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Alan Joyce has sent Qantas broke. I can't work out why he hasn't resigned yet.

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complaining about the $350m for the Virgin offer, how much did HE lose by shutting the airline down? Did I hear around $200m ?

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Can anyone recall any such crisis or emergency a few short weeks ago at the AGM?

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A government buyback of up to 10 per cent of Qantas has emerged as the most likely option to solve the airline’s problems after the prospect of lifting foreign ownership restrictions was scuttled and political enthusiasm for guaranteeing the airline was lukewarm.

With Labor, the Greens, Qantas and even Prime Minister Tony Abbott throwing cold water on a repeal or easing of the Qantas Sale Act, the government’s options were limited to a direct intervention or support to shore up the airline’s credit rating.

Senior sources have told The Australian Financial Review that Qantas has been seeking a form of loan guarantee from the former Gillard Labor government and now the Coalition, as it tries to compete against the foreign-owned Virgin Australia Holdings while *constrained by the conditions of the Sale Act.

The Financial Review has obtained a ”letter of comfort” provided to Qantas by Labor transport minister Anthony Albanese in August to ward off a downgrade in its credit rating.

“I would expect the government’s long-term and ongoing recognition of the critical importance of the company to the economic and social fabric of the country to be an important element of the ratings agencies’ deliberations,’’ the letter says.

With Qantas again looking for some form of government support as soon as possible to stave off the *prospect of a downgrade in its credit rating, Treasurer Joe Hockey is not keen on providing a direct guarantee.

This is because it would leave the government exposed to a large liability should Qantas fail and prompt other organisations with foreign *ownership restrictions to ask for a *similar guarantee.

It is believed Mr Hockey and Mr Albanese have been talking and the emerging but not yet agreed political consensus is for the government to *provide an implicit credit guarantee by buying between 5 per cent to 10 per cent of the airline back which, at today’s prices, would cost about $260 million.

Mr Albanese said on Thursday a “small equity take-up’’ would “make it clear to the markets that the Australian government regarded Qantas as not just another company, but that there are real national security and national interest issues in making sure we have a national airline”.
Public will have to pay

Mr Hockey again expressed a *preference to ease the Sale Act *constrictions which limit foreign *ownership but given this will not *happen, he said the Australian public must be prepared to put its hand in its pocket if it wanted to keep a national carrier.

“I do not like the idea of putting taxpayers’ money or taxpayer support behind Qantas, but if it is the view of the Australian people that we should have a national carrier that carries our flag then that does come at a cost,’’ he said.

“I am a great believer in free trade, but I also recognise that there is significant community benefit in having a national carrier.”

While Qantas has $2.8 billion of cash on hand, there are suggestions *hundreds of millions of dollars could be restricted by credit card companies overnight if its investment grade rating was lost.

It would also need to pay a higher interest rate on its $4.8 billion of debt facilities at a time when it has already forecast it will be free cash flow negative in the current half.

Qantas has the lowest possible investment grade credit rating and any downgrade would lead to it reaching “junk” status. The loss of liquidity would make it harder for the airline to continue to maintain its 65 per cent market share target because it may not be able to afford matching capacity increases by Virgin.

Mr Hockey has called for a community debate and said on Thursday a decision must be made within 12 months. The Greens and Labor said they would not support in Parliament the repeal of the Sale Act, saying Qantas must remain majority-Australian owned for reasons that included national security and the national interest.

Mr Abbott, too, showed little enthusiasm to hand Qantas to foreign owners. “My view is that Qantas should remain an Australian icon and I am happy to look at a range of measures that will help ensure that that happens, but certainly at this point in time I am not being prescriptive about any *particular change.’’

The shift to the prospect of funding from government came as Qantas chief executive Alan Joyce told the airline’s 30,000 employees that the possibility of changing the Qantas Sale Act to allow for more foreign ownership was not “realistically achievable”.
Unions oppose changes to act

He said any process of change would be prolonged and it was not clear if public support would be gained.

With the exception of the pilots union, which would support more foreign capital on the condition it is invested in Australia, the key unions representing Qantas employees are against changes to the Sale Act.

It is understood Qantas is hoping that a decision on an equity or debt based solution will be forthcoming from the cabinet before Christmas.

Several options have been put forward in addition to the prospect of the Future Fund or government buying Qantas shares on market. A share placement, which would raise fresh funds, is also a potential solution.

Qantas has also canvassed the idea of a government guarantee on its debt, the extension of a stand-by credit facility from government and the issuance of a “Kangaroo” share giving government control over the composition of the register.

All of the options are designed to help qualify Qantas as a government-related entity with ratings agencies in a move that would bolster its credit rating. Qantas is rated BBB-minus by Standard & Poor’s, which is the lowest investment grade credit rating.

The ongoing capacity war with Virgin has the potential to lead to Qantas being downgraded to “junk” status if it maintains its insistence on keeping a 65 per cent share of the domestic aviation market.

Virgin has been adding capacity at a rapid pace and under its current strategy, Qantas effectively needs to add two new flights for every one added by Virgin even though demand is low due to weak economic conditions.

Virgin on Thursday said its aim was to create a long-term sustainable and profitable business and any potential changes to the Qantas Sale Act were a matter for the government and Qantas.

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Did the government do a secret deal with Qantas before Virgin Australia’s $350 million capital raising to prevent it being downgraded by investment ratings agencies?


In an open letter to Government released this afternoon Virgin Australia CEO John Borghetti raises media reports that the federal government had offered the “comfort letters to Qantas’s credit rating agencies, prior to our capital raising.”
Borghetti says in the letter “I would also note that if Virgin Australia had been afforded the benefit of such a letter, it would have enabled us to achieve superior outcomes from both the recent debt bond issue undertaken in the US market and the capital raising that is underway.”


This is a serious matter that goes straight to the government’s integrity or at the very least, good judgement, in business relations.


But even if the multiple media reports all came from an incorrect source, the Borghetti open letter, published in full below, makes a number of other points about the Qantas case seeking relief from competitive pressures from Virgin Australia, including its previous automatic success in raising more than $1 billion in capital raisings despite the restrictions of the Qantas Sale Act.

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