Jetstar Pacific Losses etc..

[mohikan]

From the SMH today. JQ Pacific, part of Joyce's suite of 'incredible businesses".....

Secret cables lift the lid on the detention of two executives, writes Matt O'Sullivan.
It was several days before Christmas 2009 when Daniela Marsilli and Tristan Freeman were pulled aside at Ho Chi Minh City's international airport for questioning.
The Qantas executives were due to board flights home for well-deserved holidays in Australia after toiling for several years as senior bosses of Vietnam's second-largest airline, Jetstar Pacific. In an emotional separation, they were barred from leaving, forcing their young families to fly home without them.
So began a six-month ordeal for the Australians, which included grillings at the hands of Vietnam's feared secret police, the Ministry of Public Security.
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Yet their predicament did not surprise some workmates in Vietnam, who had first become concerned in early 2009 about what might unfold. They feared that Australians sent to the developing nation to help run Qantas's part-owned budget offshoot could be detained because of multi-million dollar losses.
Months later, Qantas management commissioned its then chief risk officer, Rob Kella, to begin a risk assessment of Jetstar Pacific. His findings are commercial-in-confidence.
But it was all too late. The Australians' brush with the iron hand of the Communist Party apparatus and the deep uncertainty took a toll on their state of mind. It also reinforced the dangers for foreign companies of doing business in a developing country where the state can criminalise ordinary commercial activities.
Their living nightmare has been cloaked in secrecy ever since.
The two executives at the centre of the diplomatic storm jumped on the first flight out of Ho Chi Minh once the travel ban was lifted on June 29 last year. They are now back in senior positions at Qantas's headquarters in Sydney.
Marsilli, a former boss of the Adelaide charter airline National Jet, is at Qantas's engineering division; Freeman, 38, is in a strategy role.
Qantas says neither wants to talk about their traumatic experience.
But secret diplomatic cables obtained by the Herald under freedom-of-information laws give a rare insight into the frantic efforts involved in winning their release.
It also reveals the sensitivity of a case that went to the highest echelons of government.
When they were finally allowed to return to Australia last year, Qantas insisted that the Ministry of Public Security's investigation ''was quite separate to any commercial relationship between State Capital Investment Corporation and Qantas''. The SCIC is the investment arm of Vietnam's communist government and the largest shareholder in Jetstar Pacific. Qantas is the other shareholder with a 27 per cent stake.
But one of the diplomatic documents reveals that a deal between Qantas and the SCIC did play a part in helping to lift the travel bans on Marsilli and Freeman.
Three days before the pair's final meeting with a two-star general from the secret police, Qantas and the SCIC ''reached agreement on a commercial package that would also count as mitigation under Vietnamese law, so allowing the travel restrictions on Tristan Freeman and Daniela Marsilli to be lifted''.
The revelation about the deal with the SCIC is contained in a secret document stamped ''consular media talking points'', which was co-authored by Bassim Blazey, a senior official from the Department of Foreign Affairs and Trade in Canberra. It was sent to federal ministers' offices on June 30 last year.
The two Qantas executives found themselves at the centre of the diplomatic storm in Vietnam after Jetstar Pacific lost $US31 million on fuel-hedging contracts in 2008. The names of Marsilli and Freeman - as the chief operating officer and chief financial officer - were on the contracts.
Airlines regularly enter hedging contracts to stabilise the volatile cost of jet fuel. But Vietnam is a country that is only slowly opening the door to capitalism and where the loss of money at a state-owned enterprise - even a relatively small amount - can be a capital offence.
Throughout most of their ordeal, Marsilli and Freeman had no idea when they would be free to go or whether they would be held personally responsible for the losses at Jetstar Pacific. Although interpreters were provided, they did not have access to lawyers at some interviews.
Qantas says the ''commercial package'' referred to by DFAT was a heads of agreement, which gave a ''commercial framework governing the expectations'' of the two shareholders and their continuing involvement in Jetstar Pacific. It will not reveal further details because they are ''commercial-in-confidence''.
However, Qantas confirmed to the Herald last year that it did extend ''for a number of years'' a put option shortly before the two executives were released. Put options are used to attract investors by giving them the opportunity to recall their investment if the company fails to live up to expectations.
It is important because, if Qantas had exercised the option, it would have meant that the investment arm of Vietnam's government would have had to find about $43 million to pay the Australian airline.
As much as parts of the Vietnamese establishment might have wanted Qantas out, an exercising of the option is likely to have meant the SCIC would have had to seek financial help from their political masters in Hanoi.
The Australians' shock detention prompted Qantas to set up a high-level taskforce. Those tasked with trying to bring them home included Steve Jackson, Qantas's chief of security and a veteran of the Australian Federal Police, David Epstein, the head of corporate and government affairs, and Brett Johnson, the general counsel who flew regularly to Vietnam in the early days to get a handle on the legal side of the case.
Apart from Epstein, a former adviser to Kevin Rudd, the rest of his government relations team knew little about what was going on.
DFAT also involved heavyweights such as Blazey, the former head of the Howard government's Iraq Task Force. Described as a ''hard-core DFATer'', Blazey keeps a low profile despite serving in a top post in the department's south-east Asia bilateral branch. Graeme Swift, Australia's consul-general in Ho Chi Minh, was also heavily involved because most of the action was in Vietnam's financial capital.
Public information about Marsilli and Freeman last year might have been scant, but the secret cables reveal the high level of work going on behind the scenes. In just one month, DFAT churned out 18 secret cables, email conversations and so-called ''consular media talking points'' about the two executives' plight.
One of them is so secret it is classified AUSTEO, which stands for Australian eyes only. Such classification of cables from the Australian embassy in Hanoi is rare.
The department has ruled 12 of the cables should be ''totally exempt'' from release to the Herald, citing concerns Australia's relations with Vietnam could be damaged. DFAT said the documents detail its ''dealings, opinions of and relationships with Vietnamese officials and their activities''.
Qantas has also sought secrecy. It has told the department that ''release of the material could reasonably be expected to affect its business affairs, both in Vietnam and other regions''.
One of the cables deemed ''commercial in confidence'' - dated June 4, 2010 - details an email conversation about a letter received from the SCIC. That same day Australia's ambassador to Vietnam, Allaster Cox, met Vietnam's Finance Minister, Vu Van Ninh. The SCIC answers to Vietnam's Finance Minister.
Less than three weeks later, Qantas and the SCIC, the majority shareholder in Jetstar Pacific, reached the agreement on the ''commercial package'' that would help lift the travel restrictions on the Australian pair.
Then, on June 29 last year, a ''confidential'' DFAT cable shows Marsilli and Freeman fronted a meeting before a two-star general, Tran Trung Dung, and a colonel, both from Vietnam's feared secret police.
''Having concluded their assistance with the investigation, the two Australians were advised by the Vietnamese authorities … that they were free to depart,'' states a DFAT document on June 30, 2010.
It highlights the ''wide coverage in Vietnamese and Australian media'' and shows the Australian ambassador was involved in a ''series of meetings between Qantas and senior Vietnamese officials over the period''.
But DFAT has completely blacked out another cable revealing an ''unofficial translation'' of the Qantas executives' meeting with the secret police.
Qantas refutes any suggestion that a settlement was reached to free its two executives. But it has confirmed that the Ministry of Public Security ''had regard'' to the heads of agreement with the SCIC when deciding to allow Marsilli and Freeman to leave Vietnam.
''Officials believed that it showed the commitment of both joint venture parties to the commercial viability of Jetstar Pacific. This is what is referred to as potential mitigation in the DFAT cable,'' Qantas says.
''Under Vietnamese law, investigators examining financial losses are entitled to consider the commercial circumstances and commitment of relevant parties to running a viable business when deciding whether an investigation should proceed.''
The investigation into the losses at Jetstar Pacific was originally the job of Vietnam's Economic Police. The fact that the Ministry of Public Security later became involved reveals the high stakes, as well as the fear and intimidation brought to bear.
The secret police invokes terror in the minds of the Vietnamese public. Regarded as a law unto its own, the Ministry of Public Security is a secretive part of the communist machinery in a country where the buck stops with the military and the party president and prime minister.
The two Australians' brush with the shadowy side of Vietnam's political and judicial system might now be behind them. But it has again highlighted the risks for Australian companies of doing business in developing countries

