Reece

The float, which at presstime was still scheduled to take place around this November, is being driven not by a philosophical desire to finally free our national carrier of Government ownership but rather to sweep into the Government’s coffers the money that such a float will raise. Politics aside, this or any other government does not really care whether the present is a totally ideal time or not. It simply wants the money that the float will raise to help balance its own books in what is a critical time for its own finances.

For Qantas and Australia as a whole however, a delay of one year is seen by many within the financial community as a very sensible move. Why? Well, the reasons are numerous.

Firstly, the prospectus is presently being rushed through for release around October. At this time Qantas (which now also includes Australian) would have just issued its 1992/93 operating results. Last year Qantas made a profit of $137m versus a loss of $158m the previous year. Australian meanwhile surprisingly lost $38m as against logging a profit of just over $6m the previous year. It is expected that for 1992/93 Qantas will achieve a healthy profit, a considerable achievement in its own right considering the terrible state of the world’s air transport sector. However, by any comparison it will be substantially less than what it should record for the 93/94 trading year.

Things are getting better. Traffic is picking up and yields are returning as more full fare traffic returns to the airways on the back of a slowly receding recession. The year ahead certainly offers more sunshine than gloom from whichever vantage point you observe it. The merger of Australian into the Qantas Group will also be complete, offering probably up to $200m in savings in that year. Additionally, Qantas’ linking with British Airways will also be slowly producing savings and offering new profit making opportunities, no matter how minor, in a wide range of areas that will boost the national carrier’s earnings handsomely at the end of the day.

The world airline environment will also hopefully be better. IATA airlines lost a collective $6bn in 1992 taking their accumulated losses since 1990 to something in the order of $15bn. This loss is greater than the total profits earned in the previous three decades. Things are beginning to improve however due largely to rampant cost cutting, downsizing and, in America’s case, a recently discovered awareness (at last!) that you can- not go on forever selling seats for less than they actually cost to fly. It is expected that this year’s northern summer will be a better time for all concerned.

Qantas of course requires an extremely good investment rating so as to be able to influence the vital institutional investors who will be the key players in the November float. Without them the entire float would fail miserably, as it did for Compass II. Qantas can get by on an investment rating of at least BBB minus though really would like a BBB plus rating, which is what it recently got from Standard & Poors. At presstime the rating from Moody’s was awaited with great expectation. While BBB+ ratings today are passable, next year the airline’schances would be much better of getting into the prestigious A rating regime where Qantas really deserves to be.

What hasn’t helped here is the understandable reluctance of the international investment community to be inspired by airline stock. Moody’s Investment Services recently issued a lengthy report outlining more good reasons for staying clear of airlines than to enthusiastically embrace them. Even though the report concentrated on the northern hemisphere, its bad tidings are always taken on board locally by all concerned. Particularly so since the very public demise of twice doomed Compass and a largely profitless Ansett and Australian these past three years. Another year would turn this around nicely and allow a far more positive environment in which to float what is nothing less than a national treasure.

The coincidence of two mega floats, Woolworths and Qantas, in the same period is also not good. Woolies is expected to soak up around $2. 5bn in funds from big and small investors alike. You can’t tell me this is not going to have a detrimental effect on the Qantas float.

Will a delay in the float happen though? No, despite Finance Minister Ralph Willis flagging the idea a few times at the lowest of levels, it is expected that the Government’s thirst for cash will easily outweigh the gravity of logic and thus a November 1993 float of Qantas is virtually inevitable. A day, of course, is a long time in politics and the one hope in delaying the QF float might come from the Government rearranging its asset sale timetable to move the selling of additional shares in the Commonwealth Bank in place of Qantas. This would effectively move Qantas back a year. We live in hope! In the fullness of time this might not be such a massive issue. After all, Qantas will be privatised as it should, it will be recapitalised as it should (though not as much as it could) and it will be done amidst a positive 92/93 performance. However, as a people and a nation (and don’t we own Qantas?), we only get one chance at flogging off our aviation gold, so let’s at least consider the numerous benefits of delaying the float for all the above reasons.

Mind you, after the ludicrous Pay TV fiasco could anybody have any confidence that such logic would carry any weight either within the halls of power or via the appropriate Minister’s office. We definitely won’t hold our breath awaiting a change of tack regarding Australia’s most important sharemarket float this century.

Time to Cheer Up!

Are you sick of reading the never ending stream of doom and gloom about massive retrenchments, airline failures and profitless annual reports? Well we certainly are and so we have decided to lighten things up a little with some old fashioned aviation style humour.

Commencing this issue is our latest addition to the magazine, Tales, which can be found on p94 and definitely deals with the lighter side of aviation. Furthermore, you can contribute to our latest column and every story published will repay the writer with a six issue subscription with the compliments of AA.

So sit back and forget the blues, welcome to Tales.