In recent weeks, the troubled airline QANTAS
has declared significant planned redundancies,
failedinanattempttosecuregovernment
backingandhasbeensubjectto muchmediaspeculationaboutitslongtermstrategyandleadership.
Thesharepriceofthecompany
hascontinuedtoslideandasat12Marchstoodat$1.09 per
share.Thecompanyhasfailedtodeclareadividendtoordinary
shareholderssinceJune
2009.Thetablebelowdemonstrates this
declineinshareholder valueinrecentyearsas measuredbythecompany’sshareprice.
Early in
2014, Qantas
was
downgraded
by Moody’s,
its
senior, unsecured rating
being reducedtoBa2(barelyaboveJunkstatus),witha
negativeoutlook.Qantasrequestedthe AustralianGovernmentprovidea guaranteebehindQANTAStoshoreupitsabilitytoaccess debtcapital.TheAustralianGovernmentdeclinedthisrequestbuthasdeclaredanintention
torepealpartoftheQANTAS Sale
Acttoallowgreater
overseas ownership
inQANTAS. Thismovehaspassedthroughthelowerhousebuthasyettopassthroughtheupperhouse oftheAustralianparliament.
QANTAS’sargument
isthatithasnothadalevelplayingfieldforaccessingcapitalrelative to
otherAustralianoperatorsand,therefore,itscostofcapitalis higherandit
islessableto compete
withdomesticcompetitors.
Assignment
InvestigateandestimatebothQANTASandVirginAustralia’scostof capitalasattheendof June2013andcommentonwhetheryourestimatessupportQANTAS’sclaimof anuneven playingfield.
Discussthefinancial
implications forQANTAS
andtherisksfortheAustralian
public(i.e. QANTAScustomersandtaxpayers)
ofbothpossiblecoursesofaction,i.e.debtcoverage guaranteeanda
moreopenownershipstructure.Includeinyourdiscussion,three(3)other examplesoffinancialandgovernance relationships betweenothercountries’governments
andtheirnational,flagshipairlinesandhowthesemayhaveresultedintheperception
of an uneven playing
field in
the Australian aviation market.
Your
example airlines should be selectedfromthosethathavesomefinancial
linkwiththeirnationalgovernmentor sovereign wealthfund.
Conclude
byexpressing
yourview,withjustifications,
onthecourse
ofaction youwould favour to reduce
any
unfair disparities
in
access to
capital and
cost of capital in the Australianaviationmarket.
