Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard   

Previous Fragment    Next Fragment
Wednesday, 4 November 1992
Page: 2588


Mr WILLIS (Minister for Finance) (5.21 p.m.) —I move:

  That the Bill be now read a second time.

The proposed sale of Qantas Airways Ltd is an important part of the Government's extensive program of reform of the Australian aviation industry. From 1988 on, the boards of directors for both Qantas and Australian Airlines had repeatedly raised with the Government the question of their being given greater access to equity capital. The airlines were weighed down by grossly un-commercial debt to equity ratios at a time of rapid business expansion. The Government therefore had to face up directly to the question of whether or not to invest a large amount of funds in the airlines and, if so, to then forgo expenditure in other higher priority areas as a consequence.

  Faced with this choice, the Government decided in September 1990 to sell 100 per cent of Australian Airlines and 49 per cent of Qantas. In doing so, the Government recognised that, in the particular circumstances prevailing in the aviation industry, many of the benefits that are thought to come from public ownership in the sector could still be achieved under private ownership. Shortly after that decision was taken, the Government introduced the successful de-regulation of domestic aviation, which has seen unprecedented numbers of people flying at markedly reduced fares.

  After a detailed `scoping study' of the various sales options open to it, the Government announced in April 1991 that the sale of each of Qantas and Australian Airlines would proceed on the basis of an initial `trade sale' process—thereby offering large prospective purchasers the chance to acquire a significant equity interest in either or both airlines at a premium—followed by a public float to sell any remaining equity. As a result of the respective sales processes, both airlines would be appropriately recapitalised and suitable employee share ownership schemes would also be introduced.

  Subsequently, in the One Nation statement made to Parliament by the Prime Minister (Mr Keating) on 26 February 1992, further far-reaching aviation reforms were announced. The statement established the framework and timetable for removing the barriers between Australia's domestic and international aviation sectors, permitting multiple designation of Australia's international air services, and for developing a single aviation market with New Zealand.

  The sale process involved submission of expressions of interest from prospective trade buyers, with indicative non-binding bids. From this it became clear that a number of prospective purchasers, as well as Qantas and Australian Airlines themselves, believed that substantial synergistic benefits and operational efficiency gains could be achieved if Qantas and Australian Airlines were to be combined into a single entity.

  Accordingly, on 2 June 1992 the Government announced that Qantas would be permitted to acquire Australian Airlines for $400m, thus providing the best mechanism for quickly achieving the synergistic benefits offered by a link-up between the two airlines, to the overall financial advantage of taxpayers generally. The Government also announced then that 100 per cent of the expanded Qantas group would be sold—rather than 49 per cent, as originally decided—with the community's interests being protected by a number of national interest safeguards.

  The artificial distinction between domestic and international aviation has largely been broken down. At the same time, Qantas has acquired a local aviation network and secured a strong domestic base for its international operations in future through the acquisition of Australian Airlines.

  The Bill now before the House contains the legislative changes that need to be made to enable the sale of Qantas to be finalised, taking into account all possible outcomes, including the fact that varying levels of ownership could be sold during the current `trade sale' process prior to the ensuing public float next year. The Bill also reflects key sale requirements relating to the national interest safeguards required with the sale of 100 per cent of Qantas, the recapitalisation of Qantas, the reconstruction of its debts in preparation for the impending change of ownership and the terms and conditions of employment for its staff. The vast bulk of the Bill is concerned with the removal of both airlines from the ambit of a variety of Commonwealth legislation so that, post sale, the expanded Qantas group will be treated the same as other private sector enterprises generally.

National Interest Safeguards

  The fundamentals of the national interest safeguards, referred to earlier, need to be enshrined in legislation.

These safeguards are important to maintain the basic Australian character of Qantas, as well as to ensure that Qantas's operating rights under Australia's various bilateral air service agreements and arrangements with other countries are not put under threat. Once in legislation, these safeguards will not be subject to the whim of the Government of the day.

