Qantas - The 'Legacy' Airline
Thread Starter
Qantas - The 'Legacy' Airline
and what that tag implies.
That being, certain obligations the legacy portion has each and every year to its increasingly retired but still some currently employed workforce.
And I'm talking about the superannuation defined benefit pension schemes that they signed up to in the 80s and 90s.
The upcoming GFC MK.II that no one wants to recognise but is obvious its about to befall us all to some extent, what is to say this American Airlines announcement
and this
won't happen to Qantas staff and retirees.
That is the legacy elephant in the room they won't talk about. As per the 2011 annual report
Closing defined benefit obligation $2.274 Billion
What is to stop Qantas doing an American Airlines or British Airways in a way befitting Australian law?
This obligation so far 'costs' Qantas
2007: $219million
2008: $249million
2009: $186million
2010: $303million
2011: $128million
per year in benefits paid. The liability is growing. The trend, from BA, to AA in the anglosphere is to cut this liability/obligation at first chance.
From where I'm standing, don't count on your defined benefit plan supporting you from when you are due to retire. Jetstar and Virgin don't have this on their balance sheets and I can only guess where the motivation to render the popular, high load factor and underinvested Qantas unprofitable and toward insolvency can originate from... but from the BA and AA experience, its a pretty solid guess.
Ask this question.
Is the defined benefit scheme the main reason why Alan Joyce and 'the board' consider Qantas unprofitable and unworthy of further investment ??
That being, certain obligations the legacy portion has each and every year to its increasingly retired but still some currently employed workforce.
And I'm talking about the superannuation defined benefit pension schemes that they signed up to in the 80s and 90s.
The upcoming GFC MK.II that no one wants to recognise but is obvious its about to befall us all to some extent, what is to say this American Airlines announcement
Some of the savings will come from the airline's proposal, also announced Wednesday, to shift its underfunded pension plans to a government agency, the Pension Benefit Guaranty Corp.
"If this liability is not eliminated, we will need to have more than $800 million each year in additional savings to service the unfunded liabilities," said the company.
But the Pension Benefit Guaranty Corp. once again said it would seek to block the airline from dumping its pensions on the agency, which is already facing a deficit of its own. The agency's estimate is that American's pensions are underfunded by $10 billion.
"If this liability is not eliminated, we will need to have more than $800 million each year in additional savings to service the unfunded liabilities," said the company.
But the Pension Benefit Guaranty Corp. once again said it would seek to block the airline from dumping its pensions on the agency, which is already facing a deficit of its own. The agency's estimate is that American's pensions are underfunded by $10 billion.
The airline said the switch to CPI would help it reduce its overall £3.7bn pensions deficit by about £770m, with some experts claiming BA cannot afford to keep paying RPI. But on Monday morning, a mass meeting of members – repeated in the afternoon – will see thousands come face-to-face with the trustees.
That is the legacy elephant in the room they won't talk about. As per the 2011 annual report
Closing defined benefit obligation $2.274 Billion
What is to stop Qantas doing an American Airlines or British Airways in a way befitting Australian law?
This obligation so far 'costs' Qantas
2007: $219million
2008: $249million
2009: $186million
2010: $303million
2011: $128million
per year in benefits paid. The liability is growing. The trend, from BA, to AA in the anglosphere is to cut this liability/obligation at first chance.
From where I'm standing, don't count on your defined benefit plan supporting you from when you are due to retire. Jetstar and Virgin don't have this on their balance sheets and I can only guess where the motivation to render the popular, high load factor and underinvested Qantas unprofitable and toward insolvency can originate from... but from the BA and AA experience, its a pretty solid guess.
Ask this question.
Is the defined benefit scheme the main reason why Alan Joyce and 'the board' consider Qantas unprofitable and unworthy of further investment ??
That being, certain obligations the legacy portion has each and every year to its increasingly retired but still some currently employed workforce.
[And as a 'nearly retired', may I publicly thank whoever the far sighted person was who legislated this into Superannuation law. In fact, as it applies to all of us, we should locate him/her and buy them a beer/sav blanc.]
Last edited by Captain Gidday; 3rd Feb 2012 at 13:59.
Thread Starter
Easy with the vitriol, mate.
Specifically what I'm relating to is spelled out on page 6 of the 2009 qantas superannuation annual report
To add to my previous point, this FY will be lean or negative, an added funding burden to the 'legacy' balance sheet.
I'm just asking the question.. If the super fund loses $600million then $700milliom again like in fy08/09 again and again and qantas hasn't got the ability to make up the shortfall per their balance sheet, what's to say our perfect laws are perfect? And is that defined benefit guaranteed?