So 31 million lost in fuel hedging, a significant amount of money paid to the Vietnamese to 'arrange' the release of the two execs as well as whatever ongoing operational losses have been incurred from the day to day running of the business.

The two execs come home to a promotion and a fat bonus.

Yet it's Qantas International which is the millstone around the groups neck. Not JQP, JQA, or JQI.

[maggot]

another $50mill recently sent up to help keep things solvent, or so I heard ;)
They are taking us to the cleaners...
:ugh:

[hewlett]

At least they managed to get them out, probably more likely part of the "settlement", not like the scapegoat in the QF US freight cartel dealings.

[dodgybrothers]

Dear Qantas,

Welcome to Vietnam.

[buttmonkey1]

yes mate, lucky they got out,
capital offence for losing money in Vietnam, :eek:.

but just like the cargo fiasco,
"Both are now back in Australia but
Jetstar Pacific's CEO Luong Hoai Nam is in jail."

and just what will she bring to engineering as head of strategy?
didn't her last lot of lames flee town after making some scathing
report to the viet casa?

[Anthill]

At the end of the fight is a tombstone white, with the name of the newly deceased.

An epitapth drear: "A fool lies here, who tried to hussle the East".

:p

Just bear this in mind when doing business in VN. The Communist party is the State and in charge of business. This means that when you do business there, you do business with high ranking party members as investors who have the full weight of the Party, the police, judiciary and the government on their side (not yours).If you lose their money, they will expect to be 'compensated'.

;)

[Budfox]

What a mess !!!
Compensation,fines, big exec bonuses :ugh:
Taking bets now as to how long it will take for them to burn through their
3 billion odd cash lying around with all these leaches sucking them dry.
Anthill sums it up well in that it will be a tombstone :(
RIP

[B772]

Now we know why QF has not paid a dividend since 2 Mar 09. Even then it was the smallest dividend since 3 Nov 95.

[Gingerbread]

Parliament of Australia: Senate: Committees: Rural Affairs and Transport Committee: Pilot training and airline safety including consideration of the Transport Safety Investigation Amendment (Incident Reports) Bill 2010: Submissions Received (http://aph.gov.au/senate/committee/rat_ctte/pilots_2010/submissions.htm)

submission 49 - page 7-8 and attachments 4, 5 and 6 for the background on airworthiness issues at J*V and illegal LAME sackings.

[Taildragger67]

Anyone pointed out that a loss on a hedge is usually offset by gains in the physical?

Or was that side soaked up elsewhere?

