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STANDING COMMITTEE ON ECONOMICS
13/03/2007
Qantas Sale (Keep Jetstar Australian) Amendment Bill 2007

CHAIR —I welcome Mr Coe, who is speaking to us via teleconference from Sydney.

Mr Coe —My apologies for not being there in person.

CHAIR —We understand the short notice and are grateful that you have been able to join us. Do you wish to make an opening statement?

Mr Coe —I know that there have been quite substantial written submissions, but the points that we would like to reinforce are that the Air Navigation Act already applies to ownership of Jetstar and any suggestion that ownership control of Jetstar is a loophole under the Qantas Sale Act is not correct.

The second thing is that the jobs and maintenance issues in the bill are dealt with by the deed of undertaking that we negotiated with the government last week. We believe that this issue should be dealt with group-wide—and it is dealt with group-wide—in clause 5.5(g) of that deed of undertaking. We also believe that any approach needs to create equality of regulation with other Australian designated international carriers outside of Qantas. All we are asking for here is a level playing field with Virgin Blue or any other party that may become an Australian designated international carrier.

Finally, were the bill to proceed, then, as was stated in the Qantas submission, the definition of ‘associate’ is so wide that it would cause unintended consequences. They are the four points that I would like to make before we move to questions.

CHAIR —Could you expand on your concerns about the associated entity test being too wide and what implications that might have?

Mr Coe —To be honest, all I want to do is to reinforce what was stated in the Qantas written submission on that. We have nothing further to add.

CHAIR —And in your submission as well.

Mr Coe —Yes, in the last section of our written submission as well.

CHAIR —It would probably still be useful for you to reiterate those points if you wish to do so.

Mr Coe —Sure. I will just refer you to the relevant parts of our submission, which are paragraphs 3.2, 3.3, 3.4 and 3.5. What we would seek is that if there were to be references to ‘associated entity’ they should be removed and replaced with a reference to Jetstar Airways Ltd.

Senator FIELDING —APA states in its submission that foreign ownership of Jetstar is already prevented by the Air Navigation Act and by government foreign investment policy.

Mr Coe —Correct.

Senator FIELDING —Are those restrictions the same as those in the Qantas Sale Act or are the foreign ownership protections in the Qantas Sale Act and in the bill that we are considering more comprehensive?

Mr Coe —The ownership test under the Air Navigation Act places a 49 per cent restriction on foreign ownership of any ‘Australian international airline’, which is effectively an airline other than Qantas that is designated by the Australian government to operate a scheduled international air service. That absolutely mirrors the requirement for there not being more than 49 per cent foreign ownership. The Air Navigation Act replicates what is in the QSA.

Senator FIELDING —Is what is in the Qantas Sale Act as far as foreign ownership goes more comprehensive than what is in the Air Navigation Act? Yes or no.

Mr Coe —As far as ownership is concerned, the 49 per cent test is the same.

Senator FIELDING —Are you aware that the Qantas Sale Act has further restrictions on foreign ownership that are different to those in the Air Navigation Act?

Mr Coe —The additional ownership restrictions that apply under the QSA are relevant for Qantas. They have already been stated to be absolutely fully supported by APA, and we will comply with those. That is stated in our deed of undertaking.

Senator FIELDING —When people say that there is no need for the Qantas Sale Act to apply to Jetstar because Jetstar is covered by the Air Navigation Act—

Mr Coe —With respect to ownership. I will add that.

Senator FIELDING —But with regard to the stricter conditions on foreign ownership, what is covered in the Qantas Sale Act does not apply to Jetstar.

Mr Coe —I misunderstood the question.

Senator FIELDING —The Qantas Sale Act has some conditions on foreign ownership that the Air Navigation Act does not have in it. Are you aware of those conditions?

Mr Coe —If you could give me those, that would be much appreciated.

Senator FIELDING —Interesting. One condition is that it is not permitted for any one foreign person to have relevant interest in shares in Qantas that represent more than 25 per cent of the total value of the issued share capital of Qantas. That is not in the Air Navigation Act.

Mr Coe —As I said before, the issue is total foreign ownership. The question of whether Jetstar can or cannot become a foreign controlled entity is governed by the Air Navigation Act. The various incremental issues with respect to individual and group ownership and the issues around FATA, which also apply, to ensure that associates are not able to in voting terms have more than 40 per cent are all applicable to Qantas, and they are all things that we have said in our deed of undertaking that we will comply with.

Senator FIELDING —All right, I think I will simplify it. The Air Navigation Act has different restrictions on foreign ownership than those covered in the Qantas Sale Act. It does have the full 49 per cent limit, but it does have other restrictions. Obviously you may not be as familiar as others are with those extra conditions in the Qantas Sale Act placed on foreign ownership.