Is this relevant? | The Australian
Please educate me if I'm wrong
Btw it was Paul Keating
Specifically what I'm relating to is spelled out on page 6 of the 2009 qantas superannuation annual report
Following the recent downturn in the investment markets, a revised funding plan for the defined benefit divisions of the Plan has been implemented to reflect the adverse performance of financial markets over recent months. Both the Trustee and Company have agreed to this funding plan and the associated monitoring program.
In addition to current contributions, further payments totaling $66 million will be made by the Company over the next three years. This agreement reinforces the ongoing support of superannuation arrangements by the Company.
In addition to current contributions, further payments totaling $66 million will be made by the Company over the next three years. This agreement reinforces the ongoing support of superannuation arrangements by the Company.
I'm just asking the question.. If the super fund loses $600million then $700milliom again like in fy08/09 again and again and qantas hasn't got the ability to make up the shortfall per their balance sheet, what's to say our perfect laws are perfect? And is that defined benefit guaranteed?
Is this relevant? | The Australian
PLUNGING market values brought on by the global financial crisis have pushed several large defined benefit superannuation funds into technical insolvency, the market regulator APRA has disclosed.
Btw it was Paul Keating
all superannuation is, by law, fully funded in Australia during the employee's working life
With regard to accumulation funds, my experience is the funds should be fully funded, but I will stand corrected if someone can find an error in my statement.
Even the idea of being fully funded does not hold much if the company decides they will not make the payments to the superannuation accounts. Normally if this occurs, the non payments are not found for some time and again usually, after the firm has gone into liquidation and the employees become very low priority creditors (I think this may have been changed for wages but unsure about superannuation).
6000 ft/lb -
You say 'This year will be lean and negative'. Can I take that as a certainty? Unfortunately, markets have a habit of surprising us in many ways, up down and sideways. Which is why we diversify our investments and in fact why quite a few Qantas staff elected to move to defined benefits super when offered nearly 25 years ago. [Those joining later were automatically placed into DB super for a while].
There is something of a design flaw in DB Super in that when times are tough and markets are dropping, the investments already placed in the DB plan to fund entitlements also drop. It is exactly at this time that cyclical industries come under pressure. Aviation of course is a very cyclical industry. Almost like someone with Bipolar Disorder, the normal economic swings are exaggerated. So, when times are toughest, markets weak and usually revenue is falling for an airline, DB funds will require 'topping up' from their host companies in order to meet their legal obligations to be 'fully funded'.
Conversely, when the economy is 'on a roll', airlines are usually doing pretty nicely, thank you. During the 90s and in fact right up to 2007 [with only occasional short term negative blips] it was something of a golden age for economies and markets. During those years, when Qantas was doing pretty well anyway, you can be pretty certain QF had to contribute very little into QF Super to meet its DB Super statutory obligations. In fact, you'll find that in some years DB Super would effectively have funded itself, without any input required at all. In those years, if you'd previously chosen to move to Defined Benefit Super, you might have felt short-changed and even gotten the feeling that DB Super was enhancing the Company's bottom line. I know I did. It was a very costly decision for many now senior staff, in the order of six figure sums, each, as we approach 'check out time'.
In the good years, conservative companies typically don't try too hard to minimise their payments into their super funds and it is not uncommon for a surplus to build up within a company's linked superannuation scheme. By that I mean there is more money in there than an actuary would require to sign off that the fund is fully funded. I've seen it reported in the financial press [does that make it true?] that one of the easy asset strips that the Allco/Macquarie/private equity buyout folks would have been able to do in 2007, right at the peak of the market, would have been to extract several hundred million dollars of overfunding from QF Super. Nice, eh? Prudence for some becomes a 'lazy balance sheet' for others with a more cavalier approach.
Conservative companies tend to allow Super Fund surpluses to remain because they know that sooner or later a bad year or two is going to come along and they'll already be cushioned from the fallout when it does. But occasionally even prudence isn't enough and a 'revised funding plan' needs to be formulated to ensure the Super Fund's obligations remain 'fully funded'.
Is that significant? Hmm : $22 million per year is;
* about three times the CEO's reported remuneration package.
* Less than the annual cargo cartel fines paid over the last few years.
* Far less than the costs of a 48 hour lockout.
* A drop in the bucket when compared to the more than $3 Billion cash reserves the company reports, or even the interest payments on those reserves.
Not worth worrying about when you look at The Big Picture.