  Thus, the Bill requires that Qantas's Articles of Association must contain provisions which will ensure that: Qantas's main operational base and headquarters remain in Australia; that the name of Qantas is preserved for the company's scheduled international passenger services; that the company be incorporated in Australia; that at least two-thirds of the board of Qantas be Australian citizens; that the chairman of the board also be an Australian citizen; and, in particular, that total foreign ownership is not to exceed 35 per cent.

  The Bill will also require Qantas's articles to specify that no single foreign interest can exceed 25 per cent of the equity of Qantas. Qantas's articles will be required to provide directors with wide powers to act, including to deny registration or to force the disposal of shares held by foreigners, to ensure the 35 per cent foreign ownership limit and the 25 per cent limit on single foreign interests are not breached.

  The Bill requires that a restriction apply to any `block' shareholdings of foreigners representing more than 15 per cent of the voting shares in Qantas. All such foreign block share holdings, either individually or in aggregate, will not be able to vote on more than one-third of board members.

  The directors of Qantas have a clear commercial incentive, as well as a moral and legal duty, to adhere to the specific new articles that the Bill requires. The Bill ensures that any attempt by shareholders to change the articles required by the Bill can not have any effect. In addition, specific provision is made in the Bill for the Minister for Transport and Communications to monitor the level of foreign ownership and control of Qantas in future and to take appropriate legal action in the event that the stipulated national interest safeguards are breached or seem likely to be breached.

Debt and Capital Reconstruction

  Consistent with the rationale for the sale of Qantas, the Bill provides the basis for the recapitalisation of Qantas. It is important to note that the Government intends to remove the substantial amount of Commonwealth-guaranteed debt in Qantas's existing debt portfolio, prior to sale.

  Apart from the important question of principle involved, the Commonwealth cannot countenance the possibility of its still being potentially liable for over $1 billion of Qantas's debt once control of the airline shifts to the private sector. This would be tantamount to the Commonwealth retaining a major stake in the company despite its 100 per cent sale.

  Only a small amount of the Commonwealth-guaranteed debt is able to be paid out up-front because it is in the form of widely held bearer bonds. Thus, the Bill allows the Commonwealth to assume the obligations and to make all the necessary payments, including the payment of interest and the repayment of principal, associated with this debt as they become due and payable. It also appropriates the funds required to meet these obligations. At current exchange rates, the face value of the Commonwealth-guaranteed debt is about $1.1 billion and the associated interest payments total about $500m. Qantas will pay the Commonwealth to assume this debt.

  To enable Qantas to do this, the Bill provides sufficient appropriation for Qantas to receive a subscription to share capital from the Commonwealth of an amount at least equal to the face value of the debt to be taken over by the Government, at the exchange rates prevailing at the time of the debt assumption.

  In fact, the Bill provides for a total appropriation of up to $1.4 billion to cover possible subscriptions to Qantas's share capital in order to allow for adverse movements in exchange rates between now and the time of assumption of the Commonwealth-guaranteed debt. It also provides scope for a separate share subscription to be made to Qantas for recapitalisation purposes should that be needed. This could conceivably involve discharging other Qantas debt as part of the debt restructuring required prior to sale.

  Short term Commonwealth guarantees are also allowed for in the Bill to cover possible contingencies, particularly in relation to the refinancing of the short term commercial paper program of Australian Airlines prior to a 100 per cent sale.

  The Bill provides for a debt assumption of up to $300m should it be considered necessary or desirable to neutralise any effect of the debt restructuring on the profit and loss account. This will cover the worst case scenario. At current exchange rates, the net loss to Qantas's profit and loss account would be less than $100m.

