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Privatisation of Australian Airlines and Qantas will enable them to raise funds and reduce debt-to-equity ratio

RICHARD PALFREYMAN: Well, as Ted Harris said, the Cabinet decision to sell up to 49 percent of both Australian Airlines and Qantas, will give them more flexibility in raising capital. For years, the Government airlines have operated under the constraints of the Federal Loans Council, which has seen their capital structures deteriorate. For example, Qantas has a debt to equity ratio of 85:15, while their competitors operate on more conservative ratios of around 60:40. David Pembroke reports from Sydney that the big question now is which companies will buy into the airlines?

DAVID PEMBROKE: Despite the cautious public welcome of Cabinet's decision by the executives of the two airlines, privately, they're delighted. Both have spent a considerable amount of time and energy in convincing the Left wing of the Labor Party and the unions of the merit of at least partial privatisation. The only grey area now is finding out just how much of their airline can be sold. Both would like the full 49 per cent, but the Prime Minister, last night, warned it would be incorrect to assume the situation would be the same for both airlines. Be that as it may, anything as far as the airlines are concerned is better than the current position. As the airlines operate in separate markets, their requirements are different. But, for both, the move to partial privatisation means greater flexibility in raising capital. As wholly owned government enterprises, their growth suffered from the constraints of the Federal Loans Council. But now, through partial privatisation, the government has given them the alternative to meeting their capital requirements, which in the case of both airlines, are significant. Qantas has undertaken a major expansion of their fleet which their chairman, Bill Dix, estimates will cost them between $400 and $500 million in the next two years. So, who will provide the money and become the shareholders in Australian Airlines and Qantas? I put that question to Richard Green, the Director of Airline Services of Chartered Accountants, Deloitte Ross, Tohmatsu.

RICHARD GREEN: Well I think you'd find that other international airlines would be keen to have some interest in Australia. Airlines are looking for marketing type of alliances and sometimes it's quite good to support those marketing alliances with an ownership interest and the airline with whom you have the alliance.

RICHARD PALFREYMAN: Would the airlines interested be the same for both Qantas and Australia, or would it be likely that there would be different airlines involved?

RICHARD GREEN: I think that it would be likely that they might be different. From the standpoint of the domestic carrier, I think you might see carriers like British Airways and United Airlines might be looking for a link with a domestic carrier in Australia, while in terms of Qantas, those two compete very heavily with Qantas and perhaps would not be as likely as might for Qantas like Lufthansa perhaps, and American Airlines might be more interested in Qantas.

RICHARD PALFREYMAN: Well how attractive are the airlines on the international market?

RICHARD GREEN: I think they're very attractive from the standpoint that in the global airline world, we're seeing marketing alliances where airlines try to link their route systems all around the world, and having a link-up with a carrier in the Asia Pacific region would be quite important to carriers like American United, British Airways, Lufthansa and others that I've mentioned.

RICHARD PALFREYMAN: Is there any chance, do you think, that the Australian public will be able to get their hands on some of the equity of Australian Airlines and Qantas?

RICHARD GREEN: I would think that would be important from a fundraising for the airlines. There are some significant fundraising needs and whether that can all be generated by other airline industry or not, I have some doubt. I think the public would have an opportunity and I think it would be a good idea. I think also, staff and management in the airlines, it's important that they have a stake in the equity.

RICHARD PALFREYMAN: Is there anybody else who might be interested in a stake in the airlines?

RICHARD GREEN: Well, it's early days, but I can imagine that perhaps other transport companies might be interested in the air transportation side here, a market that they have previously not had an opportunity to invest in. Also, institutions and possibly some of the funds might have an interest, depending on the overall capital requirements that will attempt to be raised.

RICHARD PALFREYMAN: Richard Green from Accountants, Deloitte, Ross, Tohmatsu.