Issue 77: June 1992

Since that time of course things have changed dramatically and some of the bright boys of the late eighties are now whistling a different tune and wisely harbouring their chestnuts through what has already been one of the fiscally coldest and long lived winters in airline history. In fact, during 1990 and 1991 IATA airlines lost more money than the entire air transport industry made in profit from the late twenties through to that time.

Both Qantas and Australian were similarly savaged though the recession did, or has, brought home the cruel fact that both airlines are also grossly indebted. So debt ridden in factthat it is honestly difficult for them to turn a viable operating profit in their current fiscal guise, let alone compete against international, and in particular Asian, carriers that boast debt to equity ratios which have them carrying almost no debt at all.

Future generations of Australians will hopefully have reason to be thankful that the recession of the early nineties made the economic masters within the ALP reconsider their haste in selling off Qantas and Australian to the highest bidder regardless of their background and the benefit they might be to either the airline/s themselves or for the people of Australia.

Unfortunately, as we pen these words this aspiration is of course officially still merely to be categorised as wishful thinking. This magazine, like many noted executives within the aviation and travel industry, consider it an absolute travesty of our fine heritage and all that is Australian that both our airlines should be sold off to foreign interests in any form whatsoever. As we stated in Reece a year ago, there is enough money in Australia to capitalise both carriers through the coming year providing the proceeds of each float is fairly distributed directly back to the airlines concerned and not, like everything else, just ripped offby an ever more greedy Government intent only on lining its own treasury pockets for vote grabbing programmes of little long term value on the eve of an election.

Qantas Chairman, Bill Dix, has already gone on record as saying that Qantas needs at least $1bn in capitalisation. Whether or not the 49% share in QF will actually raise that amount remains to be seen. After all, just like selling a car or a house, the airline at the end of the day is worth only what people are willing to pay for it. The past two years have been bad for Qantas as our readers well appreciate. However, it is worth noting that the airline, with a current debt to equity ratio of 77:23, will pay out $425m in financing costs alone during 1991/92. The year before Qantas made a pretax profit (largely through the sale of aircraft) of $8lm. If it had, for instance, near zero debt then that pretax profit would have soared to some $436m. Australian is in a similar position, only worse as it doesn’t even have the luxury of earning a sizeable portion of its revenue in overseas currency.

Qantas is rightly urged by the Government to equal the performance of Singapore Airlines (an airline of similar size, structure and route and fleet diversity) though SIA has a debt to equity ratio of just 7:93. W hatthe Government needs to do is to give ourFlying Kangaroo the opportunity offlying on a level playing field instead of having to fly with literally one wing tied behind its back

It might well come as a shock to most readers to learn that Qantas, the 15th largest airline in the world with a fleet of almost four dozen wide body jets, is currently capitalised to a value just twice that of the failed Compass. That this situation has been allowed to occur should be a reason for shame for every aviation/transport minister over the past two decades. In short, the sole shareholder has deliberately and continually followed a strategy of bleeding both airlines dry and leaving them grossly under capitalised to compete in the international marketplace.

W hat the Government should do is to sell 100% of Qantas.

There is no strategic need for our Government to retain a 51% controlling interest. The Government has shown that it is both a callous and inept owner of our two carriers, a sentiment beautifully mirrored by its nonsensical decision last year to allow Northwest to ply the Australia/Osaka route in preference to our own national carrier. With friends like this, who needs enemies!

A sale of 100% of Qantas to Australian interests would also see a far greater opportunity for upwards of $1. 5bn of capitalisation being fed into the national carrier. With an expected investment in Australian Airlines and a major improvement in its ability to influence its own domestic feed (lack of which eventually caused the death of PanAm) then Qantas in a typically ‘reasonable’ year under the productivity gains achieved this past year should be able to turn a pretax profitin the region of $500m to $600m dollars annually.

Furthermore, we don’t need the involvement of foreign carriers to do this, we just need Australian investors big and small. A fully capitalised Qantas with a viable domestic feed would be a world force international carrier. Australian Airlines would benefit also by the traffic that its larger brother would bring it in addition to allowing it better access to the coming transtasman market through not being in direct head to head competition with the largest airline in the region. In this context it is also obvious that Air New Zealand (which is again back in profit) would also link up with both Qantas and Australian leaving the latter to merely have to worry about the actions of the Ansett group.

Complex times indeed though perhaps in the long term the recession, both here and abroad, will have proven to be of benefit if it stifles the ambitions of certain foreign carriers in acquiring major shareholdings in both our carriers. In the long term we want them both to be owned by Australians for Australians not by Asians, Europeans or Americans who wish an involvement purely to suit their own needs. .

Let’s keep the ownership of both our flying kangaroos where they should be – in Australia. For not only this generation but for those to come. Surely we at least owe them that?