The AFR sets out the four point test that the Abbott government will be adopting when deciding on corporate welfare:
Mr Hockey acknowledged the airline was different to other businesses because some of its challenges were the result of government policy. These “legacy issues” were “a ball and chain around the leg of the business”, he said.
Mr Hockey said another consideration necessary for government aid was whether companies provided an essential national service and whether they were in an environment where other sovereigns were engaged in direct compeition to “the massive disadvantage” of an Australian business.
He added that businesses also needed to show they were doing heavy lifting on reform themselves.
Okay – of those 4 items:
- Is the firm subject to unique regulation that impedes its business model?
- Does the firm provide an essential service?
- Does the firm compete against foreign State Owned Enterprises?
- Is the firm working to restructure its operations?
There is only one that government should worry about – that is number 1.
Even if we believed that Qantas offered an ‘essential’ service, Qantas hardly offers a unique service. I have no doubt that aeroplanes will the Australian skies – maybe not Qantas planes. Given the ubiquity of SOEs and (now) sovereign wealth funds the fact that an Australian firm is competing against an SOE or SWF controlled firm can hardly be a screening criteria.
Finally we get to the question of whether the firm is voluntarily restructuring. Firms that run into enough trouble to justify a massive restructure need to do three things:
- Get rid of the people who got them into trouble
- Fix the balance sheet
- Fix the income statement
Running to government is fixing the balance sheet. What are Qantas doing to fix their income statement. Here two things need to happen. They need to get paying customers and control costs.
Now if financial markets thought Qantas could fix its income statement, Qantas would have no problem raising the capital to fix their balance sheet. But, of course, for the Qantas sale act – that unique regulation that applies only to Qantas.
I don’t know if Qantas can ever get enough paying customers to be viable – the level of service they offer compared to the prices they want to charge seem out of kilter to me. But that is an open question. Alan Joyce does seem very smart and very sensible.
Joe Hockey should not be providing any assistance to Qantas except to repeal the Qantas Sale Act. To get the Parliament to agree to repealing the act he should explain the consequences of not repealing the act: No more Captains Club at the Canberra airport.