March 3 (Bloomberg) -- Qantas Airways Ltd. engineers will first consider options other than strikes in response to wage freezes the airline announced last week, their union said.
“Strike action was never on our radar after the announcement,” Steve Purvinas, federal secretary of the Australian Licensed Aircraft Engineers Association, said in an interview on Sky News “Australian Agenda” program yesterday. “One thing we could possibly look at would be a trade off of our wage rises for shareholdings in the company.”
Australia’s biggest airline, which last week reported a A$252 million ($225 million) loss before taxes in the six months to Dec. 31, said it would cut 5,000 jobs, defer new jets, and freeze all pay until it returns to profit. Chief Executive Officer Alan Joyce announced the measures as part of his efforts to persuade the Australian government Qantas needs a debt guarantee and to lift a cap on foreign ownership.
Joyce last week abandoned a goal to turn the airline’s international division profitable by next year, meaning the earliest the Sydney-based company is estimated to post a profit is in 2016. Qantas shares gained 6.4 percent this year compared with a 1 percent rise in the benchmark S&P/ASX 200 index.
Unlike the engineers’ representatives, the Transport Workers Union is urging Qantas employees to consider industrial action if Treasurer Joe Hockey doesn’t meet with the company to find a way to avoid job cuts.
“If Joe Hockey’s not prepared to do that, then it’s industrial action that the workforce should be considering,” a video clip on the Sky News’ website shows TWU national secretary Tony Sheldon saying. “In this country, if the government won’t stand up for jobs and the Australian icon, then we will.”
Such action is “the last thing that would help Qantas right now,” Prime Minister Tony Abbott said, according to an e-mailed transcript of an interview he did yesterday on Channel 10’s “The Bolt Report.”
Abbott, who’s told Qantas to “put its house in order” six times over the past three months, said that while the government is working to raise the cap on foreign ownership from the current 49 percent, it’s less inclined to guarantee the airline’s debt.
“If you offer it to Qantas, you’ve got to offer it to Virgin, you’ve got to offer it to Rex and indeed to any other airlines that put their hand up,” Abbott said, referring to Virgin Australia Holdings Ltd., the nation’s second-largest carrier, and Regional Express Holdings Ltd., Australia’s biggest regional airline.
Qantas and Virgin, locked in a market-share battle, are both lobbying the government, with Qantas arguing for a government debt guarantee because Virgin is funded by foreign airlines seeking to weaken the larger carrier. Virgin Chief Executive Officer John Borghetti said that shouldn’t happen and Qantas is no longer indispensable to Australia.
Qantas Chairman Leigh Clifford argued in a March 1 editorial in the Sydney Morning Herald that competition from Asian and Middle Eastern carriers, record jet fuel costs and weak economic conditions have put pressure on Australia’s aviation market. In addition, the foreign ownership cap on Qantas puts restrictions on the airline that don’t apply to competing carriers, he said.
“As well as fixing its own challenges, Qantas needs a fair go in the form of a level playing field,” Clifford wrote. “Over the past two years, any illusion of a free market in Australian aviation has been shattered.”
The Qantas sale act is “profoundly unfair” and needs to be changed, activist investor and former Qantas shareholder Mark Carnegie said on the Australian Financial Review Sunday program on Channel 9 yesterday.
In the event of a government debt guarantee for Qantas, Australia’s Future Fund, the country’s sovereign wealth manager, would be the “logical” choice to set the price for the backing, he said.
“It’s got a balance sheet that’s strong enough to provide it,” Carnegie said.
Virgin has been supported by its largest shareholders, state-controlled Air New Zealand Ltd., Singapore Airlines Ltd. and Etihad Airways PJSC, which contributed the majority of A$350 million it raised in a share sale completed in December to cut debt levels. Brisbane-based Virgin last week reported a first-half loss of A$83.7 million, compared with net income of A$23 million a year earlier.
“Aggressive pricing” as seat capacity grows in excess of consumer demand has driven the market into a loss before interest and tax for the first time since 1992, according to a Virgin presentation. Australia’s aviation sector can generate A$1 billion in annual profit, according to Deutsche Bank AG.
A measure of discount airfares in Australia hit a 21-month low in January while an index of business-class fares has yet to recover from late 2011 when it fell to an 11-year low, according to data compiled by Bloomberg.
“It’s not the fault of workers that Qantas is locked in an unprofitable bidding war with Virgin and other foreign government-backed airlines,” Dave Oliver, secretary of the Australian Council of Trade Unions, which represents 2 million workers in 46 affiliated unions, said in a statement urging a government debt guarantee, subject to a commitment from Qantas to avoid job cuts. “Qantas wants the backing of the Abbott Government and in return has sacked 5000 workers, and will undermine the job security of those that remain.”
Only 1 percent of engineers and pilots at Qantas trust the company’s management, an online survey of more than 2,200 industry employees by the engineer’s union in November showed. Only 3 percent of respondents expected the company to improve over the following 12 months, while 84 percent of engineers at Virgin and 91 percent of its pilots said their company would improve.
The measures announced by Qantas last week are “very necessary,” Peter Harbison, executive chairman of the Sydney-based CAPA Centre for Aviation, said in a Bloomberg Television interview on Feb. 27. “While there are some very fundamental issues with Qantas that will probably never get changed sadly, what they’re talking about doing here is pretty much the right thing.”
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