THE ECONOMY: by Robin SpeedNews Weekly
Qantas takeover bid - leave it to the market?
, February 3, 2007
There are at least six compelling reasons why the Government should prevent Qantas from being taken over by Macquarie Bank and its U.S. associates, argues Sydney lawyer Robin Speed.Is the fate of Qantas under the proposed takeover a matter for the stock market or the Australian Government? If the takeover proceeds, Qantas will, for the first time since it was established 85 years ago, no longer be majority-owned by the Australian public - but a private company riddled with high-risk debt.
This will have profound consequences for Australia.
Deputy Prime Minister Mark Vaile says the takeover of Qantas is a matter for the stock market. He thereby answers the question raised many years ago by Bob Santamaria in his memoir: "Who or what is the real government of this country? The one we elect, or the one who controls its policies by the barely disguised exercise of financial power?"
This Government's economic policies of deregulation appear to have reached the nonsensical and illogical position whereby matters of national interest are no longer decided by the Government we elect.
Illogical because this Government refuses to protect the Australian farmer from international competition but has stopped any meaningful competition to Qantas on international flights. For example, the Government prevents Singapore Airlines flying in competition with Qantas on the lucrative U.S. routes.
Why should the Australian farmer get no protection from competition, when Macquarie Bank and its U.S. associates, as the new owners of Qantas, will be protected?
Let us look at the facts if the takeover proceeds:
• Qantas will no longer be majority-owned by the Australian public, but will be a private company majority-controlled by Macquarie Bank and its U.S. associates. Macquarie Bank and Australian investors will put up about 15 per cent of the cost of the takeover. The remaining 85 per cent, whether called "equity" or "debt", will be provided by foreigners, giving them effective control.
• Qantas will be put into debt for at least a further $8 billion (thereby reversing its debt to equity ratio from the present 25:75 to higher than 75:25).
• Not one dollar of the $8 billion debt will benefit Qantas, it will be used to pay out existing shareholders.
• Qantas will have an additional interest bill on the $8 billion of about $700 million a year (in the 2006 year, Qantas made a net profit of about $670 million - accordingly, all that profit will be used to pay interest).
• Moody's, the international debt-rating agency, has warned that Qantas's credit-rating may drop from one of the highest in the world to junk status.
• The Australian Government will continue to protect Macquarie Bank and its associates, as the new owners of Qantas, from any meaningful international competition on the U.S. routes.
• Australia will no longer collect nearly $200 million in tax from Qantas as its profit may be paid out virtually tax-free to foreigners.
These consequences raise matters of national interest, including national security and the significance to Australia of access to and from Australia by the air. The Government itself accepts that international air transport is a key driver of the Australian economy. Today, air transport is even more important to Australia than when Qantas was established in 1920.
Macquarie Bank may be prepared to gamble on the takeover - but why should Australia?
Qantas is one of the most successful airlines in the world. Why allow speculators to gamble with Qantas?
In considering how Macquarie Bank and its associates may gamble with Qantas and the jobs of over 37,000 Australians that it employs, one thing is clear. Despite the contrary claims of the bidders, they are not "patient" investors. With the $8 billion debt pressure the only issue is not whether they will "restructure" Qantas - but "how" will they restructure, e.g., by moving jobs offshore.
It is in the national interest that Qantas is financially strong. You do not have to be the Governor of the Reserve Bank to work out that burdening Qantas with a debt in excess of $8 billion in place of that amount of equity will significantly weaken it.
The fate of Qantas, Australia's national carrier, is not simply a matter of whether the takeover price is acceptable to shareholders, nor is it a matter of preserving an Australian icon. Any responsible Government must carry out a full and open inquiry, consider all submissions and then take time to decide the matter. The "market" must not make the decision nor rush the Government into doing so.
This is a matter of national importance for each Australian. If we do nothing, the takeover will proceed.
Each of us can stand up like Bob Santamaria and make a difference by making our views known to the Prime Minister John Howard, Treasurer Peter Costello and Opposition leader Kevin Rudd.- Robin Speed is a Sydney lawyer.