Saturday October 25, 2014

Borghetti critical of Govt moves to support Qantas

John Borghetti has criticised Govt proposals to support Qantas.(Airservices/Paul Sadler)

John Borghetti has criticised Govt proposals to support Qantas. (Airservices/Paul Sadler)

Usually mild-mannered Virgin Australia CEO John Borghetti has come out swinging in an interview about Qantas’s bid to receive a debt guarantee from the federal government.

Speaking on ABC radio on February 18, Borghetti labelled proposals by the government to offer a debt guarantee to Qantas as “bizarre”, adding that “if it wasn’t so serious it’d be laughable.”

“It’s really quite bizarre that a government would even consider such a move for a player that is the largest in that particular industry and a player that is anything from going under,” he said. “(Qantas is) a player that is three or four times bigger than its nearest competitor, is dominant in every single market segment, and has billions of dollars of cash in the bank. What people are getting caught up in is emotion rather than looking at the facts.”

Borghetti says Qantas is not the only airline that can offer an essential national service (Andrew McLaughlin)

Borghetti says Qantas is not the only airline that can offer an essential national service. (Andrew McLaughlin)

Borghetti said what Qantas was really asking for was a “free ride on the tax payers” so it could hold its 65 per cent market share ‘line in the sand’ and thus continue “the dominance of Australia’s skies.”

“What this is about is three different things, and people are confusing the three,” he said. “The first is, it’s about the Qantas sale act, and I do agree with Qantas that it is an outdated act and it does need to be at least diluted if not removed. There is no argument with that.

“The second is Qantas’s performance, its financial performance, and its strength. And in terms of financial performance, if you look at history it will tell you that over the last decade or longer, Qantas has made not only billions of dollars of profits, but this is the first time that it has lost money in the front half of the year. And all of a sudden, it’s chicken little and the sky’s falling down!

Borghetti says that, after years of profits, the only thing that has happened to Qantas is its credit rating has been downgraded.

Borghetti says that, after years of profits, the only thing that has happened to Qantas is its credit rating has been downgraded.

“But then the third is the issue of government interference in a public company that effectively is helping the biggest player have an advantage over all the smaller players.”

Borghetti addressed criticism that, because Virgin has foreign shareholders in government-owned Air New Zealand and Etihad, that it must be backed by foreign governments. “If it is true that we are in indeed backed by foreign governments, which clearly it is not, then surely our credit rating wouldn’t be a couple of notches below Qantas’s junk bond.”

Borghetti also countered Treasurer Joe Hockey’s claims that Qantas deserves government support because is seen as an essential national service. “He’s wrong. He’s wrong in the fact that it isn’t just Qantas that can come to the needs of the Australian people. We are now in a position where we now have multiple aircraft – wide-bodied, narrow-bodied, turboprops…we’re expanding our network significantly.”

“The only thing that’s happened here is Qantas has lost some of its credit rating,” he added. “It’s been downgraded…well, welcome to the world of aviation! It is still a good rating compared to most airlines around the world, and it is certainly a rating that is a couple of notches higher than any of its competitors here in Australia.”

Comments

14 Responses to “Borghetti critical of Govt moves to support Qantas”
  1. Nikee says:

    Good on you JB. Finally the facts are coming out about QF.

    Additionally he could have mentioned something about how QF has been mismanaged – failed/failing Jetstar ventures, price fixing fines, shutting down the airline (a massive overreaction by Joyce & Co), alienating staff, cutting routes & giving away their flying to EK for free, closing engineering bases & off-shoring jobs and that’s just at the top of the my head.

    Now the government needs to wake up and the ACCC needs to rule against (rightly I might add) QF for capacity dumping to maintain 65% market share “at all costs”.

  2. Garry Ellis says:

    Well said John Borghetti.

    Hopefully after the PM has told QANTAS to get there house in order the CEO Mr Joyce is the first to go.

  3. Mal says:

    Nice to see some facts presented correctly.

    I am delighted that Mr Joyce shut down his airline. It allowed me to instantly become a Platinum member at Virgin, it’s a status I have maintained ever since. I know many fellow QF Lifetime Gold/Platinum Members who now regard it as more important to maintain Platinum with Virgin than QF. None of us would be flying with Virgin if it weren’t for the shutdown of QF.

  4. Travelhound says:

    JB has cherry picked facts to suit his argument.