[framer]

Hey TailDragger,
Can you explain that to me ? I know very little about hedging.

[Anthill]

Very interesting reading, Gingerbread. Are those in charge of maintenance at J*P aware that if maintenance fraud is discovered as contributing to a fatal hull loss, they could wind up being executed?

I think that it is time that they read up on local laws.

A Firing squad with AK-47s, at Police headquarters in District 1, along with the drug peddlers, I believe...

[breakfastburrito]

Framer, if you are a user of a commodity, a hedge allows you to buy that commodity in the future at a fixed price today.

In the example of an airline, you can go to the futures market and purchase a contract for delivery at some distant time & lock in a price- here's an example

Say you wish to consume 1000 barrels of oil in July 2012 & you wish to lock in a price today to allow you to plan with a known price. You go to the futures market - crude futures chain (http://finance.yahoo.com/q/fc?s=CLJ11.NYM) and you will see a price of 102.73 (Jul 1 price, this will change). You purchase your contract and that is the price you will pay per barrel in July 12. A future is an binding obligation to either buy or sell some commodity in the future, with the price locked in when the contract is made.

The mechanics of the futures market, however "mark to market" each day. Lets say that the July 2012 contract declines to exactly 100 tonight. this represents a 2.73 loss on that contract x 1000 barrels = $2730. This money is transferred out of your account at the close of business and into the account of the seller of the contract. In other words there is a daily mark to market transfer depending upon the settlement price every day. Note also that you must deposit and initial margin prior to the purchase of the contract, and then a further maintenance margin to hold the contract over night.

However, there is another way to do this, you can purchase an option over the future, so you could purchase a July 2012 call option, for which you have the right, but not to obligation to purchase the July 12 futures contract at some point prior to July 12. For this you pay a premium.

For example, you could purchase a Jul 12 $100 call option, for which you pay a premium* - lets say the option contract trades at $6.50. So, in this case at most you will pay
is 106.50 ($100 + $6.50) per barrel. Note the subtlety at most, and the difference between the straight future which is you will pay 102.73 per barrel. Note, that the premium is a once off payment, and there is no margin requirement if you are buying, there is no nightly "mark to market". However, the value of the option contract could decline to 0 if oil declines well below 100 close to Jul 12.

(The reason you pay at most 106.50 with the option contract is because if oil declines to say $50, your option contract is worthless therefore you don't exercise it, but you can then go into the open market & purchase a contract or spot at $50, therefore you only pay $55.60 per barrel, however, the holder of the futures only contract will still pay 102.73 as they )

So, putting the clues together, my guess is that J* Pacific hedged somewhere near the top of the oil market using futures, not options. They then were required to pour large amounts of cash into their trading accounts to offset the daily mark-to-market with the oil price crash. Not only that, the exchange probably increased margins to protect the integrity of the exchange as the price and volatility increased, further increasing the cash required (This paper loss would eventually be offset by the purchase of the fuel physical fuel at a much lower price).



*The premium is the composed of the any intrinsic value + a premium for the time value of money, the volatility of the underlying contract & the length of time remaining, see the Black Scholes Pricing Model (http://www.google.com.au/url?sa=t&source=web&cd=1&sqi=2&ved=0CBcQFjAA&url=http%3A%2F%2Fen.wikipedia.org%2Fwiki%2FBlack%25E2%2580%2 593Scholes&ei=YWMRTt-wKOWhmQWj0cy8Dg&usg=AFQjCNHEtfZEZpIFJuSZPHzXc4zBalpKaw&sig2=-MRki-W1EOFO-6M4134qyA) for further details.

[framer]

Breakfast B,
Got it....sophisticated gambling. :)

(seriously though...thanks for taking the time to construct that reply, I have a vague understanding now.

[breakfastburrito]

No problems Framer. Just to clear it up, it isn't gambling if you are either a producer or consumer of the commodity - just the opposite, there is no gambling whatsoever. You are locking in a price at some point in the future which gives you certainty.

On the other hand if you aren't either of these, then yes it is gambling.

[Taildragger67]

Thanks BB.

Framer essentially you hedge to protect yourself against an adverse event. A user of fuel, risks a rise in fuel price - therefore buys something which gains in price, as the price of fuel goes up - your gain on that asset, offsets the extra you pay for fuel.

Futures are attractive for this due to leverage; that is, you don't have to put down the full value of the asset you're buying - however just as the potential gains are magnified, so are the potential losses.

So if your hedge asset falls in price, it's because your fuel cost has gone down.

So unless you use options (as BB has explained), the hedge will lock in your price, meaning you don't benefit from a lower fuel price - but neither do you suffer from a higher fuel price.

I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.

[What The]

I would also not be surprised if JQ used futures (or perhaps a swap) which locked in the price (rather than options) as managing an option position would be a little harder than just putting a futures / swap position on and walking away. A futures position would give you certainty so you can budget more accurately.

JQ DO NOT HAVE A TREASURY DEPARTMENT.

Another COST TO MAINLINE.

[splashman]

Excellent Post 9 and the reference to the Senate Enquiry

Information provided to the Australian Senate by the ALAEA, yet asked to be confidential by the author of the letter. How did the ALAEA get copies ?

Could be " come back time " for said writer of letter,

Different country and different laws but now back in Aus thanks to the ALAEA via Pprune

Lot's of waiting may have been worth it.

Splash

[Metro man]

The futures and options market is simply a means of transfering risk from those who wish to avoid it, to those who expect to make a profit by assuming it.

