Qantas issues plea for govt intervention after loss warning

Reuters

* Carrier warns of H1 pre-tax loss of A$250-300 million

* 'Market deterioration' prompts 1,000 job cuts

* Seeks government action as shares slide to 16-month low

By Jane Wardell

SYDNEY, Dec 5 (Reuters) - Qantas Airways Ltd putfresh strain on Australia's 'open for business' credentials onThursday, calling for government support after shockinginvestors with a loss warning.

As the national carrier's shares plummeted as much as 17percent, Chief Executive Alan Joyce said he placed calls togovernment ministers seeking urgent action, complaining thatrival Virgin Australia Holdings Ltd's access to foreignfunding has created an unfair playing field.

Virgin Australia "should not have the benefits conferred byan Australian carrier designation when it has only 20 per centAustralian ownership," Qantas said in a statement.

After Qantas warned it expects an underlying pre-taxfirst-half loss for the first time ever, analysts saidgovernment support for the formerly state-owned carrier wouldprovide an obvious financial solution to the airline's woes.That could come via a share purchase, or ownership of Qantas'sloss-making international division.

But they said lawmakers may be reluctant to answer Joyce'scall after charges of protectionism followed the government'sblock on U.S. agribusiness giant Archer Daniels Midland's A$2.8 billion ($2.5 billion) offer for Graincorp.

"Turning Qantas public again by a share purchase buybackwould look very, very poor from a protectionist standpoint,"said IG markets strategist Evan Lucas. "The government isalready struggling to maintain its 'open for business' stanceafter blocking the GrainCorp deal."

On Thursday Qantas said it would accelerate a cost-cuttingprogramme following a "marked deterioration" in marketconditions, axing 1,000 more jobs as it braces for an underlyingpre-tax first-half loss of between A$250 million and A$300million.

"The challenges we now face are immense," CEO Joyce said,noting Virgin Australia's move last month to tap its majorityowners, Gulf carrier Etihad, Singapore Airlines andAir New Zealand, for A$350 million to add capacity andlift service levels.

Treasurer Joe Hockey cited national interest grounds when helast week prohibited the takeover of GrainCorp following strongopposition from local grain growers. International lawyers andbankers who work in mergers and acquisitions said the decisionwas likely to spook foreign investors who already think pushingthrough a deal in Australia is tough.

Qantas's Joyce has hinted he would like the government toeither provide support through subsidies or tax breaks, or moveto limit Virgin Australia's foreign ownership.

But, acknowledging last week that Qantas is in "regulatoryhandcuffs", Treasurer Hockey appeared to lean toward opening upforeign investment avenues, rather than increased governmentsupport.

Hockey's spokesman Tony Ritchie declined to comment onspeculation about government intervention on Thursday, addingthat the treasurer had an open mind about the options on thetable.

LOSING ALTITUDE

Convincing taxpaying voters of the merits of wading in tosave the loss-making airline is likely to be a hard task,particularly after high-profile government support for thedomestic car manufacturing industry failed to stop it hittingthe skids.

Ford Motor Co is shutting its two Australian autoplants in October 2016, while General Motors Holden, the localunit of General Motors Co, has cut its workforce and saidits presence is dependent on government support.

"The government is loath to buy assets," said Tony Webber,an associate professor at the University of Sydney BusinessSchool and a former Qantas economist.

"They've got themselves into trouble assisting the carindustry, and so it's going to be hard for them to win overvoters in terms of trying to find a voice for assisting theairline industry."

Qantas, which earlier this year signed an alliance withDubai-based Emirates Airlines, claims it is hamperedby laws introduced when it was privatised two decades ago thatcap its foreign ownership at 49 percent and bar governmentsupport.

The carrier said on Thursday the outlook for the second halfof the year "remains volatile" and declined to provide furtherguidance, citing uncertainty in global economic conditions, fuelprices and foreign exchange rates.

Group capacity is expected to rise 1.1 percent in the firsthalf, leading to a 3.5 fall in group yield, excluding foreignexchange movements. Underlying fuel costs are expected to jump68 percent to A$2.27 billion.

As well as 1,000 job cuts within 12 months, the accelerationof the cost reduction program - aimed at total savings of A$2billion over three years - includes a pay cut for Joyce and theboard, a pay freeze and no bonuses for executives, and a reviewof spending with the airline's top 100 suppliers.

Qantas also launched a review of all planned capitalexpenditure and potential structural changes, saying no optionswere excluded. It has already cut unprofitable internationalroutes, shed jobs, reduced capital spending and sold assets tocut debt.

Those measures had helped Qantas's more than double itsunderlying profit to A$192 million for the most recent financialyear.

Shares in Qantas were down 11 percent at A$1.08 in afternoontrade, after touching a 16-month low at A$1.00.

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