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Australia to Work With Qantas on Proposals Amid Forecast Loss

Qantas Airways
A Boeing Co. 747 aircraft operated by Qantas Airways Ltd. is seen behind a fence as it taxis on the runway at Sydney Airport in Sydney. Photographer: Brendon Thorne/Bloomberg

Dec. 16 (Bloomberg) -- Australia will work with Qantas Airways Ltd. on any proposals presented by the nation’s largest carrier as it faces a record first-half loss amid falling ticket prices and rising fuel costs.

Qantas needs to make the changes it sees as necessary and the government will work constructively with the airline, Prime Minister Tony Abbott told reporters in Sydney yesterday. The government may remove shareholding restrictions, including a limit of 49 percent foreign ownership, the Australian Financial Review reported Dec. 14, citing Abbott.

Qantas is cutting 1,000 jobs and seeking A$2 billion ($1.8 billion) of savings after forecasting a loss amid increased competition from rival Virgin Australia Holdings Ltd. The nation’s second-largest carrier, founded by billionaire Richard Branson, is more than 60 percent owned by Air New Zealand Ltd., Singapore Airlines Ltd. and Etihad Airways PJSC and doesn’t face the same restrictions as Qantas.

“The important thing is for Qantas to put its house in order,” Abbott said yesterday. “We will be cheering them on in government, and if they put formal proposals to us we will obviously work constructively with them.”

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.

Standard & Poor’s downgraded Qantas to junk after it forecast the loss earlier this month, citing competition from Virgin and its “well-capitalized shareholders.” Qantas is rated BB+ by S&P, one level below investment grade.

1992 Legislation

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.

“Access to foreign capital has become a major factor in this market and Qantas is denied the same access as its competitors,” Qantas spokesman Luke Enright said in a text message “Ultimately, the Qantas Sale Act is a matter for Parliament.”

Enright declined to comment on discussions taking place with the government.

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.

Moody’s Review

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 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.”

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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