An airline selling tickets could easily bankrupt itself if it sold advance bookings based on fuel being cheap and there was a sudden surge in oil prices.

It's because of the futures market that you can lock in a airfare months in advance, surely preferable to not knowing the cost until the day you depart and possibly ending up spending far more than you expected.

[Gas Bags]

Hey Splashman,

Pertinent points raised. An industrial agenda suited perhaps?

Could be " come back time " for said writer of letter,

Different country and different laws but now back in Aus thanks to the ALAEA via Pprune

Lot's of waiting may have been worth it.


Did the whistleblower end up returning to work for the airline in Vietnam, or do you mean he has been given a job with Qantas or Jetstar in Australia?

GB

[Callicutt Kid]

Spoke to the girls at Bar 5 and they say its all true.

The Kid

[splashman]

Not so much about where he is now,

A Hypothetical,

Lots of allegations made , investigated and recommendations by the regualtor were made.

Not all allegations found by the regulator are noted in the finding.

People are named with no finding against them.

Now made public via the ALAEA submission to the Senate in Australia.

Therefore would not the people named, or those people holding the named position at the time, have the right to the Australian legal system, as a confidential submission to an overseas regulator has been made public by the ALAEA to all Australians via the Senate.

As an example, how could the writer alledge someone to be medically unfit, yet have no medical qualifications ? You would never have to prove you were not unfit, it would be up to the writer of the submission to prove you were.

There are also many more.

Seem's to me a chat with close mates who happen to be legal professionals in Australia around the subject of slander may be worthwhile.

And the question still to be answered is how did the ALAEA get hold of a confidential report to a overseas regulator, I have my own opinon, but the ALAEA may find themselves asked the same question in a legal venue in Australia.

:O:=:O

[600ft-lb]

Ironic how Qantas CEO AJ refuses to talk about the finances of any business segment except the 'underperforming' Qantas International.

Not so the Jetstar Pacific CEO, Le Song Lai. Prior to joining Jetstar Pacific, replacing their now jailed former CEO Luong Hoai Nam, he was/is a senior executive at Vietnam's State Capital Investment Corporation (SCIC) which owns around 70% of Jetstar Pacific. (Vietnam's Jetstar Pacific gets new CEO (http://www.flightglobal.com/articles/2009/11/12/334721/vietnams-jetstar-pacific-gets-new-ceo.html))

Interesting interview VietNamNet - Jetstar Pacific now thirsty for capital: General Director | Jetstar Pacific now thirsty for capital: General Director (http://english.vietnamnet.vn/en/travel/9216/jetstar-pacific-now-thirsty-for-capital--general-director.html)

In order to keep periodic engine maintenance and implement the plan to charter and purchase more aircraft, Jetstar Pacific (JPA) needs some 55-60 million dollars. JPA commits to pay all the debts to Vinapco prior to July 31, said Le Song Lai, General Director of JPA, who is also the Deputy General Director of the powerful State Investment Capital Corporation (SCIC) which specializes in making investment in enterprises with state’s capital.So
$60 million to keep the place running.
$8.4 million to pay for fuel is hasn't paid for.
$interest on the $8.4 million.
$undisclosed 'commercial deal' (which definitely wasn't a cash payment) for the freedom of the 2 Australian executive prevented from leaving
Jailed former CEO who quit a month before being locked up due to ideological differences.

THANKS QANTAS!!

As a casual outside observer this is how the Vietnamese Government blackmails the unprofitable mothership for some more cash. Holding the little orange baby hostage from the big stupid Australian. Qantas sure isn't playing by their own rules here. Minority share holder - Majority capital provider.

Or so it seems, who knows.

[splashman]

Read the former CEO was detained for questioning, have never seen any report of him being found guilty of anything or jailed.

Perhaps after investigations were concluded he was released ?

Be funny if Bernie hasn't learn't, and is still commeting about the same people and airline to anyone that may walk into a certian coffee shop in HCMC.

Be even more funny to see him now, exposed to legal action in Australia that is being initiated outside of the airlines and regulators.

How did the ALAEA get a hold of the confidential EMail ???????

[A37575]

How did the ALAEA get a hold of the confidential EMail ???????
splashman is offline Report Post Reply

News of the World sources,maybe.:E

[Sunfish]

Told you doing business in Asia was not "straightforward".

..And QF wants to send more of its shareholders cash to this arena?

[Mstr Caution]

Found this article from earlier in the year:

http://vietnamnews.vnagency.com.vn/Economy/212209/Two-airlines-fail-to-pay-fuel-bills.html


And this in october:
VIETNAM'S AVIATION UPDATE | News (http://www.contactcentervietnam.com/News/vietnams-aviation-update.html)

MC

[gobbledock]

Perhaps this issue could be raised at the AGM meeting on friday?

[Sunfish]

Oh my Sainted Aunt!!!!

The Vietnamese Government is now "initiating changes in ownership" of Jetstar Pacific and Bruce B. is just standing there transfixed in the headlights of the oncoming truck - he does not seem to understand his predicament at all. For example, I'll bet that Qantas will pay lots and lots of cold hard cash to increase its stake from 27% to 30% - and all for an airline that has never made a profit and never will - while Qantas has a share of it anyway.

Just how thick do you have to be to get a management job at Qantas?

