Australia Takes First Step to Foreign Investment in Qantas

 - March 6, 2014, 10:08 AM
Qantas has decided to defer delivery of the last eight of an order for 20 Airbus A380s. (Photo: Qantas)

Plans by Australian flagcarrier Qantas to cut 5,000 jobs and curb its fleet expansion in response to record losses appear to have spurred the country’s politicians to act on long-standing demands to reform rules governing ownership of the struggling airline. The Qantas Sale Amendment Bill, which serves to repeal part of the Qantas Act and effectively removes restrictions on foreign ownership and stipulations affecting Qantas’ business operations, passed in the Lower House of the Australian parliament on Thursday by a vote of 83 to 53. But the reforms still face futher political obstacles.

Australian Prime Minister Tony Abbott, who made good on a March 3 promise to introduce the legislation, is now urging Qantas to lobby members of parliament from parties opposed to the amendment to support the proposed changes. Three political parties—the Labor Party, the Greens and the Palmer United Party—all remain fiercely opposed the amendment. Independent senator Nick Xenophon, who has criticized Qantas’ management team for the carrier’s financial woes, also opposes the bill while Democratic Labor Party Senator John Madigan contends that the amendment will result in further job loss.

The bill, which likely won’t reach the Senate until July, comes a day after Qantas CEO Alan Joyce declared that “Qantas is a very healthy airline.” The comment stands in stark contrast to Joyce’s position last November, when he reported that the airline would likely fail without government intervention or a since rejected debt guarantee. Joyce now contends that a $2 billion cost reduction strategy announced on February 27 would ensure the airline’s profitability.  Under the three-year cost reduction plan the airline will cut 5,000 jobs and sell or defer delivery of 50 aircraft. Qantas announced the cuts alongside an underlying pre-tax loss of $225 million for the six-month period ending December 31.

Qantas has long maintained that the Qantas Sales Act, introduced upon the airline’s privatization in 1992, has substantially hindered its growth. The Act imposes strict limitations on foreign ownership of Qantas. Any single foreign investor can take no more than a 25-percent stake in Qantas, foreign airlines can hold no more than 35 percent of total Qantas shares and total foreign holdings cannot exceed 49 percent. Qantas argues that Virgin Australia does not face similar foreign ownership restrictions, thereby creating a competitive imbalance.