Mr Coe —Fine.

Senator FIELDING —The APA submission states that the legislation is not required because a deed of undertaking has been signed between the APA and the Commonwealth government. But given that the deed is a private contract that may or may not be enforced by the government and lapses when the APA sells off Qantas, how can that be compared with legislation?

Mr Coe —From APA’s point of view as a consortium, we have agreed, for the term of our ownership of Qantas, to the undertakings which are set out in clause 5.5 and to all of the provisions that are set out in clause 5.1. To the extent that those undertakings are in addition to the current legislative requirements imposed by the Qantas Sale Act, there is a positive reinforcement, restatement and categorisation of our commitments to both Qantas and Jetstar in those two clauses.

Senator FIELDING —But those conditions that are in the trust deed placed additional requirements on Jetstar because the Qantas Sale Act clearly does not cover Jetstar. The bidders have acknowledged this fact and have put a trust deed in place that covers Jetstar to have similar conditions in a trust deed that expires when the agreement expires, when it is sold again. Quite clearly it is not like legislation that goes in perpetuity.

Mr Coe —Senator, as you would understand, we can only give covenants and undertakings with respect to our period of ownership. We are very happy to have given those undertakings, and we have given much greater protection in those undertakings than exists at present.

Senator FIELDING —It seems to me that this trust deed is like a lollipop that makes you feel good for five minutes, but after it is sold again all of a sudden we are exposed again.

Mr Coe —It is a deed of undertaking, by the way, not a trust deed.

Senator FIELDING —How can a private agreement between two parties trying to avoid a political problem compare with the legislation we are considering, which is designed—

CHAIR —Senator Fielding, I do not think that is an appropriate way to frame that question. I know what you are getting at, but you are asking this witness to comment on political matters. That is the implication of your question. I think it could be rephrased.

Senator FIELDING —All right. How can a private agreement between two parties trying to enforce conditions on Jetstar compare with this legislation?

Mr Coe —Once again, I can only speak for our intentions, and they are clearly to grow Qantas and to grow Jetstar. We are happy to undertake, in any deed of undertaking which is enforceable—it is an enforceable document—that we will do exactly that. To the extent there are shortcomings in the legislation with respect to matters that were affecting the government, we gave undertakings in those two clauses that I have drawn your attention to with respect to what we will be doing as far as keeping jobs and maintenance in Australia and as far as having the principle operations of Qantas and Jetstar and the Qantas Group in Australia.

Senator FIELDING —Isn’t it true that the deed of undertaking signed by APA and the Commonwealth government just restates current legislation and does not address the full scope of the bill we are considering today?

Mr Coe —We have commented already on the ownership issues. As far as we are concerned, we believe that 49 per cent maximum ownership is enshrined in that. As far as the other elements of the deed of undertaking are concerned, a review of those two clauses, in 5.1 and 5.5, absolutely indicates the additional undertakings we are giving. As I said before, they are in addition to what exists at present under the Qantas Sale Act. We cannot do more than undertake what we are prepared to do with respect to the period of our ownership. It is not for me to comment on the accuracy or inaccuracy of legislation. It is up to me, on behalf of the consortium, to comment on what our intentions are and how we intend to grow Jetstar and Qantas.

Senator FIELDING —On the comments we just heard, isn’t it true that if APA sold Qantas to an Australian buyer at some time in the future, that buyer would not be covered by the deed and could send operations offshore?

Mr Coe —That would depend on the terms of the sale, obviously.

Senator FIELDING —But it is clearly possible.

Mr Coe —Senator, anything is possible in the world.

Senator FIELDING —If you put it in the Qantas Sale Act and you amend it, then that part is not possible. Isn’t it true that for APA to ensure that its highly leveraged Qantas delivers a good return, APA has to make Qantas grow and that the best way to do that is by expanding Jetstar at the expense of Qantas, because you can relocate operations and jobs offshore and the deed will not stop you doing that?

Mr Coe —There have been many comments made by Geoff Dixon and his management team on this. Our intention is to grow Qantas and Jetstar to give the Australian travelling public the opportunity to travel to tourist destinations, particularly into Asia, where they cannot currently travel. That is our intention. Anything else that is read into it is up to the individual perception of the person who holds that opinion, but it is not the stated intention of APA and it is not the stated intention of current Qantas management.

Senator FIELDING —Why would APA choose a deed over legislation unless that deed gives APA a particular advantage over legislation?

Mr Coe —We have heard in various media reports as to the power of the APA group but we do not have the power to demand legislation. The only possible way we could undertake anything here was by an enforceable legal document.