Here is a hint Brucey; if there is a transfer of Jetstar Pacific to the majority control of Vietnam Airlines, I would "anticipate difficulties", great big hairy, toxic, lethal and intractable difficulties. Do you really expect to get your aircraft back when all this finishes?


JETSTAR is supporting a shake-up in the ownership of its trouble-prone Vietnamese offshoot, Jetstar Pacific, in a deal that will result in it and the national flag carrier Vietnam Airlines carving up the Asian nation's travel market into low-cost and premium segments.

Under a tentative agreement still months from completion, the Vietnamese government will transfer a 70 per cent stake in Jetstar Pacific held by its investment arm to Vietnam Airlines. Jetstar's parent, Qantas, is expected to increase its holding from 27 per cent to 30 per cent.

Jetstar's chief executive, Bruce Buchanan, said the airline was supportive of a change in the ownership but he emphasised yesterday that ''there is a lot of water to go under the bridge with those discussions''.

''We have a lot of success in executing two-brand strategies … and we think that could be leveraged in Vietnam for a lot of benefit not only for the Vietnamese industry there, but also Vietnam Airlines,'' he said.

The Vietnamese government has initiated the ownership changes after several years of controversy for Jetstar Pacific. Last year two Jetstar-appointed executives at the Vietnamese airline were banned from leaving the country for more than six months while police investigated fuel-hedging losses.

The budget airline has not turned a profit since Qantas bought into it in 2007.

Mr Buchanan said he did not anticipate difficulties from Vietnam's dominant airline taking majority control of Jetstar Pacific, likening it to Japan Airline's stake in the yet-to-be launched Jetstar Japan.

''Irrespective of our partnership and how else we can create benefits for the other partners, we have to stay true to the ultimate brand promise,'' he said.

Although the Vietnamese shareholder selects Jetstar Pacific's chief executive, the Australian airline maintains an influence by appointing the chief financial officer and other executives. Qantas also has two seats on a six-member board.

...............



http://www.theage.com.au/business/jetstar-pacific-set-for-a-shakeup-20111024-1mg8u.htm

[gobbledock]

Ha ha. Brucey is about to get another lesson on 'business dealings Asia style'!
Perhaps BCG can come in and consultant on the issue?

[bandit2]

So Jetstar Pacific hasn't made a profit since 2007. We've paid millions in what ever you want to call it to the Vietnamese government. But still, these idiots are prepared to increase there holding from 27% to 30%. I know it's only 3% BUT! WTF are these idiots doing?

[breakfastburrito]

WTF are these idiots doing?
It's call "Loss aversion (http://en.wikipedia.org/wiki/Loss_aversion)". This works on a couple of levels, firstly there is the financial aspect, but more importantly is the "reputation" loss. If they walk away from this investment as a failure, it questions managements ability to implement the burn orange "Asian Sunrise" strategy of minority owned franchises dotted around Asia, operating up to 400 aircraft by 2020 (http://www.smh.com.au/business/jetstar-to-invest-470m-in-singapore-hub-20110718-1hkun.html).

They are essentially doubling up to save face by continuing to pour money into a failed venture, rather than write off the loss. Clearly the Vietnamese understand this, and will continue to milk Qantas for all they can. Who is playing who?

[hadagutfull]

...... And meanwhile we can't get a Capitol expense claim approved for a few new computers in our section.
I get harassed for not saving a cup full of jet A1, by not using ground power and conditioned air on a 60 min transit ....

And these f%#*^g idiots go and blow hundreds of millions on failed ventures, cartels and offshore airlines with a fleet of 120 aircraft ?

Has this world has gone completely mad ...??
When does this stupidity end?

[ohallen]

Loss aversion, yes that is what HIH did and I know it well.

They got so involved with ****e markets they could not withdraw without losing face until the whole thing imploded because of cumulative effects of multiple ****e markets.

There were other reasons but that was the crutch (forgive me ) of things.

Starting to sound familiar guys???

[Ka.Boom]

Stressful times ahead for Bruce Buchanan as things are starting to get extremely out of control for what is fast becoming a true pandora's box for the Jetstar group of airlines. The latest problem involves the financially unsound Vietnamese arm Jetstar Pacific which has an operation that looks like it was set up by "Dodgy Shonky & Co Aviation Consultants". The carrier is now losing even more money..., and BB is in desperate talks with the Vietnamese Govt which owns Vietnam Airlines to offload QF's stake in JQ Pacific to around 27& with the Vietnamese Govt to take a majority stake in the fledgling carrier. BB has even offered to model the new operation on QF's "two brand strategy" boasting the virtues of the "success" it has had with QF. So far the Vietnamese are wise enough not to buy any of it. BB maybe missed out first year Organisational Theory classes at university - he should look at the concept of the "span of control of an organisation" - basically the bigger you make it by creating lots of other companies the more costs are involved and the harder it is to effectively manage the whole operation. If he was conversant with this key fundamental concept then maybe his "pan-Asian" strategy wouldn't seem like such a good idea. I almost feel sorry for Bruce...almost.

[dragon man]

Just like Hastie Group. Approx 300 separate entities in the group, share price goes from $4.00 odd to 10.5. A basket case.

[LeadSled]

Folks,

Do some trawling around the aviation news sites.

If I have the correct interpretation, Qantas shareholders have just done their shirts in Vietnam, so much for the much vaunted Qantas Asian strategy, where Qantas Airways Ltd. is only ever a minority shareholder.

One usually reliable source is reporting that majority shareholding in Jetstar Pacific, by a directive of a one party state political pen, has been transferred to Air Vietnam, the bitter rival.

