March 3 (Bloomberg) -- Prime Minister Tony Abbott said he won’t guarantee the debt of Qantas Airways Ltd. as Australia’s biggest airline prepares to cut 5,000 jobs and trim A$2 billion ($1.8 billion) in costs amid a battle for market share.
The government will instead seek to amend legislation that caps foreign ownership of Qantas, Abbott told reporters following a Cabinet meeting today.
“Cabinet is not proposing at this time, on the evidence before us, to offer Qantas a debt guarantee or a line of credit,” Abbott said. “I have enormous faith in the ability of Qantas to compete and to flourish, but I think it is best placed to compete and to flourish if it is unshackled and un-propped up by government.”
Chief Executive Officer Alan Joyce has argued the carrier can’t compete in a domestic fare war with Virgin Australia Holdings Ltd., whose three biggest shareholders are state-controlled foreign airlines that he says want to weaken Qantas’s international business. The company, which was stripped of its investment-grade ratings, posted a A$252 million loss last week and said it will sell or delay delivery of more than 50 planes and freeze pay until the company returns to profit.
Abbott’s government has said it wants to level the “playing field” for the national carrier and introduce legislation to change the Qantas Sale Act, which caps foreign ownership of the airline at 49 percent and stops it moving some operations offshore. Abbott may struggle to get any amendments through Australia’s Senate, where his coalition doesn’t hold a majority.
“We do not believe in government by checkbook,” Abbott told reporters. “We certainly don’t believe in any normal circumstances that government should be playing favorites between competing private businesses. We just do not believe that and we do not intend to act that way.”
Qantas spokesman Andrew McGinnes said the company didn’t have an immediate comment.
Joyce, 47, the Irish-born son of a cleaner and cigarette factory worker, has struggled to restore the fortunes of the “Flying Kangaroo” since taking over the top job during the global financial crisis in November 2008.
He’s taken on trade unions by grounding Qantas’s global fleet; seen the carrier’s first Airbus Group NV A380 put out of action for 18 months after it suffered a mid-air engine explosion over Indonesia; and faced competition from Asian and Middle Eastern carriers on international routes.
A deal struck with Emirates in 2012 helped pare long-haul losses last year, as Joyce sought to make the international unit profitable by the year ending June 2015. That won’t now happen, he said last week.
At home, he’s fighting Virgin Australia Chief Executive Officer John Borghetti, who’s added business-class seats, renovated lounges, taken control of a discount carrier and a rural airline, and set up a frequent-flier program in an attempt to break Qantas’s 65 percent share of Australia’s domestic market.
Shareholders Air New Zealand Ltd., Singapore Airlines Ltd., and Etihad Airways PJSC have supported Borghetti’s ambitions with cash, buying into a stock sale that will reduce Virgin’s net debt by about A$350 million, according to a company presentation.
“The purpose of this sovereign foreign capital is to fund Virgin Australia’s strategy in the domestic market and weaken Qantas” so that its international operations are less competitive, Qantas said in a regulatory statement Dec. 5.
The government may introduce the proposed changes to the Qantas Sale Act in parliament as early as this week, Abbott said. The legislation would need approval in the Senate from the opposition Labor party, which has indicated it would block the changes.
“The whole reason why we support Qantas maintaining itself as an Australian national carrier, as an Australian airline, is gone if you get rid of the foreign ownership restrictions,” Shadow Minister for Infrastructure Anthony Albanese told reporters in Canberra today.
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