Senator FIELDING —So you are not opposed to the Family First bill that puts it in legislation about Jetstar being covered by the Qantas Sale Act? Quite clearly, the trust deed covers a key provision of that service operations and maintenance, which is in the Qantas Sale Act. Why wouldn’t you put that particular condition in the Qantas Sale Act? Is there any reason why APA would not support that?

Mr Coe —We just do not think it is necessary because we have already given those undertakings. It is as simple as that.

Senator FIELDING —If you do not think it is necessary and you agree to put it in the trust deed that only applies to the current deal, then I cannot see why you would not support it in perpetuity—in other words, in legislation.

Mr Coe —Once again, going back to my earlier comment, to the extent that any specific legislation can have the unintended intention of fettering the ability of Jetstar International to grow, you are not creating a level playing field. If Virgin Blue or any other designated international carrier is not subject to the same constraints, it is not a fair and level playing field. It is as simple as that.

Senator FIELDING —You would say on that basis that the Qantas Sale Act should not be in place and we should remove the Qantas Sale Act and just have the Air Navigation Act?

Mr Coe —No, of course not.

CHAIR —Senator Fielding, I do not think that is relevant. That is not what the witness said.

Senator FIELDING —If that is not the case, why wouldn’t you make it apply to Jetstar? Quite clearly, APA is concerned about this issue. That is why you have agreed to have it in a trust deed, but that only takes care of it, if at all, while the current owners are in place but when it is sold off by you those commitments disappear.

Mr Coe —We have committed to what we can do during the term of our ownership. It is impossible for us to commit to anything beyond that period. We cannot do that.

Senator FIELDING —You could by supporting the amendment to the Qantas Sale Act that includes Jetstar.

Mr Coe —Once again, that is not for us to comment on.

Senator FIELDING —Qantas said earlier today in the hearing that workers’ jobs are under review. Are their jobs threatened?

Mr Coe —If I can draw your attention to the relevant clause in our deed of undertaking, which is clause 5.5(g), that is the specific undertaking that is given by APA. I will not read it; it is there for all to see. I can read it, Chair, if it is not available.

Senator FIELDING —Do you accept that job security is an important issue?

Mr Coe —The way to ensure job security is through growth of the airline. Geoff and his management team have stated that. At the APA level we have stated that. No business has ever been shrunk to greatness, and it is not the intention of the APA consortium to do anything other than grow both the product offering and the availability of jobs for Qantas and Jetstar.

Senator FIELDING —How do you think Qantas and Jetstar workers should feel about the reported comments of the Qantas CEO, Geoff Dixon, that workers should feel grateful to have a job?

Mr Coe —I am not sure I can comment on that.

Senator WEBBER —When the representatives of Qantas were before us they gave us a list of other subsidiaries that Qantas has, not just Jetstar. As someone from Western Australia who does a fair bit of regional travel I therefore use Qantas Link. Does this deed of undertaking cover all the subsidiaries or just Jetstar?

Mr Coe —To the extent that we refer to the Qantas group in the deed of undertaking, it is a reference to the whole of the Qantas group, including all subsidiaries. I think you are referring to the specific clause 5.1(h), which ‘requires that of the facilities taken in aggregate, which are used by the Qantas group which includes Qantas and Jetstar airways.’ That would include Qantas Link as well.

Senator WEBBER —Whilst there is obviously some anxiety and some community concern out there, this is an issue that we are all doing our best to grapple with, following due process. It is our role as senators to deal with whether there is a need for legislation, rather than a business entity’s role to determine whether we should legislate for something.

Mr Coe —Absolutely.

Senator WEBBER —Thank you.

Senator BERNARDI —If APA sought to sell Qantas and/or its subsidiaries in future years, it would still be subject to the Air Navigation Act and the Foreign Acquisitions and Takeovers Act and a future government could ask for other conditions to that sale, just as they have with this proposed takeover. Is that correct?

Mr Coe —Correct.

Senator BERNARDI —So any additional conditions could be requested after ascertaining the economic environment both at a macro and a domestic level—is that correct?

Mr Coe —Yes, just as we have done.

Senator BERNARDI —In your opinion would that be a more flexible instrument than placing legislation?

Mr Coe —It would certainly allow the government of the day to react to the then appropriate issues, yes.

Senator BERNARDI —Thank you.

CHAIR —Under the Qantas Sale Act my understanding is that there is no requirement for, and no mention of, regional services and the support for regional services—is that right?

Mr Coe —I do not believe there is a specific reference in the QSA.

CHAIR —But under the deed of undertaking there is?

Mr Coe —There is. I draw your attention to subparagraph (f) in clause 5.5.

CHAIR —Yes.

Mr Coe —We state:

the Qantas Group will support regional capacity growth and regional network improvement in line with market needs;

CHAIR —Thank you.

[10.09 am]