At the stroke of a pen, Jetstar in Vietnam has become the instant low fare arm of the state carrier.

It seems to me that, for all practical purposes , the very considerable sums invested in Vietnam by Qantas ( anybody got any figures??) are now, by Government directive, lost by Qantas to the state.

It looks like all the fuel hedging losses (carried by Qantas??) and the locking up of two expat executives was only the start of the problems.

With the "new Qantas" in SIN, reportedly in political trouble before it even starts, and the apparently rather ordinary financial performance of Jetstar in SIN, where does this leave the Qantas plan for the future.

Tootle pip!!

[industry insider]

Are you talking about a Subsiduary or Subsidiary?

[B772]

That is interesting. Air Vietnam collapsed 36 years ago !

[LeadSled]

Insider,

My lousy spelling, unless I want to claim I use the common US spelling, which I won't.

And, of course, Vietnam Airlines.

Isn't it interesting (well, I think it is) that there are no comments on the substance of the posts, in days before the QF AGM, it becomes public that the Vietnam caper, at the cost of how many hundreds of millions of dollars of shareholders money, is a bust ---- as far as any QF/Jetstar Asia strategy is concerned.

Tootle pip!!

[1a sound asleep]

If Vietnam Airlines buys into Jetstar Pacific, it may be a bonus for Qantas and Jetstar because Vietnam Airlines would then have a vested interest in seeing Jetstar Pacific succeed. No more Vietnam Airlines trying to close it down

[LeadSled]

1a sound asleep,

Be clear, it is not a "buy in", it is a Government directed transfer of control, including apparently, management control of Jetstar Pacific to Vietnam Airlines.

Just how does Qantas losing all control of Jetstar Pacific to Vietnam Airlines, which is closely associated with Qantas major competitors (have a close look at Vietnam Airlines code shares, and which alliance they have ambitions of joining --- and it's not OneWorld) and tell me how that is going to benefit QF and its Asia strategy --- and show any return for the long suffering QF shareholders.

It seems to me that the practical reality is that QF have blown the investment.

Tootle pip!!

[Luke SkyToddler]

Not disputing your sources - but the boys & girls at the VAC coal face, have certainly heard no gossip along the lines you're reporting at all

[Dream Land]

That's not true, check around.

[Sunfish]

Told yer so.

[Redstone]

The disappointing thing is that rather than ask direct questions like this at yesterday agm, people used the opportunity to preach from the pulpit. A wasted opportunity.

[LeadSled]

Luke,
It's reported in aviation media not given to idle speculation, and although I don't subscribe to the Australian Financial Review, I am told it has been reported in the Fin.

Dreamland,
What's not true?

Tootle pip!!

[DEFCON4]

Jetstar Vietnam is to be absorbed into Vietnam Airlines after bleeding cash since its inception.
This is a warning to Joyce and his cohorts at Qantas:a minority holding in any airline venture in Asia will end in tears and a loss of a large amount of capital

[porch monkey]

You think they care? It's not their money, why should they give a ****?:{

[ohallen]

There is also an issue here re disclosure to the market...when did they know and when did they disclose the outcome?

Don't recall anything being mentioned at AGM and these things do not happen overnight like grounding decisions.

[hotnhigh]

Anyone with a link to an asx statement from qantas regarding this matter?

[neville_nobody]

Vietnam News is onto it. Unusual that it was the fuel hedging that was hurting them.

As for QF disclosure obviously something was going on last week.

Vietnam Airlines to absorb budget carrier Jetstar - Economy - VietNam News (http://vietnamnews.vnagency.com.vn/Economy/218405/vietnam-airlines-to-absorb-budget-carrier-jetstar.html)

HA NOI — Low-cost airline Jetstar Pacific will merge with national flag carrier Vietnam Airlines in the near future, according to deputy head of the Civil Aviation Administration of Viet Nam (CAAV) Dinh Viet Thang.
The move is considered the most feasible plan to save the carrier from bankruptcy.
The Ministry of Finance and the Ministry of Transport have agreed to the move, which is awaiting approval from the Prime Minister, said Thang during a briefing at the Ministry of Transport late last week.
Thang said that Jetstar Pacific had been operated by the State Corporation for Investment and Capital (SCIC) for several years under a low-cost model but was now facing difficulties due to inefficient operation that had caused heavy losses. SCIC, which uses State capital to invest in business, is now the biggest shareholder in Jetstar Pacific.
Restructuring the company was essential, he said.
The Finance Ministry has kept the Prime Minister informed about the merger and participants at some recent Government meetings have outlined a number of different plans. The most effective plan was for the airline to transfer its capital to Vietnam Airlines, said Thang, adding that the timing of the merger would be decided by the Government.
Vietnam Airlines was the top carrier in the country with an 80 per cent market share, while Jetstar is second with about 17 per cent. Upon finalisation of the merger, Vietnam Airlines market share would increase to nearly 100 per cent, Thang said.
This would be the first merger in the country's history of aviation, he said.
He acknowledged that Vietnam Airlines would gain a monopoly in the local market with the merger but said that even without the merger, the State owned airline already had a lion's share of the market.
However, he affirmed that the merger was not bad for the domestic airline market because the Government and the Ministry of Transport would continue to expand the market by allowing more private airlines to compete. He added that Vietjet Air began operating this month.
According to the Sai Gon Tiep Thi newspaper, Vietnam Airlines will have a 70 per cent stake in Pacific Airlines from the SCIC. Therefore, once taking over the 70 per cent of SCIC, Vietnam Airlines will hold a controlling stake in the budget airline.
Established in 2004, Pacific Airlines was founded by Saigontourist. Vietnam Airlines has an 86 per cent stake in the carrier. In 2007, Australian flag carrier Qantas acquired a 27 per cent stake in the carrier. Pacific Airlines changed its name to Jetstar Pacific and the remaining majority stake in Jestar Pacific was held by Vietnamese partners (SCIC and Saigontourist).
Fierce competition in the domestic aviation market has become a burning issue since 2008. Jetstar Pacific began applying different fare levels, some of which were lower than the ceiling levels charged by Vietnam Airlines. This forced Vietnam Airlines to change its pricing mechanism to compete with Jetstar Pacific.
Due to increased competition, airlines have been forced to lower fares despite rising fuel prices, resulting in their huge losses. Jetstar Pacific was reportedly taking on heavy losses, partly due to fuel hedging.
Losses even led to an investigation after which the former general manager of Jetstar Pacific, Luong Hoai Nam, was arrested while two foreign directors were prohibited to leave the country.
After that, SCIC, the largest shareholder, appointed Le Song Lai, then deputy general director of SCIC, to be the new general manager of Jetstar Pacific. However, Jetstar Pacific still incurred losses over the last year on domestic air routes.— VNS