    VA has three very large government backed airline shareholders with two of the three being the dominant airline on the routes where they compete with QANTAS.

    The arguments for QANTAS government assistance are not based upon one particular entity (QF) verse another (VA). It is about aviation policy and a framework that allows whatever entity (VA or QF) to compete on an equal footing in the markets they serve. As such, to exclude the likes of Singapore Airlines and Air New Zealand in his arguments, who are both fierce competitors of QANTAS is probably a little disingenuous. It dilutes the realities of the basis for assisting QANTAS.

    The JB comments on the credit ratings of the two airlines (VA & QF) is simply a red herring. JB would know, as much as anyone else he can structure his debt facilities so that they can be secured by any one or all of the government airline shareholders. As such, regardless of VA’s current credit rating VA can (and I’d say probably have) receive debt terms and conditions over and above what their credit rating implies they should. JB is simply using misinformation to present his case.

    I am happy for JB to make comments about government ownership of airlines, but if he does, his comments should be just as much directed at SIA, ANZ and Ethiad. If he is not willing to make such comments, he probably should stick his head in.

    At the end of the day, if all other things were equal there would be no need for QF to receive government assistance. This is not the case and a fair and reasonable person would clearly state this.

    As such JB’s comments should be seen as nothing more than self serving.

  5. Scott says:

    I’m surprised Borghetti isn’t complaining that this now makes it harder to bring in foreign cash and smash QANTAS out of the market place. The Aussie Government is entitled to do whats best for Australian Citizens, not some foreign owned company. Critical infrastructure getting taxpayer support is partially why we pay taxes, for communal infrastructure, like a national airline. The states make a mess with electricity and water, but a national airline, is the Federal Governments domain, and I support it to stop foreign invaders preying on the Aussie way of life.

  6. Travelhound says:

    I should have mentioned in my last post.

    If we can remember far back enough, before the $350 million capital raising through the issue of new shares, Virgin Australia were planning on to take on debt through credit facilities offered by its three major government owned airline shareholders.

    http://www.bloomberg.com/news/2013-09-02/virgin-australia-gets-samoa-etihad-debt-to-fight-qantas.html

    The linked article has more information.

    This is evidence that the playing field is not even between Virgin Australia and QANTAS.

    It also bring sinto question JB’s remarks about debt.

  7. Paul says:

    Why should a company that states it has 3B in cash reserves get a helping hand in any form?
    It is a private company that has over a number of years clearly been the master of its own current position.
    Any form of assistance should not be forthcoming until such time as the board and management can prove that they have done everything possible to ensure that its business has been managed appropriately.
    The international business has been slowly decimated by the management through poor decisions and not soley
    by foreign competion.

  8. Nikee says:

    Travelhound,

    If you want the two companies to be on an equal footing then the QSA should be removed or amended, not getting a debt guarantee from the government. This won’t just disadvantage Virgin, but every other airline in the Country. The fact remains that the current QF management have made such a mess of Qantas, that’s why they are in this position.

    Additionally, if you believe JB’s comments are self serving, then how would you describe Allen Joyce’s comments?

  9. Travelhound says:

    Hello Nikee,

    I don’t disagree about government assistance distorting the market. In an ideal world, yes, government assistance shouldn’t be given.

    The reality is QANTAS operates with a legislative environment that distorts the market in preference for its competitors. On top of this it has to compete with government owned and backed airlines on a good proportion of its international routes.

    So, regardless of what JB said or the article you linked infers, the realities are that QANTAS operates at a disadvantage.

    If we look at the legislative side of the equation we have two of the three major parties (labour and the greens) both seeing QANTAS as the national carrier. In addition to this, both of them believe there is national interest attributes associated with Qantas that needs to be maintained. As such where the current government would probably repeal the QSA, the reality is any such legislation to do so would be blocked in the senate.

    Alan Fels, a previous chairman of the ACCC recently commented on the proposed government assistance. Out of all the commentators he is probably the only one who has given the complete argument. He said, ”We learnt long ago, even if there are harmful trade protections being practised against Australia, it is still not in Australia’s interests to respond by itself, distorting markets in Australia,”
    Read more: http://www.smh.com.au/business/aviation/qantas-bailout-virgin-wants-to-get-on-board-20140214-32rgf.html#ixzz2uHeDUL5f

    I would suggest Allan Fels is talking from a purest perspective and as such his views are probably not shared by both sides of government.

