Qantas Airways Ltd, Australia’s largest carrier, could get government support to remove restrictions on foreign ownership of its shares, the Australian Financial Review reported, citing Australian Prime Minister Tony Abbott.
Parliament may consider changes to legislation to help the company compete with Virgin Australia Holdings Ltd, Abbott told the newspaper. Existing laws limit the level of foreign ownership in Qantas to 49 percent, restrictions that do not apply to its rival.
Qantas is cutting 1,000 jobs and seeking A$2 billion (US$1.8 billion) of savings after forecasting a record first-half loss due to rising fuel costs and declining ticket prices as it competes for passengers.
Virgin, founded by billionaire Richard Branson, is more than 60 percent owned by Air New Zealand Ltd, Singapore Airlines Ltd and Etihad Airways PJSC.
“What Qantas wants is to be unshackled,” Abbott said, according to the newspaper. “Now I don’t think that’s an unreasonable request on their part, but that’s a matter for the parliament, as well as the government.”
Standard & Poor’s downgraded Qantas to “junk” status after it forecast the loss, citing competition from Virgin and its “well-capitalized shareholders.”
Qantas is rated “BB+” by S&P, one level below investment-grade.
Sydney-based Qantas flagged a loss before tax and one-time items of between A$250 million and A$300 million in the six months ending on Dec. 31.
“Qantas appreciates the acknowledgment that we’re playing on an uneven field,” spokesman Luke Enright said yesterday in a statement sent by text message. “We’re in ongoing dialog[ue] with the government about how it could be leveled.”
The airline is “certainly not looking for a handout from taxpayers,” Enright said.
The 1992 Qantas Sale Act, passed before the government sold the carrier to investors in 1995, limits total ownership by foreign airlines to 35 percent and the largest stake permitted to any single foreign investor is 25 percent.
The laws also place restrictions on the company’s name, where it locates operations and the proportion of foreign board members.
In promising to support a A$350 million capital raising by Virgin Australia, its airline shareholders are “pumping money in to continue a loss-making business,” Qantas chief executive Alan told reporters during a Dec. 5 conference call.
Virgin, which started as a budget carrier before adding business class seats in 2011, has been targeting corporate customers, ending almost a decade of near monopoly on full-service domestic flights by Qantas.
Moody’s Investors Service on Dec. 5 put Qantas’ “Baa3” rating — its lowest investment grade — on review for a possible downgrade.
An internal review looking at divestments and a proposed sale-and-leaseback arrangement for its fleet, have heightened the uncertainty, according to Westpac Banking Corp.
Australia will not consider offering subsidies to help support the national carrier, Abbott said on Dec. 6 during a radio interview.
Qantas is suffering from “self-inflicted wounds,” Virgin founder Branson said in an interview with Bloomberg Television on Dec. 6. “What they need to do is get their own house in order and stop complaining when the competition gets too hot.”
Virgin Australia CEO John Borghetti thinks that changing the ownership rules is between the government and Qantas, spokeswoman Jacqui Abbott said in an e-mailed statement yesterday.