Yes, Paul Keating was Treasurer at the time modern Australian super laws were enacted, but we need to find and thank the unknown Treasury bureaucrat [I suppose it was] who first stood up in a meeting or wrote a paper recommending that super in Australia should ultimately be independent of the employer and protected by law for the benefit of the employee. Genius.
You say 'This year will be lean and negative'. Can I take that as a certainty? Unfortunately, markets have a habit of surprising us in many ways, up down and sideways. Which is why we diversify our investments and in fact why quite a few Qantas staff elected to move to defined benefits super when offered nearly 25 years ago. [Those joining later were automatically placed into DB super for a while].
There is something of a design flaw in DB Super in that when times are tough and markets are dropping, the investments already placed in the DB plan to fund entitlements also drop. It is exactly at this time that cyclical industries come under pressure. Aviation of course is a very cyclical industry. Almost like someone with Bipolar Disorder, the normal economic swings are exaggerated. So, when times are toughest, markets weak and usually revenue is falling for an airline, DB funds will require 'topping up' from their host companies in order to meet their legal obligations to be 'fully funded'.
Conversely, when the economy is 'on a roll', airlines are usually doing pretty nicely, thank you. During the 90s and in fact right up to 2007 [with only occasional short term negative blips] it was something of a golden age for economies and markets. During those years, when Qantas was doing pretty well anyway, you can be pretty certain QF had to contribute very little into QF Super to meet its DB Super statutory obligations. In fact, you'll find that in some years DB Super would effectively have funded itself, without any input required at all. In those years, if you'd previously chosen to move to Defined Benefit Super, you might have felt short-changed and even gotten the feeling that DB Super was enhancing the Company's bottom line. I know I did. It was a very costly decision for many now senior staff, in the order of six figure sums, each, as we approach 'check out time'.
In the good years, conservative companies typically don't try too hard to minimise their payments into their super funds and it is not uncommon for a surplus to build up within a company's linked superannuation scheme. By that I mean there is more money in there than an actuary would require to sign off that the fund is fully funded. I've seen it reported in the financial press [does that make it true?] that one of the easy asset strips that the Allco/Macquarie/private equity buyout folks would have been able to do in 2007, right at the peak of the market, would have been to extract several hundred million dollars of overfunding from QF Super. Nice, eh? Prudence for some becomes a 'lazy balance sheet' for others with a more cavalier approach.
Conservative companies tend to allow Super Fund surpluses to remain because they know that sooner or later a bad year or two is going to come along and they'll already be cushioned from the fallout when it does. But occasionally even prudence isn't enough and a 'revised funding plan' needs to be formulated to ensure the Super Fund's obligations remain 'fully funded'.
further payments totaling $66 million will be made by the Company over the next three years.
* about three times the CEO's reported remuneration package.
* Less than the annual cargo cartel fines paid over the last few years.
* Far less than the costs of a 48 hour lockout.
* A drop in the bucket when compared to the more than $3 Billion cash reserves the company reports, or even the interest payments on those reserves.
Not worth worrying about when you look at The Big Picture.
Yes, Paul Keating was Treasurer at the time modern Australian super laws were enacted, but we need to find and thank the unknown Treasury bureaucrat [I suppose it was] who first stood up in a meeting or wrote a paper recommending that super in Australia should ultimately be independent of the employer and protected by law for the benefit of the employee. Genius.
Last edited by Captain Gidday; 4th Feb 2012 at 04:05.
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I support the philosophy that 'fully funded' means that there must be enough in the fund to support historical draw downs.
The finance industry, and QF super is part of the finance industry, has 'quaint' terminology, e.g., 'Capital stable' doesn't mean 'Capital guaranteed' just less volatile, so even your capital could reduce in a not so good year.
What would happen if a former CEO and his mates got their grubby little hands on QF, as is rumoured, and ran it )further) into the ground. If there is no money in the fund for all, then there is NO money in the fund.
There is no fun in receiving YOUR contributions on the drip, waiting for aircraft sales, etc. I don't know about AN superannuation for crew, mostly external to the company I think, but 10 years for your entitlements is not acceptable.
The finance industry, and QF super is part of the finance industry, has 'quaint' terminology, e.g., 'Capital stable' doesn't mean 'Capital guaranteed' just less volatile, so even your capital could reduce in a not so good year.
What would happen if a former CEO and his mates got their grubby little hands on QF, as is rumoured, and ran it )further) into the ground. If there is no money in the fund for all, then there is NO money in the fund.
There is no fun in receiving YOUR contributions on the drip, waiting for aircraft sales, etc. I don't know about AN superannuation for crew, mostly external to the company I think, but 10 years for your entitlements is not acceptable.