  To the extent that the takeover of some of Qantas's debts by the Commonwealth—including any payment made to neutralise an undue effect on Qantas's profit and loss account—would result in an excessive recapitalisation of Qantas, a special one-off dividend payment or a refund of capital to the Commonwealth could be sought from Qantas before the sale is finalised. Alternatively, if the net recapitalisation effect of the debt assumption by the Commonwealth is not sufficient, new Qantas shares could be sold, along with the Commonwealth's existing shares, or the general share subscription provisions in the Bill could be used to meet this need.

  It is important to emphasise that any recapitalisation of Qantas that is effected by the Government during the sale process will be fully recouped in increased proceeds from the sale of the Commonwealth's equity in Qantas. There will, therefore, be no net impact on the Budget from these debt and recapitalisation provisions over time.

Terms and Conditions of Employment

  The Government is committed to the protection of all airline employees' rights which accrue during the period of Government ownership, especially in cases where these rights accrue as a result of Commonwealth legislation.

  To this end, the Bill provides for a number of savings provisions in respect of a variety of Acts, such as the Long Service Leave (Commonwealth Employees) Act and the Commonwealth Employees' Rehabilitation and Compensation Act. These provisions will ensure, in particular, that employees of Australian Airlines do not lose the benefits that they will have accrued prior to the sale of at least 50 per cent of Qantas.

  In general, other rights not conferred by Commonwealth legislation will not be affected by the sale. Regulations will be separately introduced under the Superannuation Act 1976 to ensure that employees of Australian Airlines who are currently members of the Commonwealth Superannuation Scheme do not lose the superannuation benefits that they will have accrued under this scheme prior to the sale of 50 per cent of Qantas.

  Necessary savings and transitional provisions relating to other Commonwealth Acts in respect of matters which are under way at the time of sale are also contained in the Bill.

General Legislative Provisions

  As part of the Government's commitment that Qantas should operate within a fully commercial environment as soon as possible, the airline is to be freed from all legislative constraints which apply generally to Commonwealth business enterprises, once a sufficient amount of equity in Qantas has been sold. Provisions for this are largely contained in the schedule to the Bill. Employee-related legislation aside, the proclamation to effect the cessation of such legislation will be made when sufficient equity in Qantas has been sold. As noted previously, the application of special employee-related legislation to Qantas will not be removed until at least 50 per cent of its equity has been sold. These provisions necessarily lead to special commencement arrangements. Details are contained in the explanatory memorandum.

  Honourable members should not be concerned on public accountability grounds at the prospect of the Commonwealth being in the position after the trade sale of retaining a majority shareholding in Qantas, pending the ensuing public float, but having removed most of the Government administrative controls and legislative provisions currently applying to Qantas as a Commonwealth Government business enterprise.

  For so long as the Government retains a majority shareholding in Qantas, it will require specific articles to be included in Qantas's articles of association in order to discharge its responsibility to the Australian public for its continuing, but transitory, majority ownership of Qantas. The Government would in any event have the reserve power, which would only be exercised in very limited circumstances in the transitional period prior to full sale, of using an ordinary resolution at a general meeting to protect the community's investment in Qantas in the lead-up to full sale.

Stamp Duty Exemptions

  The sale of Qantas and, in particular, the anticipated public float could leave purchasers of equity in Qantas liable for certain State and Territory taxes. In the absence of other action, this would depress the expected returns to all taxpayers throughout Australia from the sale of Qantas and benefit taxpayers in a particular State only. It would also complicate the sale process. To avoid these difficulties, the sale or issue of shares in Qantas and related transactions, as well as all transactions entered into in relation to the necessary debt and capital reconstruction of Qantas prior to sale, are to be exempted from most State and Territory taxes and duties.

Conclusion

  Mr Deputy Speaker, this Bill puts in place a sound legislative framework for the sale of Qantas, against a background of major aviation reforms. It will enable the Government to cater for a number of possible eventualities and to finalise the sale of Qantas in due course in a manner which will maximise the financial advantages to taxpayers generally. I commend the Bill to the House, and I present the explanatory memorandum to this Bill.

  Debate (on motion by Mr Downer) adjourned.