Virgin disputes Qantas “sham” characterisation of international structure
Virgin Australia has taken issue with reported Qantas comments that the structure of its international operations are a “sham”, saying it fully complies with legislation requiring Australian international airlines be majority Australian-owned.
According to a Financial Review Sunday report which aired on the Nine Network on Sunday, Qantas CEO Alan Joyce has written to Deputy Prime Minister and Transport Minister Warren Truss asserting that Virgin Australia’s domestic operation, which is majority foreign owned, effectively controls Virgin Australian International Holdings (VAIH), and that Virgin’s recent rights issue, which will see Air New Zealand, Eithad and Singapore Airlines gain representation on the Virgin Australia board, means foreign entities effectively control Virgin’s international operations.
In a statement Virgin Australia responded: “Virgin Australia International Holdings Pty Ltd is fully compliant with the Air Navigation Act (ANA) which limits foreign ownership of Australian international airlines to 49 per cent. The VAIH structure is majority Australian-owned and controlled; and governed by a majority independent board of directors, including an independent chairman.”
Virgin Australia International Holdings’ board is chaired by Graham Bradley, also chair of HSBC Australia and Stockland, with board members including Business Council of Australia president Tony Shepherd and former Labor finance minister Lindsay Tanner.
“Under VAIH’s constitution, at no time can the interests of foreign persons in VAIH exceed the foreign ownership levels prescribed by the ANA. The constitution also guarantees that at all times at least two-thirds of VAIH’s directors are Australian citizens,” continued the Virgin statement.
“VAIH notes that the structure is comparable to those that have been used by other airlines around the world, including a structure currently used by our major competitor in overseas markets,” the statement concluded, in reference to Qantas Group shareholdings in its various Jetstar operations in Asia.
Virgin Australia International Holdings was created in March 2012 to ensure continued compliance with the foreign ownership cap where then current Virgin Australia Holdings shareholders were issued shares at the ratio of one VAIH share for each VAH share held (with a nominal value of of $0.000001 per share), which would then be held in a trust company. At the time Virgin’s major foreign shareholders were the Virgin Group (26 per cent) and Air New Zealand (19.9 per cent).
The letter is Alan Joyce’s latest front of attack against Virgin Australia, in which he calls his competitor a “newly-minted sovereign-owned airline”. The letter is perhaps less about harming the relatively small Virgin Australia International operation itself than it is about again highlighting what Qantas sees as the uneven playing field created by restrictions of the Qantas Sale Act, and in creating a sense of urgency that the federal government needs to act quickly to shore up Qantas’s financial position to stave off “junk” ratings by ratings agencies, which would significantly increase the costs of its debt borrowings, at a time that, according to Qantas’s version of events, Virgin Australia is being propped up by international airlines intent on harming Qantas.
According to media reports, Qantas has petitioned the government to provide support ranging from debt guarantees to taking a small shareholding in the airline.
But Prime Minister Tony Abbott has told radio 4BC that “I’m not sure that they [Qantas] really want to see a new government shareholding. And the trouble with providing a government loan guarantee is, where does that stop? Once you started giving it to one business, why shouldn’t you give it to other businesses?”
Said the Prime Minister: “”We need Qantas to, I guess, settle on what it wants.”