Qantas' drawn out privatisation process has been hit by further setbacks which threaten both the potential value and the timing of the public share issue.
The main blow comes in a ruling which bars the Australian flag from pooling resources and setting prices with alliance partner British Airways on the Australia-Europe Kangaroo Route. The cooperation would have saved Qantas up to A$60 million ($46 million) annually and boosted the financial projections in its float prospectus.
Analysts predict the decision, if confirmed, could reduce the A$2 billion price tag on the sale of the state's remaining 75 per cent stake in Qantas by between A$300 million and A$500 million.
At presstime, the two airlines were seeking an urgent conference with the Trade Practices Commission (TPC), which handed down the draft ruling, in an attempt to convince it to reverse the decision. But the strongly worded rebuttal of Qantas-BA plans by TPC chairman Professor Allan Fels makes a backdown unlikely.
At the same time, Qantas, desperate to produce solid financial results for the first six months to December 31, has had to watch as external events hit revenues. Against this background, finance minister Kim Beazley has cast doubts on completing the public flotation before the end of the 1994/5 fiscal year, ending 30 June. This would be the third postponement for the privatisation process, which may now not take place until the end of 1995.
To make matters worse, Qantas' revenue streams have been hit by industrial action, unrelated to the carrier. As the peak December-January holiday period approached aircraft refuellers staged two 24-hour stoppages which threw airline schedules into chaos; Qantas alone had to cancel more than 40 flights and the unions are threatening more action.
At the same time, the opening of a new parallel runway at Sydney airport, the country's main international and domestic hub, has actually reduced traffic flow because it was commissioned six months before a new control tower is ready. The situation has worsened congestion and caused lengthy delays in the air and on the ground, again costing Qantas millions of dollars in fuel and operating costs. Moreover, at presstime local residents looked set to blockade Sydney airport on 17 December, to highlight claims of worsening noise pollution.
All these actions would seriously affect the airlines revenue during the most profitable period of the year.
But the most significant blow is the TPC decision. Qantas' lawyers Freehill, Hollingdale and Page had argued in a confidential submission to the TPC that the deal would ensure a 'substantial' increase in float proceeds. The TPC ignored that, saying the deal would be detrimental to competition because of the combined market share on the route of the two operators, estimated at 50 per cent.
Qantas and BA want to meet the TPC in an attempt to win a reversal before the final decision is handed down, probably in January. But their chances of doing so don't appear strong; Fels' decision was couched in tough language.
Even if some compromise can be reached the issue is likely to take months to settle. Privately, Qantas officials are less than optimistic about their chances. More importantly, the decision raises serious questions about the long-promised benefits of the Qantas-BA alliance.
Even if some compromise can be reached the issue is likely to take months to settle. Privately, Qantas officials are less than optimistic about their chances. More importantly, the decision raises serious questions about the long-promised benefits of the Qantas-BA alliance.
Source: Airline Business