[gobbledock]

Three days before the pair's final meeting with a two-star general from the secret police, Qantas and the SCIC ''reached agreement on a commercial package that would also count as mitigation under Vietnamese law, so allowing the travel restrictions on Tristan Freeman and Daniela Marsilli to be lifted''. Yes, welcome to 'business Asian style'. Two star General vs one star managers.

It does not take much to work out why QF has desperately worked so hard to keep this one nice and quiet. Also doesn't take much to work out why the two 'amateur kiddies' they sent over there are still employed down at Mascot - 'Keep ypur friends close, keep your enemies closer'. Keep them nice and close to QF's chest, pay them a lot of money and keep the two under control, that way they won't go racing around spilling the truth. Joyce is not as silly as he looks.
But the two youngsters also held very little cred with any key power players over there during there tenure. They were always regarded as QF footstools, business children with no Asian business dealing skills and arrogant as well. So you are damn right they bolted on the next flight, the Vietnamese don't just slap you on the wrist for naughty, it can be backs to the wall - ready, aim, fire!
I would not want to be an executive over there if they ever put a plane into a hole.

But the alarm bells for investors should be ringing loud and clear about how unsuccessful the Vietnam venture has been and remains. And Joyce wants to repeat this on a larger scale in China, Malaysia, Singapore???? Gold! Dear oh dear, there must be 'standing room only' on cloud cuckoo land?
I can smell that share price sinking. Good work Alan and friends, doing a marvelous job running the airline. Will you ever make an actual financial decision that benefits the company positively? Nah, didn't think so.

[Kharon]

Lurv to see an analysis of individual stock options, buy, sell, put, stop and of course, sell short.

The boys have had their fun, shareholders loose and the beauty part, it's all other peoples money, except the profits.

Sheesh!.

[blow.n.gasket]

From the AUSTRALIAN

Friday, December 9, 2011.

SHORTHAUL

QANTAS has rejected a claim by the Australian and International
Pilots Association that it's investment in Jetstar Pacific has failed
because of a possible change in majority ownership involving Vietnam Airlines.
The airline has previously supported the ownership change.

[Olive61]

Not rumour - fact - I was there.

A few years ago a small group of VN expat pilots were having a beer or two in the Omni bar.... as you do. We were aware that there had been some protracted negotiations over the previous year or two with an outside consortium (I think it was Singapore based) who were looking to take a controlling share in what was then known as Pacific Airlines. We knew this deal had collapsed largely as a result of the disputed value of Pacific - put at approx $5 mill US. At some stage early in the evening we met two very excited, and, oh yes, very knowledgable, QF commercial gents who advised us they were here to set the world on fire with something now called Jetstar Pacific. The upshot of most of what we heard was that the poor old Viets were hopeless at business, had no commercial acumen, couldn't count to ten, and that this was a fantastic 'win win' for the QF group and VN in general. These gents left after a while and those of us remaining were quite taken with their instant grasp of how business was done in VN, and how the locals clearly had no idea whatsoever of how 'real business was done in the real world'. Apparently about $40 mill US should wrap the whole deal up including investment, and the new deal would be making a profit in no time, much to the educational benefit of the local uninformed, who clearly had no idea how to spot a great business opportunity.

I can think of three or four people in VN right now (not expats) laughing their heads off, and toasting the undeniable business acumen of their new partners, as they have been successfully doing for around 10,000 years

Chuc Mung Nam Moi !!! Mot, Hai, Ba, …. Yo !!!

Brilliant !!

[Anthill]

Olive, you made me snort coffee all over the keyboard! :8

The Viets are bloody sharp operators when it comes to business and can play the poker face for as long as it takes. The fact that business, The Party, military, police and judiciary are all part of the samesame crew, it hardly is surprising that QF has done their dough.

