Originally Posted by
tail wheel
A little simplistic or myopic perhaps? The relevance of profit is as a return on capital equity (ROE), one of the first owners/shareholder consideration.
Devaluing assets by $2.6 billion erodes shareholder's market equity whilst inflating return on investment in the longer term. ROE can also be high if a company is heavily leveraged.
QAN ROI is 30.68%, a result of being heavily leveraged. Qantas debt to equity in December 2016 was 1.387, versus 0.1027 twenty years previously in December 1996.
Qantas received a total of $147m in capital from the government during 45 years of government ownership. The company managed to put away $967m in profits over the years. $80m of what the government injected was when the 747-300s and 767s were purchased.
When it was floated, the Keating Government gave $1.1bn of the proceeds back to Qantas as a capital injection, wiping out just about all of the debt. Strong then claimed the next year he'd turned the company around and that's how reputations are made, didn't explain how his stewardship of TN led to a 5/95 debt/eq ratio though.
Bottom line, it's easy to improve performance when most of your debt is paid off. To be fair, Qantas did not always have that d/e ratio in 1996 in prior years, it was fairly highly geared because of the need to fund aircraft and after the injection post float, it had by then a lot of aircraft that were owned. Aircraft get sold, loans are raised for new aircraft and to be fair, since 1996 Qantas has added something like 10-12 747-400/400ERs, 75 737-800s, 30 odd A330s (albeit many at a discount for not cancelling the A380), 12 A380s and is now adding 787s, not to mention $80m to start up JQ in 2003/4 and the purchase of all the A320, 21s, etc.
Airline leverage goes in cycles and it's not good allegedly to have zero debt, about the middle 50/50 is about right as it has tax benefits with interest payments, etc. My last check, QF had about $4-5bn cash which not many airlines can boast of, certainly not their main competitor which is a sheltered workshop.