophically attracted to leveling the playing field."

But the debt guarantee and hike in foreign ownership are the limits for the federal government which has placed its foot down on financial assistance. Prime Minister Tony Abbott insisted the government is no longer the ATM of last resort of problematic Aussie enterprises.

Otherwise, if it gives in to one business, others would ask for similar favours and "you will have a queue a mile long," Mr Abbott said.

Some MPs, however, question the planned government assistance to the Flying Roo which Liberal MP Warren Entsch described as mismanaged and MP Teresa Gambaro warned could morph into a "Godzilla."

The two MPs insist that any assistance that would be extended to Qantas should likewise be available to its rival.

Ahead of the anticipated Thursday announcement, Qantas engineers are threatening to bring up safety concerns that could disrupt flight schedules on Wednesday amid fears of deep job cuts of up to 5,000 positions.

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(Photo: REUTERS / Tim Wimborne)
A Qantas Boeing 747 flies past a 767 airplane with a newly unveiled Qantas logo on its tail at Sydney airport, in this file picture taken July 24, 2007. Qantas Airways Ltd put fresh strain on Australia's 'open for business' credentials on December 5, 2013 calling for government support after shocking investors with a loss warning.
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