The fact that Dumb and Dumber conducted themselves as Australians in Wonderland shows what Million Dong Intellects were at work here :hmm:

Does Happy "hour" at the Omni still go from 5pm until 8pm? :E

[gobbledock]

I agree with Anthill entirely. Anybody who underestimates the Vietnamese and thinks they are two-bit business nuptys has underestimated the 'competition' for better words.
As Anthill said, Dumb and Dumber were no match for the Viets, and of no surprise they were eaten up and spat out in due course. Did QF actually think a pair of Western teenage pratts were going to run the gig in Vietnam and gain the countries business leaders respect and also reap a golden windfall from the airline and bring said profits back to the land down under? A flawed concept from it's birth and another QF fantasy drummed up by accountants and imbeciles who have spent to much time at Bondi Junction sunning themselves while walking the poodles. QF should be grateful that Dumb and Dumber were allowed to leave after just a little bit of 'home detention', very lucky indeed. QF needs to realize this was just the Vietnamese scratching an itch. Next time may be different.

The fact is this is just a taste test for QF, China will be not be as accommodating as our Vietnamese friends. This foolish foray of a western airline waltzing into Asia and apparently expecting to take wads of profits back home to Australia is as likely as AJ turning QF into a model business.
It takes years to develop their trust. It takes years to learn their business model (government, police, business leaders and politicians all rolled into one), it takes years to learn their culture, and it takes decades to earn their trust.
It is almost impossible for QF management to be so inept, therefor my only conclusion can be that the grand plan is to have the business turned into a carcass that has been attacked by Mexican buzzards. Not so much as a bone shall remain.
Fools? To be sure.

[DrPepz]

It probably is more of there being no demand from DRW to Ho Chi Minh City. 3K flies 4 times a day SIN SGN. As does TR. SQ does a miserable 2. It's a horrendously low yielding market.

[mohikan]

Pepz.

Vietnam being a low yielding market ? Thats not possible because Qantas would not have invested $150 million in Jetstar Pacific unless there were 'massive returns' available...........

[safelife]

Any news with JetStar Pacific?
Some agencies are recruiting A320 crew for them it seems...

[gobbledock]

Best to ask AJ what's new up there. If there are any jobs going.
Better still, ask the two 'kiddies' that now remain well protected behind a wall of secrecy and protection in Mascot!!

http://www.mythsatwork.com/MYTHS_AT_WORK/Hedge_Your_Bets_files/Hedge_Your_Bets_Box_TOP.jpg

[Mstr Caution]

..........sound like the losses keep on coming in Vietnam.

Jetstar Pacific lost nearly VND2.5 trillion - News VietNamNet (http://english.vietnamnet.vn/fms/business/70553/jetstar-pacific-lost-nearly-vnd2-5-trillion.html)

MC.

[ampclamp]

Hell, my calculator only has so many zeroes. Whats 2.5 trillion divided by 21,2800?

[neville_nobody]

Not sure on the number system in use, 1trillion means different things to different people but it is at least $ 114 710 000. If Vietnam uses the longer system then chuck another 6 zeros in there, but that would seem a bit to large.

[ampclamp]

Pretty certain they use the American billion and trillion.
I'm surprised how much the Dong has depreciated. Not been there for years.
Then again as you get older, Dongs often do depreciate.

[Tankengine]

I think you will find that J/pacific is an "amaaaazing" business and it is really QF mainline losing the money.:rolleyes::ugh:

[Mstr Caution]

I think you will find that J/pacific is an "amaaaazing" business and it is really QF mainline losing the money.

A snap shot of the JQ foreign businesses:

Jetstar Vietnam lost $120M
Jetstar Pacific lost nearly VND2.5 trillion - News VietNamNet (http://english.vietnamnet.vn/fms/business/70553/jetstar-pacific-lost-nearly-vnd2-5-trillion.html)

Jetstar Asia: "Dismal returns over 8 years"
Jetstar doubts fuelled by Singapore figures | Plane Talking (http://blogs.crikey.com.au/planetalking/2013/01/16/jetstar-doubts-fuelled-by-singapore-figures/)

Jetstar NZ: The Qantas subsidiary is "coy on whether it is profitable in this country (NZ)"
Jetstar eats into Air NZ's domestic market dominance - Business - NZ Herald News (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10867930)

Jetstar HKG: "We are eyeing the mainland market within three years, around the point at which we expect Jetstar Hong Kong to become profitable (2016)"
Jetstar aims to expand to mainland - People's Daily Online (http://english.people.com.cn/90778/8163487.html)

Jetstar Japan: Ms Hrdlicka would not say when she expected the Japanese joint venture to break even,
Cookies must be enabled. | The Australian (http://www.theaustralian.com.au/business/aviation/new-kid-jetstar-japan-has-just-added-its-fifth-airbus-a320/story-e6frg95x-1226482834822)

What an amaaaazing business!

[Tankengine]

:hmm::ugh: :ok:

[my oleo is extended]

Perhaps Herr Alan and Frau Hrdlicka will send the two kiddies back to Vietnam to run JQ once again? Hedging fuel is their specialty!

[Mstr Caution]

This.... From Ben Sandilands.

Jetstar slashes Singapore flights but is it a wider problem? | Plane Talking (http://blogs.crikey.com.au/planetalking/2013/04/08/jetstar-slashes-singapore-flights-but-is-it-a-wider-problem/)

[dragon man]

One thing that i think has been missed in Jetstars 787 is the configuration of 314 seats. ANAs -8s operating long haul have 42 J class and 114 Y class. My own opinion is that people will go on the Jetstar 787 once unless they are small otherwise it will be to crammed for long flights. If im correct then i guess Qantas could pay to re configure them.