Abbott Says Australia May Support Changing Qantas Ownership Rule

Qantas Airways Ltd. (QAN), Australia’s largest carrier, could get government support to remove restrictions on foreign ownership of its shares, the Australian Financial Review reported citing Prime Minister Tony Abbott.

Parliament may consider changes to legislation to help the company compete with Virgin Australia Holdings Ltd. (VAH), Abbott told the newspaper. Existing laws limit the level of foreign ownership in Qantas to 49 percent, restrictions that don’t apply to its rival.

Qantas is cutting 1,000 jobs and seeking A$2 billion ($1.8 billion) of savings after forecasting a record first-half loss on 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. (AIR), Singapore Airlines Ltd. (SIA) 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 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 A$250 million to A$300 million in the six months ending Dec. 31.

‘Ongoing Dialog’

“Qantas appreciates the acknowledgment that we’re playing on an uneven field,” Qantas spokesman Luke Enright said today in a statement sent by SMS. “We’re in ongoing dialog 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 Officer Alan told reporters on 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 for Qantas.

Moody’s Review

Moody’s Investors Service on Dec. 5 put Qantas’s 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 won’t consider offering subsidies to help support the national carrier, Abbott said Dec. 6 in 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 has previously said changing ownership rules for Qantas is a matter for the government and the airline, spokeswoman Jacqui Abbott said today in an e-mailed statement.

To contact the reporter on this story: David Stringer in Melbourne at dstringer3@bloomberg.net

To contact the editor responsible for this story: Stanley James at sjames8@bloomberg.net

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