    If they were our discussions would be much broader than just government assistance for QANTAS. They would include not only include repealing the QSA, but amending the ANA with regards to foreign ownership requirements and dumping rules.

    There is a lot more to this debate than simply the self-interests of Virgin Australia. In a proper debate their comments should be welcomed, but unfortunately, I don’t see Virgin Australia, a company that has spent something close to $1.2 billion transforming itself in to a premium carrier as acting responsibly or within market bounds.

    The previous article I linked has information that adds to the debate. It is worth reading as it shows how standard investment rule multiples are not being followed by Virgin Australia.

    http://www.bloomberg.com/news/2013-09-02/virgin-australia-gets-samoa-etihad-debt-to-fight-qantas.html

  10. Bob says:

    Qantas is in its current position due failure to restructure and modernise. Take a look at what the major airlines in American have gone through to return to profitability… sure they have used Chapter 11, however many of the structural changes have been obvious and should have been implemented in Qantas long ago.

    Even with 65% of the market QF can’t make money… surely this tells you something!!!

    For years Qantas has had just one strategy. More than 65% market share!!! Which their Directors believe will miraculously turn the airline around.

    It is long over due that ASIC and the Government calls Qantas on its ongoing abuse of Section 46 of the Competition & Consumer Act… protected by its elite status and market position Qantas has engaged capacity dumping and flooding markets with ridiculously discounted inventory which has sucked the life out of many competitors (whose presence has stimulated, innovated and grown markets), and it is this behaviour that has substantially contributed to the mess facing Qantas today.

    Some tough love needed.

  11. Freddie says:

    No Government assistance for QF is what most Australians want. The reason being that a LOT of Australians have lost their jobs in companies which have had to cease operation – i.e. Ansett, Holden, HIH to mention a few. They asked for Government assistance and were denied it. I know the reasons vary as to why in each case – but -regardless the Government did not assist any of these Companies in any way – leading to their demise. So why is it even being discussed as to why or why not the Government should assist QF to stay gasping on a prolonged life line when blind Neddy and his eye seeing dog can plainly see that there is no good outcome for QF until either the useless Mr Joyce and his cronies go, QF gets its act together and does what has to be done or both. The only people on a down hill slide out of all of this are the employees – and they are the very reason why QF exists. They do the face to face contact with prospective clients and all of the hard work logistics on a daily basis. If job cuts in QF are to be undertaken then start from the top and sack Mr Joyce and the entire board. That in itself would be a huge advantage to stem the demise of QF….which will eventually happen.

  12. Michelle says:

    Amazes what you hear….we in australia have a wonderful habit blaming someone else never take responsibility. The fact of the matter it was the government that created the issues that qantas is now fighting in fact a list of airlines fail in oz…yes the government should help Qantas the restrictions that was placed on qantas. Wake up australia support local. We australians need to be behind qantas regardless we don’t agree with all the company policy….They is many other elements the government waste tax payers money eg welfare system in this country is high for not doing nothing…The biggest mistake qantas is doing is cutting staff and they got to be very careful as moral and standards are critical for the airline industry…. recent business class trip from perth i felt staff stressed and me as high level flyer went through a check in procedure even asked for a photo id never been asked for id in 15 years flying with qantas….Qantas needs to create an action plain to support people like me who truly support them….I am seeing a high number of staff flying business class on way to work inflight…instead you should be looking after young business people who one day can bring thousand of clients to the airline. on another trip i requested an upgrade decline…possible for 20000points far enough.but when i walk on board and see 4 staff seating in business class don’t just reward your black tags members because the gold and plat…members are the heart of operation and these are the people makes your profit rise. The staff at Qantas doing a really good job I am talking front line.Qantas remember your success will not happen if you cut and cut the solution could be within your staff and customers….I will always support qantas as i love qantas and many like me.The best investment you can make is with your people…that is why V…. does what it does because the staff are apart of it….Don’t allow what happen to qantas what happen to ansett and so on….lets all support Qantas and all together not allow Qantas leave.Australia…Even Air Portugal faced a financial hardship and now voted no1 Europe airline…

  13. Ben says:

    I had heard that when AN collapsed QF wasn’t far away from folding itself. Looks like the chickens may be coming home to roost after all. QF management need to grow up forget about the line in the sand and work on profitability. If they kill the airline then that 65% goes to whomever is left!